PP, Re [2015] EWCOP 93

IMPORTANT NOTICEThe judge has given permission for this version of the judgment to be published on condition that (irrespective of what is contained in the judgment) in any published version of the judgment the anonymity of the incapacitated person and members of their family and of any individual referred to in this judgment must be strictly preserved. All persons, including representatives of the media, must ensure that this condition is strictly complied with. Failure to do so will be a contempt of court.Case No 12474920[2015] EWCOP 93
COURT OF PROTECTION
Date 15 th May 2015
MENTAL CAPACITY ACT 2005
IN THE MATTER OF PP
First Avenue House
42-49 High Holborn,
London, WC1V 6NP
Before
District Judge Batten
Between
BBApplicantPPRespondent
IN PRIVATEDavid Mitchell (instructed by Terry Jones Solicitors) for ApplicantAlexander Drapkin (instructed by the Official Solicitor) for RespondentHearing Hearing date: 25 th February 2015
JUDGMENTThe people in the case
[1]PP is the person at the centre of this application and is the Respondent in the proceedings. The Official Solicitor acts as her litigation friend. She is 78 years old and lives in a residential care home in the same village in the country as her daughter and son in law. She was married twice. The first marriage ended in divorce. Her second marriage was to EP.[2]PP had four children by her first marriage, two of whom have predeceased her.[3]JB is PP’s daughter. She is married to BB. They have five children, and a foster daughter whom they are in the process of adopting.[4]BB is PP’s son-in-law and the Applicant in this application. He is also PP’s Attorney under a Lasting Power of Attorney for Property and Affairs and a Lasting Power of Attorney for Health and Welfare, acting jointly and severally with CD.[5]CH is PP’s son. He has two children, AH and MH. He and PP are estranged. They have no contact and PP has never met AH and MH.[6]EP had one son, AP who died a few weeks after EP died.[7]CD is a partner in a firm of solicitors and co-Attorney with BB under the Lasting Power of Attorney for Property and Affairs and a Lasting Power of Attorney for Health and Welfare.[8]PS is an Independent Financial Adviser (IFA) with a well known firm of financial advisers and acted as PP’s IFA for many years.

The application

[9]BB applied to the court by application issued on 25th March 2014 for an order under the Mental Capacity Act 2005 granting retrospective ratification of a gift of £324,000 to JB, being a potentially exempt transfer for the purposes of inheritance tax (IHT). This gift will be referred to as “the PET” throughout.[10]The application is opposed by the Official Solicitor as litigation friend for PP. There has been no objection from any of PP’s family members, indeed consents have been received from or on behalf of PP’s seven grandchildren.[11]The court made an order for directions on 26th June 2014, providing for a directions/disposal hearing on 8th October 2014.[12]On 7th October 2014 I made an order vacating the hearing on 8th October 2014 and gave directions for the Official Solicitor to obtain the available files from solicitors advising PP in relation to wills and other testamentary dispositions. I also directed that BB should file and serve information as set out in the order, and in general as required by Practice Direction 9F6, as it relates to gift applications. The matter was listed for a final hearing on 9th December 2014.[13]The Official Solicitor made a further application to vacate the hearing on 9th December 2014, on the basis that BB had failed to comply in full with the order of 7th October 2014 and that further disclosure and service was required. I made an order on 8th December 2014 vacating the hearing and for the disclosure of the file of the firm of IFAs for whom PS worked, disclosure of other documents and information, much of which had already been ordered. I also made an order for service of the application, together with the other documents BB was required to file and serve, on PP’s grandchildren and son CH. The hearing was relisted for 25th February 2015, which hearing was effective.

Evidence presented

[14]A trial bundle of documents was made available to me at the hearing which contained the application, acknowledgments of service, orders, evidence as to capacity, three witness statements by BB dated 19th March 2014, 24th July 2014 and 5th February 2015, evidence obtained from the file of PS’s firm and from PP’s current financial advisers, IHT tax calculations, documents from two will files, documents relating to the will and other dispositions made by EP, copies of the Lasting Powers of Attorney and evidence of registration, and documents relating to an investigation by the Public Guardian. I was given a copy of a report by the Public Guardian.[15]I read position statements/skeleton arguments prepared by counsel prior to the hearing. I heard oral evidence from BB. Counsel for both parties made final submissions. Counsel for BB agreed to correct the IHT tax calculations and to file and serve them following the hearing. They were filed on 4th March 2015.

