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A son, acting as an attorney, has been successful in his application to the Court of Protection to make a gift of £7 million from his mother’s estate, including a £6 million gift to himself. This is thought to be one of the largest gifts approved by the Court where a person lacks capacity.
The case of PBC v JMA & Others, heard earlier in the year but only recently made public, provides an interesting example of the considerations which the Court of Protection will take into account in lifetime gift applications.
The donor of the Lasting Power of Attorney (LPA) in this case was a 72 year old woman (JMA) who lacks mental capacity due to early onset dementia. JMA had previously executed an LPA appointing her son (PBC) as her sole attorney.
As a result of JMA’s fourth marriage, her estate was worth approximately £18 million at the time of the application. This meant that, upon her death, her estate would face an inheritance tax liability of £6.2 million. The purpose of PBC’s application was openly declared to be the mitigation of inheritance tax – i.e. if the gifts were approved and JMA lives for an additional three years, her estate will benefit from a reduction in inheritance tax payable (due to tapering relief applying). If JMA lives until 2025, the gifts will fall outside of her estate completely and no tax will be payable on these. The inheritance tax liability on JMA’s estate in the latter situation will be reduced to approximately £3 million – a significant saving.
PBC was the residuary beneficiary of his mother’s Will and had come to a prior agreement with the other beneficiaries (8 charities and JMA’s only grandchild) so that they would benefit from £1 million of the gift also subject to the application. PBC had agreed as well to make a Will so that, if he predeceases JMA, the beneficiaries of her Will would receive the sums that they would have done had the gift to PBC not been made.
The Court of Protection found in the applicant’s favour for the following reasons:
1. Although the proposed gifts were large, given the size of JMA’s estate, they were affordable and she would still have more than sufficient funds available to meet her needs for the rest of her life.
2. There was evidence that JMA had believed in tax efficiency when she had mental capacity. Tax mitigation post-death was therefore consistent with her beliefs and values.
3. The proposed gifts were to benefit those who JMA had named in her Will and not an unknown third party.
4. No beneficiary under JMA’s Will stood to be adversely affected by a successful tax mitigation exercise.
5. The application was not contested by any party.
This case is a useful example of the circumstances when a lifetime gift may be appropriate, the importance of seeking consent from all potentially interested parties as well as having available evidence of the donor’s beliefs and values from the time when they had capacity. The case shows that, depending on the circumstances, acting in the best interests of the donor does not prevent the making of significant lifetime gifts.
If you would like advice on an application for approval of a lifetime gift or wish to contest the making of a gift, contact our specialist team at firstname.lastname@example.org or give us a call on 0161 941 4000.