Powers of attorney & gifts

A person, acting under an Enduring Power of Attorney, has a general remit to deal with the property and financial affairs of the individual donor for the benefit of that individual. The attorney is entitled only in limited circumstances to apply the donor's funds for the benefit of other persons.

Subject to any overriding conditions or restrictions set out by the donor in the instrument granting the attorney his powers, the attorney may make the following transfers

• Gifts which meet the needs of others where the donor might, himself, have been expected to provide for those needs. The emphasis is on the needs (not wants) of the recipient and requires the attorney consider the personality of the donor, his preferences and family circumstances etc., when considering gifts to meet the needs of other persons who the donor might himself, if he was mentally capable, have chosen to benefit. (section 3(4) Enduring Power of Attorney Act 1985 refers.)

• Gifts which are of a seasonal nature (Christmas presents, for example) or gifts made on the occasion of an anniversary, birthday or marriage, to persons related to or connected with the donor. Gifts made at any time to a charity which has been, or could be expected to be, favoured by the donor. The size of each gift must be reasonable having regard to all the circumstances and, in particular, the size of the donor's estate. (section 3(5) EPAA refers.)

Whilst such gifts will most likely attract the benefit of the small gifts, annual or charitable exemptions for inheritance tax, Re W [2000] 1 All ER 175 and McDowall v IRC [2004] STC (SCD) 22 confirm there is no automatic facility for the attorney to use his powers for the purposes of more general estate planning, undertaken with a view to mitigating the inheritance tax exposure on the donor's estate.

Rather, the attorney wishing to undertake such tax planning dispositions on behalf of his donor must first seek approval of the court, under section 8 EPAA. Where such planning extends to the attorney writing, or supplementing, the Will of the donor, the court will give consideration to the execution of a Statutory Will or Codicil under section 96 Mental Health Act 1983.

The Lasting Power of Attorney is introduced, by the Mental Capacity Act 2005, with effect from 1 October 2007. The LPA will replace the Enduring Power of Attorney and, in addition to conferring on the donor the facility to appoint an attorney to deal with his property and financial affairs, will also provide the means for the donor, if he so desires, to appoint a person to take care of the donor's personal health and welfare decisions.

Section 3 of the Enduring Power of Attorney Act 1985 is replaced by section 12 Mental Capacity Act 2005, and section 8 EPAA is replaced by section 15 MCA.