Background facts

[16]The following is a brief history taken from the documents in the trial bundle which I believe to be uncontroversial.[17]PP was born on 6th August 1937 and is now 78 years old. Her mother is still living and has reached the age of 100; she is cared for by PP’s sister.[18]In 1978 PP separated from her first husband. She lived and worked in London. She met EP and started living with him in about 1987. In 1993 PP and CH became estranged at around the time of his marriage, which estrangement continues to this day.[19]BB met and married JB in 1985.[20]EP had a son AP who suffered from disabilities. In 1985 he made a settlement providing funds for AP’s benefit. On 29th November 1994 EP and PP married. On 6th December 1994 they bought a house in the country. EP and PP borrowed £50,000 from the trustees of AP’s settlement to put towards the purchase price, which was to be repaid on sale of the house. A declaration of trust to this effect was made on 6th December 1994 (F100).[21]On 1st January 1995 EP made a will (G2). PP was his sole residuary beneficiary and inherited his estate, apart from some minor bequests and his property in France which was left in equal shares to PP and AP. PP had owned a house but did not otherwise have substantial capital when she met EP; her capital mainly derives from him.[22]EP died on 16th November 1995. AP died in a traffic accident a few weeks after EP’s death. PP remained living in the house she had bought with EP. She had a circle of friends in the neighbourhood, including AM. She took an interest in animal welfare, which was shared by AM. She was devoted to her dogs. It appears that JB and BB had concerns about AM’s influence over PP.[23]PP was faced with the loss of her daughter in 2002 and her son in 2006. She was particularly close to her son who died in tragic circumstances, and his death was a terrible blow to her. BB and JB saw little of PP between EP’s death and 2006, but their communication then increased.[24]PP started having memory problems in 2008. She was diagnosed with dementia in January 2011.[25]In November 2010 PP consulted solicitors about a will. They drafted a will for her to consider, which left a legacy of £25,000 to JB, certain other legacies, and her residuary estate to be held in a trust fund to benefit animal welfare charities. No will was executed on the basis of this instruction. From manuscript annotations to the draft will it appears that PP considered revising her instructions so that 50% of the residuary estate would be left to JB and 50% to CH’s children (F63-78); the notes appear to be made by someone other than PP since they refer to “you” rather than “I”. I do not know when the annotations were made or by whom.[26]On 10th June 2011 PP had a meeting with two solicitors from a different firm to give instructions for a will. The solicitors took care to see PP on her own, without BB present. They looked at the draft will prepared by the previous solicitors. PP was anxious to reassure JB and BB that she was leaving only a modest legacy to AM ( F92-99). In their letter to the Applicant’s solicitors of 3rd February 2015, the solicitors give this account of the interview:
“The court will see from the attendance note of 10th June 2011 that PP concentrated upon giving specific instructions for her new Will. Her conversation was diverse and wide-ranging. However she did not wish to focus on discussing the nature and extent of her estate nor did she wish to receive any inheritance tax (IHT) advice. Where reference is made to PP’s wealth this was done simply in the context of knowing the sale price (of her home)”
[27]PP executed her will on 11th July 2011. Apart from gifts of jewellery and pecuniary legacies amounting to £75,000, her residuary estate was divided as to 50% to JB and 50% to her grandchildren in equal shares per capita.[28]At this time PP was in the process of making a decision to sell her home and move to live closer to JB, BB and their family. She was torn between her wish to make the move and her wish to stay close to her friends in the area where she had lived for many years. Eventually her home was sold for £750,000. After deduction of professional fees and moneys to be repaid in respect of the loan from AP’s trust, PP received net proceeds of sale of £596,578.37 (F102). On 14th December 2011 PP moved to a rented bungalow near BB and JB.[29]In April 2012 PP’s dementia was diagnosed as being Alzheimer’s dementia.[30]On 16th October 2012 PP signed Lasting Powers of Attorney for Property and Affairs and Health and Welfare, which were drawn up by the firm of solicitors currently acting for BB. The LPAs appointed BB and CD (a partner in the firm but not the person who had been acting for PP) as her attorneys, acting jointly and severally (“the LPAs”). She gave BB and CD power to give or refuse consent to life sustaining treatment on her behalf. JB was not an attorney under either instrument. The certificate provider was PP’s general practitioner. The LPAs were registered by the Public Guardian on 8th January 2013.