Analysis
JMA, who was aged 72 years, suffered from early onset dementia and lived in a care home which she paid for privately. She no longer had the capacity to take decisions about making gifts and the medical evidence suggested that she would only live for a further 3 to 5 years. The applicant was a son by her first marriage; her daughter having died in January 2009. JMA inherited from her last husband, who died in January 2010, his entire estate which was derived from the sale of businesses which had realised approximately £11m. The applicant was appointed sole attorney under a Lasting Power of Attorney for property and financial affairs which JMA made on 5 August 2010 and which was registered with the Office of the Public Guardian on 16 December 2010. Subsequently, JMA made a will on 12 April 2011 by which she gave specific legacies to her sister and her husband, pecuniary legacies of £100,000 to her grandson and eight charities (six of which were named as default beneficiaries in her late husband’s will) and the entire residuary estate to the applicant. By an application dated 29 June 2015 the applicant sought the authority of the court to make from JMA’s estate various gifts together exceeding £7m for the purpose of achieving significant inheritance tax savings on her death so long as JMA lived for at least a further 3 years. The parties had reached agreement between themselves and asked the court to bless it; the matter was listed for hearing because the court sought assistance in order to reach a conclusion as to whether or not the terms of that agreement were in the best interests of JMA. JMA’s estate was currently worth in the region of £18,650,000. If the proposed gifts were not made during the lifetime of JMA, the inheritance tax liability on her death would be approximately £6,200,000. If, on the other hand, the proposed gifts were made, that liability would taper from approximately £5,600,000 (if she were to die today) to approximately £3m if JMA lived until March 2025. The effect of the agreement would be to accelerate what the beneficiaries stood to inherit under the terms of the will leaving available to JMA assets of approximately £10m which was more than amply sufficient to meet all of her conceivable needs.
Held (allowing the application):
When considering what was in the best interests of a person who lacked capacity to make decisions, their future needs should be considered on a cautious basis and the level of gifting not such as may put in doubt the donor’s ability to meet those needs. However, when considering the authorisation of gifts, affordability was a necessary but not sufficient consideration. Nevertheless, it would be wrong to support the parties’ agreement as to the purpose of the gifts by reference to what was described as a default position or reasonable expectation/assumption in favour of such measures. The Mental Capacity Act does not permit the court to rely on default positions, assumptions or generalisations in making a decision about whether gifts to effect tax mitigation were in the best interests of a particular protected person. The court should approach the application of the best interests test in all the circumstances of a given case by a balancing exercise, weighing case-specific factors in favour and against the making of the proposed gifts. The tax mitigating effect of the proposed gifts should not be entered as an independent factor on either side of the balance sheet but should be viewed in the best interests balancing exercise as a mechanism which either supported or went against the particular individual’s wishes and feelings, values and beliefs about gifts and tax planning. In the circumstances of this case, it was subsumed in the positive factor of enhancing benefit to those whom JMA wished to benefit. The evidence was clear that she wished in the past to make gifts to her son and charities relevant to her life and, in due course, to benefit them and her grandson further by her will. In the balancing exercise, what JMA actually did when she had capacity carried greater weight as a guide to her wishes and feelings than what she was recorded as saying in the single attendance note. The proposed gifts, in the current circumstances of JMA’s life, were consistent with the beliefs and values she demonstrated when she was able to manage her financial affairs, including the consideration which she gave whilst capacitous to the wishes of her late husband. In conclusion, the factors in favour outweighed the factors against the proposed gifts and, consequently, were in the best interests of JMA. Orders would therefore be made in the terms of the drafts submitted by the parties.
JUDGMENT HILDER J: The issue for determination [1] PBC is the son of JMA, and was appointed as her sole attorney for property and affairs by a Lasting Power of Attorney executed on 5 August 2010 and registered by the Public Guardian on 16 December 2010. He seeks the authority of the court to make from JMA’s estate various gifts together exceeding £7m. The purpose …
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