What a Power of Attorney can (and can't) do with a donor's money

Introduction

A Lasting Power of Attorney (LPA) for property and financial affairs allows trusted individuals (attorneys) to manage a loved one's finances if they lose capacity. It's a vital safeguard - but it doesn't automatically permit making gifts or inheritance tax (IHT) planning. These actions require careful judgement and, often, legal authority.

Core Duties of an Attorney

Attorneys must always act in the donor’s best interests and follow the Mental Capacity Act 2005. Key responsibilities include:

• Supporting decision-making: Help the donor make their own choices where possible.
• Maintaining confidentiality: and keeping the donor's finances separate to the attorney's own.
• Following the LPA instructions: Only act within the authority granted.
• Avoiding conflicts of interest: especially where the attorney is also a beneficiary under the donor's will.

Courts expect attorneys to prioritise the donor’s welfare over family tax savings. Any action must clearly align with the donor’s best interests - and gifting rules are strict.

What counts as a 'gift'?

Gifts can include:

• Birthday/anniversary presents or charitable donations
• Giving away money, property, or personal items
• Selling assets below market value
• Letting someone live rent-free in the donor's property
• Interest-free loans
• Creating trusts

Under the Act, attorneys may only make gifts:

• On customary occasions (for example birthdays, weddings and religious events) to people connected to the donor.
• To charities the donor supported.

These must be reasonable in value. Anything larger or IHT-motivated needs Court of Protection approval.

Real-World Examples

1. Birthday cheques: Continuing modest, long-standing gifts is usually fine - if affordable and documented.
2. Monthly transfers to children: Not allowed without court approval; seen as IHT planning.
3. Interest-free loans: High risk and usually not permitted.
4. Switching investments to an alternative strategy for IHT relief: Needs careful scrutiny and likely court involvement.

Attorney Dos and Don'ts

Do:

• Keep detailed records
• Mirror past modest gifting patterns
• Seek professional advice
• Apply to the court for substantial gifts or IHT actions

Don't:

• Treat the donor's estate as a family pot
• Make personal loans or live rent-free in the donor's property
• Sell assets below market value or set up trusts without approval
• Ignore conflicts of interest

Plan Ahead

To reduce risk:

• Leave a letter of wishes with your LPA
• Do lifetime IHT planning while you have capacity
• Keep your will up to date

In summary, being an attorney is a position of deep trust. The job is not to maximise heirs' inheritance, it's to safeguard the donor's welfare, wishes and financial security.

Please note the above applies to England and Wales, some rules will differ in Scotland and Northern Ireland.

Disclaimers

This article is for information only and does not constitute financial or legal advice. The contents reflect the views and opinions of Harding Financial as at the date of writing, and are based on our understanding of legislation at the current time.