[31]On 26th February 2013 PP spoke to her IFA, PS, on the telephone (J2). His note of the telephone conversation states: “PP phoned me to explain she wants to move back down to (her previous location) as she is not happy in (the location close to BB/JB). “She wanted to know whether she had sufficient cash to buy the sort of house she needs. I explained she has in all around £700K in cash to my knowledge. This led on to the subject of IHT and I asked her if she had concerns re IHT, she said not really as her relationship with her daughter is not good, however I explained what the potential IHT liability would be and agreed to write explaining what her liability is and what could be done to reduce it. She said she would get back to me after reading the letter if she was interested in taking the matter forward”.[32]On the same day PS wrote to PP to set out his advice (D74-5). The letter was headed “Inheritance tax planning” “This is an area of financial planning which we have spoken about in the past but for which you have had no interest because your wealth was tied up in property and there is very little that can be done when holding such assets to mitigate the potential IHT liability. Now you have sold not only the villa in France but also your principal private residence your financial position has changed. With regard to IHT it is true that your estate would be liable for 40% tax on everything over your Nil Rate Band of £325,000. (I assume that on EP’s death as he paid substantial funds into the trust for his son his Nil Rate Band was used up at that time) in other words approximately £370,000 tax would be due on your demise today…..You asked me what schemes were available to mitigate this liability. I have summarised below what can be done and would ask you to take a look and get back to me (by telephone) if you wish to investigate the issue further.” PS went on to discuss annual exemptions of £3000 and small gifts of £250, potentially exempt transfers by way of absolute gift and gifts into a trust, also insurance. There is no evidence that PP pursued this further by contacting PS or otherwise.[33]In February 2013 a decision was made by BB, in which CD was involved, to purchase a bungalow for PP. The purchase was completed on 8th November 2013, the purchase price being £329,000. About £20,000 was spent to upgrade the property, which has been let since September 2014.[34]On 15th March 2013 BB transferred £6,000 to JB, being the annual gift allowance for the tax years 2011/12 and 2012/13. Between 23rd March and 18th April 2013 BB transferred £324,000 to JB out of PP’s bank accounts in 12 tranches of £25,000 and one tranche of £24,000. He also made a gift of £250 to JB in March 2013 as a small annual gift[35]In March 2013, BB also made small annual gifts totalling £2,500 to the children of BB and JB. He made further gifts of small amounts to the children and to himself and JB between September 2013 and July 2014 He gave presents to PP’s mother and sister totalling £1,135. He gave PP’s favourite nurse a gift of £100 in December 2014. Total gifting amounted to £334,610.[36]On 24th June 2013 PS visited PP at home for a review of her investments. She told him that she wanted to buy a property in the area of her old home. After lunch, they went into PP’s local bank, where PS was told by a manager that the sum of £285,000 had been transferred by BB from one of PP’s accounts into JB’s account in 12 tranches of £25,000. PP seemed unaware of this and was upset. The manager called BB to come in but PP and PS then left (D78).[37]On 1st July 2013 PP spoke to PS on the telephone. According to his telephone attendance note, PP said she was very distressed and worried (D79). “…..(PP) said she was frightened and asked me if BB and JB could access her cash and investments without her say so. I explained in detail what the LPA was to which she explained her understanding was that it was there in the event that she went ‘ga-ga’. I said she should have had the LPA fully explained by the solicictor who is also an attorney, before she signed it, to which she again said she thought it was only to be used if she went ga-ga. …..” PS gave further explanation of BB’s role and told PP she should not be alarmed as long as BB carried out his duties correctly.[38]PS subsequently terminated his relationship with PP by letter dated 10th February 2014 on the grounds that BB had failed to inform him of the Lasting Power of Attorney for Property and Affairs and that his firm had no agreement with BB to continue to provide services (D76). (BB disputes that they did not know of the existence of that instrument).[39]On 16th August 2013 the Public Guardian wrote to CD to inform her that they had started a safeguarding investigation. Correspondence between them is included in the bundle at section I.[40]In October 2013 PP fell while walking her dogs at night. She was admitted to hospital in poor condition. She was discharged to a residential care home on 19th November 2013, initially on a temporary basis, and then as a permanent resident.[41]In July 2014 BB invested £350,000 of PP’s funds in two Octopus Inheritance Tax investment vehicles.[42]On or about 24th November 2014 BB and JB purchased a property in the same village as the residential care home in which PP lives. The cost of the property was £680,000. JB contributed £160,000 to the purchase price out of the PET. The equity in the property is held as to 70% by JB and as to 30% by BB. The balance of the PET of £164,000 is, according to BB, held in a bank account and has not been dissipated.

