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Court of Protection gifting – determining best interests

Court of Protection authorises interest free loan and annual gift to parents of P to purchase and adapt property in Pakistan for his benefit.

Another Court of Protection gifting case has been published, which illustrates the protective and creative approach the judge can take in determining what is in P’s best interests.

The Deputy’s Application

In Lomas (Deputy) v AK Judge Lush had to decide whether to allow a gift of £150,000 to be made from a young boy’s settlement money to his parents.  The purpose of the gift was to allow the parents to purchase a property for their son (€œAK€) in Pakistan and deal with the contractors on site to ensure that it was adapted to meet his needs.  The family spent part of each year in the UK and part in Pakistan, as AK benefitted from the climate and there were many more family members to assist with his care.

The Deputy felt that a gift would be the most practical and cost effective way of allowing the works to proceed.  If the Deputy had to obtain receipts for all the works and liaise with contractors, this would increase costs for AK, especially as the receipts would have to be translated.

The Official Solicitor’s View

The Official Solicitor was appointed to look at things from AK’s point of view, as is usually the case in statutory gift applications.  Counsel for the Official Solicitor was not satisfied that the Deputy had considered all the investment options that could be available for AK.  The Official Solicitor thought it would be preferable for the Deputy to purchase the land on behalf of AK or somehow acquire an interest in the land. That would protect AK better.

If this was not reasonably practicable, then the authorisation of a gift could be considered.  The Official Solicitor thought a gift should only be authorised if the Deputy had an assurance from the parents that the funds were to be used within a certain timeframe for the purpose of constructing and adapting the property for AK’s benefit.  If further time was needed, this could be extended by agreement.

The judgment

Judge Lush reiterated the law relating to statutory gifts and referred to the Deputy’s limited authority to make gifts as set out in the Deputyship Order.  The Deputyship Order only gives the Deputy authority to make gifts in line with those that attorneys can make under a Lasting Power of Attorney or Enduring Power of Attorney (see e.g.  Re GM): . Anything over and above this limited authority requires an application to the Court of Protection for approval.

The judge adopted the €œbalance sheet€ approach in weighing up the pros and cons of making the gift of £150,000.

Instead of making an outright gift, the judge authorised an interest free loan to the parents of £150,000, to be repaid by 10 yearly payments of £15,000.  One of the advantages of allowing a loan rather than a gift was that the parents were more likely to comply with the purpose for which the loan was made, due to the duty to make repayments.  Also, AK would retain the capital in his estate.  The Deputy was asked to draw up an appropriate loan agreement and the parents were advised to take separate legal advice on this.

Judge Lush further allowed the Deputy to make annual gifts of £15,000 to AK’s parents (provided that AK had enough surplus income to make these payments) to allow them to repay the loan.  He considered that these annual gifts would comply with Section 21 of the Inheritance Tax Act 1984 because they would be made:

(a)   as part of AK’s normal expenditure (he would need to pay for his accommodation and its adaptation in any event);

(b)   out of his income; and

(c)   he would be left with enough income to maintain his usual standard of living.

Judge Lush distinguished this case from an earlier judgment (Re JDS: KGS v JDS [2012]) where an application for a gift from a young man’s estate to his parents was not allowed because the purpose of the gift (inheritance tax planning) was not a purpose for which his award (clinical negligence damages) was intended.  In AK’s case, the principal purpose was not inheritance planning but rather to ensure that suitable arrangements were made to allow AK’s funds to be invested in a property.

Comment

This is another pragmatic and very creative judgment from Judge Lush, which shows that in some cases the Court of Protection will consider authorising a loan to family members from the protected party’s funds.  This is by no means a certainty, however, as the earlier case of Re JDS: KGS v JDS [2012] demonstrates. It is clear that the purpose of the loan is key, as well as P’s personal circumstances, including life expectancy, the level of P’s income and the assurance that the loan can be repaid.

For further advice on gifting applications in the Court of Protection please contact Anthony Fairweather.