A power of attorney is a document that allows a person who has capacity to appoint someone they trust to make decisions for them, in the event that they are no longer capable of making decisions themselves.

An attorney may want to give gifts on behalf of an incapable person ("the person"). Making gifts for the person may be important for a variety of reasons. For example, it may be that gifting to family members or friends helps the person maintain their close relationships. Alternatively, gifting may be beneficial to the person in minimising their exposure to inheritance tax.

However, it is not enough for an attorney to know that the person would want to make a gift. It is also crucial that the power of attorney document itself has been drafted to grant the attorney the authority to make such gifts.

What is gifting?

Gifting can be much wider than just buying someone a present or giving them a sum of money. It would also include: donations to charity; paying school/university fees; allowing someone to live rent free or at a reduced rent in a property owned by the person; selling the person's home at less than market value and creating a trust for someone from the person's property.

Do you have the power?

Attorneys can only take decisions that the power of attorney document gives explicit authority to make. Once the person has lost capacity, additional powers cannot be inserted into the document. Unfortunately, if the power of attorney does not expressly contain a power to gift, then no gifts can be validly made.

Consequences of acting out with powers

If a gift is made and the power of attorney does not give you the power to do make that gift, then the gift is void. In Scotland. There is no process that can be followed to have gifts retrospectively authorised.

If the Office of the Public Guardian (the body that regulates and supervises attorneys), are made aware that an attorney is making gifts out with their powers then they are likely to investigate this, and at the very least, seek recovery of the gifted sums.

If the gifts do not come to light during the person's lifetime, upon their death they will. When assessing the person's estate HMRC will deem the gifts void and will include the value of the gift as part of the estate for the purpose of calculating any inheritance tax due. If the people receiving the gifts are not beneficiaries under the person's will (or they have been gifted a sum that totals more than their entitlement), then it is likely that any gifts would need to be returned to the deceased's estate.

There may be all sorts of practical problems with recovering gifted sums and this is certainly not a position that attorneys should put themselves in.

Potential solutions if you DO NOT have power

Moving forward, if an attorney would like to make gifts but the power of attorney document does not give this power, then it may be appropriate to consider an intervention order (for a one off decision) or a guardianship order (for ongoing decisions). Both options involve an application to the Sheriff Court to request authority to make a gift(s) on behalf of the incapable adult. Of course, there are associated legal costs with bringing such actions and these should be weighed against any benefit gained from the gift(s).

Once you DO have power

Unfortunately, establishing that you have power to make gifts is just the first hurdle to be overcome. Attorneys must ensure that they are complying with the 'benefit' principle set out in the Adults with Incapacity (Scotland) Act 2000 ("the Act"). They must consider their duties as attorney, such as their duty of care and fiduciary duty (that an attorney must not personally benefit financially).

It is easy to see how taking a decision to gift on behalf of the person might raise difficult questions in relation to this principle and duties. For example, how can gifting someone's assets away actually be seen to benefit the person? The conflict may be even starker if an attorney is looking to make a gift to him or herself. In general, so long as an attorney acts in good faith and the gift seems reasonable (for example, it does not have a significant impact on the person's financial situation and is to a close family member or friend who the person was in the habit of making gifts) then the gift is likely to be classed as beneficial, and an attorney would not be found to have breached their fiduciary duty.

Final considerations

If you are acting as someone's attorney and intend to make a gift on behalf of the incapable person, it is important that you take legal advice at an early stage to ensure that: (1) you have power to make gifts and (2) that you are complying with your duties and responsibilities as attorney.