Capacity and life expectancy

[43]The Applicant has filed two assessments of capacity in form COP3, one dated 23rd April 2014 and the other dated 6th January 2015, from Dr TT, PP’s current general practitioner. He has also filed letters from Dr TT to his solicitors dated 30th July, 18th September and 5th November 2014. A copy of a letter from Dr LL, consultant psychiatrist, based on an examination at PP’s home on 30th April 2012 is also included (C1-29)[44]These reports and letters confirm that PP first had symptoms of memory loss in 2008. She was diagnosed with dementia in January 2011. A suggested diagnosis of Alzheimers dementia was made in April 2012. Dr LL considered that in April 2012 she lacked capacity to understand her diagnosis and the decision with regard to treatment. She scored 24/30 on MMSE with clear problems in orientation to time and place and poor short term recall. She expressed suspicions about JB, who was not present when Dr LL visited.[45]It was Dr TT’s opinion that PP lacked capacity to make a decision about gifts of money in 2013, which he based on his discussion with Dr ZZ who was PP’s GP at the relevant time. Dr TT confirmed in both forms COP3 that PP lacked capacity to make decisions about her financial affairs. Her dementia was worsening.[46]Dr TT also confirmed that PP was in good health and there was no physical health factor reducing her life expectancy. At some stage she may need nursing rather than residential care.[47]In relation to the making of PP’s will on 11th July 2011 and the LPAs on 16th December 2012, I understand that all documents were prepared by solicitors experienced in acting for elderly clients in such matters. The certificate provider for the LPAs was PP’s own family doctor. It is not part of any party’s case that she lacked capacity to make these documents.[48]I therefore find that on a balance of probabilities PP had capacity to make her will dated 11th July 2011 and to make the LPAs on 16th October 2012. She lacked the capacity to make or approve the gifts made on her behalf by BB between March and April 2013, including the PET, or the investment in Octopus made in July 2014.

PP’s current financial position

[49]PP’s current income derives from state benefits, investment income and rent. Her net annual income is £39,245. PP’s annual expenditure, as set out by the Official Solicitor in his position statement, is £32,556, of which £29,196 is expended on care home fees. PP may also incur additional expenditure in the future in the upkeep and maintenance of the rented bungalow. There is a current annual surplus of £6,689.[50]PP’s current assets, according to the Official Solicitor, consist of Bungalow 350,000 Octopus investments 337,237 ISA 148,236 Premium Bonds 30,000 Other investments 116,165 Cash 6,605 Personal possessions 20,000 Total £1,008,243 PET 324,000 Total including PET £ 1,332,243

Report by the Public Guardian

[51]A copy of the report by a General Visitor dated 14th February 2014 made pursuant to section 58 of the Mental Capacity Act 2005 was disclosed to the parties shortly before the final hearing.[52]PP was seen by Dr Thavasothy, a Court of Protection Special Visitor, on 8th February 2014. She told him that her money was being administered by PS’s firm. She recalled that BB was her Attorney but did not understand the effect of the LPAs. She described BB as a very nice man who she trusts implicitly. She made several remarks showing distrust of JB. She was concerned about JB’s influence on BB, which meant that she was unwilling for BB to continue to act as attorney. She said that she had not agreed to the transfer of £324,000 to JB.[53]The Court Special Visitor found that, while PP’s MMSE scores might fluctuate depending on engagement, she had severe cognitive defects in terms of orientation, registration and recall, especially of short term memory. In his view she lacked capacity to make or revoke a Lasting Power of Attorney or to manage her property and affairs.[54]The Public Guardian’s investigator reviewed the accounts and was satisfied with the Attorneys’ handling of PP’s financial affairs, save for the level of gifting. She considered the breakdown of the relationship between BB and PS’s firm. BB had told her that PS had failed to recognise that PP lacked capacity to manage her money and that PS had acted unprofessionally by taking PP to the bank and demanding to see her accounts. The investigator considered that it was in PP’s best interests that her investments should continue to be managed by PS’s company because of the rapport and trust between her and PS. However she acknowledged that, if BB was unable to work with PS’s firm, the investments would have to be moved to a firm he could work with.[55]The Public Guardian was not persuaded that PP had taken any step to gift funds to JB apart from making a general enquiry to PS about IHT. He required BB to make an application for retrospective ratification of gifts, failing which the Public Guardian would seek removal of the Attorneys.

