Lasting Powers of Attorney: Gifting and Managing Funds for Others
Attorneys Gifting Under An LPA
The law says that under an LPA, an attorney can only make modest gifts on customary occasions (like birthdays, anniversaries, Christmas). Importantly, the overriding principle is that any gift should be in that person’s best interest.
More significant gifts can be made via a Court of Protection application; however, this is where prior professional, independent financial planning is critical. The whole financial situation of the person needs reviewing. Does the gift trigger tax (perhaps a capital gains tax liability, and then also inheritance tax (IHT) when the person dies). Is the person paying for care or likely to need to pay for care? What are the other likely financial goals and objectives of the person making the gift.
What does the Will say? It is important that any gifts are aligned with the Will. Gifts are obviously more reasonable if they are gifted to beneficiaries of the Will. For example, it would perhaps not be unreasonable to accelerate a gift to the Grandchildren that would have inherited anyway on death – as long as the gift fits into the person’s current financial planning and affordability.
The bigger financial planning picture is important. Usually, any gifts over and above the ‘customary occasions’ described above require a Court of Protection application. Any application will ask whether the donor can afford it, was IHT planning expected, is there any reason why they wouldn’t make that gift? All of these and more are areas that the independent financial planner can help with.
Letter of Wishes
This is a separate and signed and dated document reviewed and updated at your annual review. It needs to be kept safely and securely alongside (but not attached) to your legal documents and financial planning paperwork. In short, ensure it needs to be readily available and can be found!
When making a Court of Protection gifting application it is important to know that the side Letter of Wishes will be sent along with the rest of the application and can be read out at court. And so, keep it direct and professional.
To help with the Court of Protection gifting application, any Letter of Wishes should explain your gifting objectives, history and patterns. It should indicate any triggers for such a gift, like if the property were to be sold meaning cash would be available. Who should the gifts go to? Children, Grandchildren? In what proportions and why? Is there a discrepancy between who is being gifted to in lifetime in the Will and why? Is there an IHT motivation to the gift like bringing an estate under the £2m threshold for the Residence Nil Rate Band?
Here our financial planning review reports will also help guide both you, the attorney and the court in establishing the goals and motives for the person who wants to make the gift.
Managing Someone Else’s Money Under An LPA
Firstly, it has to be remembered whose money it is. It’s what the owner wants, not the attorney. It’s what’s in the best interest of the owner. It’s the investment beliefs and objectives of the owner. We can write to the attorney but only in that capacity. Here it is really important to have those annual financial planning reviews where we will get a true understanding of the donor, the owner of the investments. Alongside this, a Letter of Wishes can further steer the attorney on the goals and objectives for the money.
Here the role of the financial planner is crucial in supporting and the attorney in managing the person’s money. Both in the short and long-term. What are the person’s financial goals? Is it care funding, planning and protecting assets from care costs and tiptoeing through the deliberate deprivation minefield. Is it organising tax free, ‘above board’ family carer payments for care.
Is equity release required to raise some funds on the family home? Many would like to stay at home and pay for care at home and equity release can be a useful tool for doing just that.
Is IHT planning important for the person? Do they have a history and affordability for gifting or making IHT efficient investments? This is often predicated by regular financial planning reports along with a comprehensive Letter of Wishes.
Perhaps providing for others like school fees, university and further education, weddings or providing for the spouse if you are going into care but you have the majority of the pension. Again, financial planning and a Letter of Wishes can help if needing to apply to the court.
Estate Planning Events
By taking a proactive approach to Estate Planning it is much more likely that your assets will be managed in lifetime and distributed on death in line with your wishes and values.
To help you understand these issues more clearly, we will be running a series of free Estate Planning seminars locally this June and July. These sessions will explore key elements such as Wills, LPAs and Trusts and explain how they work alongside your financial planning arrangements like inheritance tax, investment management and care fee planning.
Tuesday 23rd June - 2.30pm - 3.30pm - St Peter’s Church, Henleaze
Wednesday 24th June - 10am - 11am - Thornbury URC
Tuesday 30th June - 6pm - 7pm - Stoke Lodge, Stoke Bishop
Wednesday 1st July - 2.30pm - 3.30pm - St Peter’s church, Henleaze
Tuesday 7th July - 10am - 11am - Henleaze Bowling Club
Call 0117 3636 212 or email community@haroldstephens.co.uk to book your place.