A son acting as an attorney for his mother, who has dementia and needs full time care, has been allowed to ‘give’ himself £6 million out of her £18.6 million estate to save inheritance tax when she dies.
The Court of Protection, which considers issues relating to people who lack the mental capacity to make their own decisions, also allowed gifts to a number of charities and a grandson, taking the total to more than £7 million.
The decision means an upwards of £2.5 million saving on inheritance tax as long as the woman lives for at least another seven years, as demanded by inheritance rules on gifting, but also leaves her with £10 million to pay for the cost of her ongoing care.
While the son’s move may, on the face of it, appear a little grasping, he had full backing from his mother’s financial adviser as well as the Office of the Official Solicitor which ensures people lacking mental capacity are protected and which represented her.
In a written ruling, Judge Carolyn Hilder said that although the son’s actions might be seen by some as “self-serving”, she was satisfied that the court application had “not been improperly sought”.
After carrying out a careful balancing exercise, she said she was also satisfied that the proposals were in the best interests of the mother.
Crucially, the fact that the woman’s representatives were able to satisfy the court that if she had not lost mental capacity, she herself would have considered making such gifts, played a key role in the decision to authorise them.
The woman, who cannot be named, is 72 and has dementia. She needs full time care.
In 2010, she made a Lasting Power of Attorney giving her son, her only surviving child, the power to manage her property and finances. She also has one grandson.
Seven-years-ago, she made a Will under which her son would inherit most of her estate. She also gave him permission to make ‘gifts’ to charities from her funds.
Her son latterly instructed lawyers to make an application to the Court of Protection with the primary purpose of mitigating the inheritance tax payable on her death.
Judge Hilder authorised all the requested gifts, considered the largest ever approved by the Court of Protection on behalf of a person without capacity:
She also approved what’s known as a statutory Will, the only way to make or revise a Will for someone lacking testamentary capacity, which added some additional provisions to her existing Will.
What do you need to know about gifting?
It is important to remember that there are strict rules about gifting and generally, an attorney is limited to only making ‘reasonable’ gifts on the person’s behalf on ‘customary’ occasions like weddings and birthdays.
Any gifts large enough to have an impact on inheritance tax will need to be considered by the Court of Protection which will look at a number of factors including:
In short, the individual facts of each case come under intense scrutiny. If someone had a long history of being financially astute and taking detailed financial advice before they lost capacity – as in the example we discuss in this article – then a gift to reduce the impact of inheritance tax on death is far more likely to be authorised by the Court of Protection.
Therefore, having a full understanding of a vulnerable person’s previous approach to tax planning and views on tax mitigation is vital when considering an application to the Court of Protection.
For advice on this complicated area of the law, and if considering a similar application to the Court of Protection to authorise the payment of gifts to reduce inheritance tax, please contact Wards Solicitors’ specialist Court of Protection team.