BB’s evidence

[56]BB’s evidence, both oral and in his three witness statements, gave a description of PP and her life history which I have drawn on for this judgment. From his evidence it appears that he has a close relationship with PP. He visits PP probably two or three times a week and JB also visits PP, albeit less frequently. They take PP out for family meals and care for her dogs. She enjoys seeing BB’ and JB’s children. She is not unhappy in the Home. The Home confirms this in their letter of 9th September 2014 (E91)[57]BB described a volatile relationship between PP and JB. He said that PP was eager to move to be close to them in 2011. During 2012 she felt regrets about the loss of her life and friends in her previous home and was very negative about JB when speaking to friends on the telephone. She was worried and protective of her money.[58]When asked why PP had chosen to appoint CD, a solicitor whom she did not know well, and not to appoint JB as her attorney, even in relation to health and welfare matters including decisions on life sustaining treatment, BB said that no one had suggested to PP that JB should be her attorney.[59]As to his responsibilities and duties under the LPAs, BB said that he had done little to inform himself about the provisions of the Mental Capacity Act 2005 or the Code of Practice to the Act. He did not tell anyone involved in managing PP’s investments that he was an attorney. When the LPAs were first registered, he left PP to make her own decisions. It was not until early 2013, which he identified as the turning point for her capacity to make financial decisions, that he and CD stepped in and made a decision abut buying a house for PP. He said that they had followed the Code of Practice in relation to that decision.[60]BB confirmed that before 2013 PP had made no gifts of money to JB, whether small gifts or the annual allowance for IHT purposes, or at all. She loved to give JB’s children gifts for Christmas or birthday. She had made no gifts to CH’s children, having never met them.[61]In his witness statement of 19th March 2014, BB says that he was aware that PP had entered into talks with PS in the summer of 2012 to undertake a PET of £324,000, that PS provided a letter of advice dated 26th February 2013 and on receipt of that letter BB took action to facilitate the gifts on behalf of PP. That was repeated in paragraphs 25 and 26 of the witness statement of 24th July 2014.[62]In oral evidence BB did not assert that the gifts including the PET had been made on the instructions of PP. He said that when the letter of 26th February 2013 arrived, BB read it with PP. He gave PP an explanation of the contents which she understood. She wanted to know whether, if she made the PET, she would still have enough money to buy a house and to live on. Having been reassured on these points she was happy with the concept of the PET. She did not say that she wanted to reduce her IHT liability but she did say that she wanted to pass her money to JB and the grandchildren.[63]BB said that he was not aware that potentially exempt transfers could be made until he read PS’s letter of 26th February 2013. Counsel for the Official Solicitor put it to him that the communications with PS showed that PP was not interested in IHT planning and that PP’s relationship with JB was not good. BB responded that PP had varying views at different times, so that she would also say that she did want to benefit JB.[64]BB did not discuss the PET further either with PP or CD. BB did not involve PP further because he understood her to be incapable of making a decision to make the gift. He felt that he had sufficient authority as joint and several attorney and that he had followed the guidelines. He now accepts that he should have consulted CD.[65]BB gave evidence that while PP may have told the Special Visitor that she did not agree with the PET, by this stage her short term memory was very poor, although her memory for past events was better. Thus she recalled that PS was her financial manager but did not recall anything about the PET or the LPA. She frequently expressed concerns about JB taking her money.[66]BB described in his statement of 5th February 2015 the actions he took as attorney to manage PP’s property and assets, including preparation of the bungalow for rental. He said that there is now little that needs to be done to manage PP’s investments, which are placed on advice from his new financial adviser. He wishes to remain attorney for PP under the LPAs.[67]BB was questioned as to the role CD had played as co attorney in decisions about gifting, investment and purchase of property. CD wrote to the Public Guardian on 4th September 2013 (shortly before PP moved into residential care) (I3-5). CD confirmed that she had been involved in the decision to purchase the bungalow for PP, and the decision to appoint the investment advisors currently advising BB. She was not informed about the PET to JB, but she said that she was satisfied after the event that BB was acting in PP’s best interests by ensuring that a degree of IHT planning was taking place given the size of her potential estate on death. She said “I am confident that BB and his wife are doing everything in their power to provide for PP and to enable her to remain living independently. They care for her on a daily basis and if they were not prepared to do so then it would mean that she would have to pay significant charges to provide her with the care that she currently receives from her relatives. She is a very demanding person by virtue of her illness and certainly if I were to be a sole Attorney it would be an extremely expensive way in which to deal with her personal affairs.”[68]BB dealt in his witness statement of 5th February 2015 with various emails from AM found in the files of PS’s firm. BB stated that allegations made by AM about BB’s dealings with his business partner are wholly untrue and offered an explanation of the circumstances of their dispute. There was also an allegation that BB had put pressure on PP to purchase a farm. BB said that when he realised that neither PP nor JB were keen on the plan he abandoned it. I have not placed weight on these matters in coming to my decision in this case.

The Octopus Inheritance Tax Service investments

[69]BB was questioned about the Octopus investment made in July 2014. He described the opportunity to invest in Octopus as a “gift from heaven”. BB’s investment adviser summarised his instructions from BB in his advice given by letter on 11th July 2014 (E55). He said “You would like PP to be able to benefit from a reduction in her IHT liability as opposed to creating a fund to pay the liability as it is important to her to leave as much inheritance as possible to her daughter.” Other criteria were:(i) there should be some potential for capital growth(ii) there was no need to obtain income from the investment because PP’s income was in excess of her expenditure(iii) access to capital must be maintained in case funds are needed for unexpected eventualities(iv) because the aim was IHT liability reduction, BB would accept significantly higher levels of investment risk to secure IHT benefits

Other criteria were:

[70]BB invested £350,000 of PP’s money in Octopus IHT saving vehicles. £200,000 has been invested in the Octopus Inheritance Tax Service whose effect is purely to achieve IHT savings whilst attempting to preserve the capital. £150,000 has been invested in Octopus Alternative Markets Inheritance Tax Service which reduces IHT liability but gives potential for capital growth with attendant higher investment risk[71]I heard submissions from both counsel about the effect of the investments in Octopus. BB’s counsel pointed out that small units of the investment could be sold to provide income in each year. Counsel for the Official Solicitor suggested that the return of 3% appeared to be poor, having regard to the risky nature of the investments. He pointed out that if Business Property Relief were to be removed by Act of Parliament, withdrawals might in practice be difficult to achieve, at least within a short timescale. Both counsel agreed that the funds still belong to PP and at least in theory are available to meet her needs.[72]BB was asked by the Official Solicitor’s counsel why he and JB had gone ahead with the purchase of their own property in November 2014 using PP’s money, even though the application for ratification of gifts was proceeding in the Court of Protection. BB replied that the opportunity to buy the house had come up and they did not want to lose it. The house was perfect for them. They had to complete very quickly and so used the money gifted to JB.

Findings of fact

[73]I am satisfied on the basis of the evidence before me, including the oral evidence given by BB, that PP did not make a decision that she wished to transfer £324,000 to JB by way of potentially exempt transfer not did she instruct BB to carry that decision out on her behalf. The decision was made by BB.[74]I accept BB’s evidence that he read PS’ letter of 26th February 2013 with PP. BB said that PP’s concern was that she would have enough money to buy a house and to live on. .

Effect of the gifts and Octopus investments on devolution of PP’s estate

[75]I was presented by the Applicant with calculations as to the net effect of IHT liability on PP’s estate for the purpose of considering the impact of the PET and the investment with Octopus on the sums to be inherited under PP’s will by JB and by PP’s grandchildren. Counsel for the Applicant agreed at the end of the hearing to amend the calculations and agree them with the Official Solicitor’s counsel. The revised calculations are appended to this judgment.[76]The calculations rest on the assumptions that two Nil Rate Band allowances will be available to PP’s estate, because EP made no lifetime gifts within 7 years of his death and PP made no other lifetime gifts. If PP dies within 2 years of the Octopus investments so that they form part of her estate for IHT purposes[77]If JB repays the gift of £324,000 each grandchild will receive £71,053 while JB receives £497,373. If the gift is not repaid, each grandchild will receive £47,910 and JB will receive £659,373. The loss to each grandchild is £23,143. If PP dies more than 2 years after the investment so that the Octopus investments do not form part of her estate for IHT purposes[78]If JB repays the gift of £324,000, each grandchild will receive £81,053 while JB receives £567,373. If the gift is not repaid, each grandchild will receive £57,910 and JB will receive £729,373. The loss to each grandchild is £23,143. If PP dies more than 7 years after the date of the gift so that two full NRB IHT reliefs are also available[79]If JB repays the gift of £324,000, each grandchild will receive £81,053 while JB receives £567,373. If the gift is not repaid each grandchild will receive £66,660 and JB will receive £790,621. The loss to each grandchild is £14,393.[80]The case of McDowall and others (Executors of McDowall deceased) v Inland Revenue Commissioners [2004] STC (SCD) reported at page 22 Simon’s Tax Cases, is authority for the proposition that, where ratification of a gift by the court is required, the gift is treated as not having been made until it is ratified and thus the 7 year period runs from the date of ratification of the gift, not the date of the gift itself.

Issues for decision by the court

[81]The issue which is the subject of the application is whether the court should ratify the gift of £324,000 to PP’s daughter JB, made in the spring on 2013 by PP’s attorney BB.[82]BB also made further gifts of £10,610 which fall within the ambit of exempt gifts for IHT purposes and I will consider whether the court should take any steps in relation to those gifts.[83]The Official Solicitor is critical of the decision to invest part of PP’s funds in IHT savings vehicles and I will consider whether they should be reinvested.[84]I will also consider whether BB and CD should remain as PP’s attorneys under the Lasting Power of Attorney for property and affairs.

Legal submissions

[85]The Applicant’s counsel submitted that if the gifts are ratified, there is no realistic prospect, taking into account the information provided by the residential care home (E94-5), that PP has insufficient income and assets to provide for her needs to an appropriate standard. On a worst case scenario, her needs would be met during her life and there would be sufficient to meet her IHT liability.[86]As regards the weight to be attached to PP’s past and present wishes and feelings Counsel argued that PP’s will of June 2011 was a relevant document. Thereafter as PP’s dementia progressed, statements she may have made to friends or to PS became unreliable. I should not attach any probative value to the file note made by PS on 26th February 2013, particularly since PS did not appreciate that PP had lost capacity. If I do attach probative value to PS’s note, I must also take account of BB’s evidence as to what discussions he had with PP.[87]The Applicant’s central submission on best interests was that it must per se be in PP’s best interests to reduce her IHT liability, thus allowing an increase in the amount of her estate to be passed to her chosen beneficiaries. He contended that there is no reliable evidence that the PET is not in accordance with PP’s wishes and feelings.[88]Counsel also argued that PP benefited from having her family living in the same village, and that, if BB had asked her to give them some money so that could be achieved, she would probably have agreed, provided that she had enough money to live on. While the effect of the PET is to reduce the share received by the grandchildren, the total pot has increased. All the grandchildren of all ages have consented to the application. BB and JB’s younger children are benefiting by living in the house to which PP has in effect contributed. JB might be willing to settle the cash retained by her on trust for the grandchildren.[89]Counsel for the Official Solicitor referred to the cases of Re P and Re M as to the way in which the court must take account of PP’s wishes and feelings in a best interests decision. He drew my attention to paragraph 35 of Re M in particular. The Official Solicitor says that in making a best interests decision I must in particular have regard to PP’s wishes and feelings, the affordability of the gifts and the alteration in the devolution of her estate as a consequence of the gifts.[90]Counsel said that, as to PP’s wishes and feelings, the only evidence that PP wished to engage in IHT planning is PS’ letter of 26th February 2013 on which the Applicant originally relied. She merely sought general advice and there was nothing to show a firm intention to give away almost 25% of her estate. The Official Solicitor described PS as a neutral third party as well as financial adviser of long standing, so that his letter is of probative value. He argued that PP expressed strong and consistent views of distress and unhappiness about the gifting over a long period thereafter. He suggested that PP was affected by her wishes and feeling being ignored. Her wish to preserve her assets in her lifetime was perfectly sensible and rational.[91]As to affordability the Official Solicitor referred to the loss of investment income resulting from the reduction in PP’s assets and the decision by BB to invest for capital growth rather than income and capital growth. He said that when BB and CD took investment advice, the analysis showed that PP would enter income shortfall in 2016 (E57). As the Applicant’s counsel pointed out, this date will depend on the rate at which care charges increase over time; the calculations done by the care home were based on an assumption of a lower rate of increase than used by the investment adviser. It is the Official Solicitor’s position that it is not in the best interests of PP to part with so much capital.[92]As to the devolution of the estate, the impact of the gift is significantly to reduce the amount to be passed to PP’s grandchildren. The income shortfall will also reduce the amount of PP’s estate which will pass under her will. The children of BB and JB may obtain some advantage from the gift but AH and MH will receive no indirect benefit. The Applicant’s proposal for JB to place money in trust for the grandchildren is inappropriate. Depending on my decision on ratification, it may be necessary to consider whether a statutory codicil should be authorised to reduce JB’s share of the estate.[93]In summary the OS does not consider that ratification is in PP’s best interests. The Applicant’s case is based on PP’s purported wishes but neutral independent evidence does not support that contention. The evidence from PS’s file note of 26th February 2013 that PP did not want to reduce her IHT liability because her relationship with her daughter was not good is, in the Official Solicitor’s submission, a factor which approaches magnetic importance.

Relevant provisions of the Mental Capacity Act 2005 and Code of Practice

[94]Section 4 of the Mental Capacity Act sets out the matters which a court must consider in making a best interests decision.(1) In determining for the purposes of this Act what is in a person's best interests, the person making the determination must not make it merely on the basis of— (a) the person's age or appearance, or (b) a condition of his, or an aspect of his behaviour, which might lead others to make unjustified assumptions about what might be in his best interests.(2) The person making the determination must consider all the relevant circumstances and, in particular, take the following steps.(3) He must consider— (a) whether it is likely that the person will at some time have capacity in relation to the matter in question, and (b) if it appears likely that he will, when that is likely to be.(4) He must, so far as reasonably practicable, permit and encourage the person to participate, or to improve his ability to participate, as fully as possible in any act done for him and any decision affecting him.(5) Where the determination relates to life-sustaining treatment he must not, in considering whether the treatment is in the best interests of the person concerned, be motivated by a desire to bring about his death.(6) He must consider, so far as is reasonably ascertainable— (a) the person's past and present wishes and feelings (and, in particular, any relevant written statement made by him when he had capacity), (b) the beliefs and values that would be likely to influence his decision if he had capacity, and (c) the other factors that he would be likely to consider if he were able to do so.(7) He must take into account, if it is practicable and appropriate to consult them, the views of— (a) anyone named by the person as someone to be consulted on the matter in question or on matters of that kind, (b) anyone engaged in caring for the person or interested in his welfare, (c) any donee of a lasting power of attorney granted by the person, and (d) any deputy appointed for the person by the court, as to what would be in the person's best interests and, in particular, as to the matters mentioned in subsection (6).(8) The duties imposed by subsections (1) to (7) also apply in relation to the exercise of any powers which— (a) are exercisable under a lasting power of attorney, or (b) are exercisable by a person under this Act where he reasonably believes that another person lacks capacity.(9) In the case of an act done, or a decision made, by a person other than the court, there is sufficient compliance with this section if (having complied with the requirements of subsections (1) to (7)) he reasonably believes that what he does or decides is in the best interests of the person concerned.(10) “Life-sustaining treatment” means treatment which in the view of a person providing health care for the person concerned is necessary to sustain life.(11) “Relevant circumstances” are those— (a) of which the person making the determination is aware, and (b) which it would be reasonable to regard as relevant.[95]Section 12 of the Mental Capacity Act 2005 sets out the extent of authority given to attorneys under Lasting Power of Attorney for Property and Affairs to make gifts on behalf of a donee who lacks capacity to make gifts (1). Where a lasting power of attorney confers authority to make decisions about P's property and affairs, it does not authorise a donee (or, if more than one, any of them) to dispose of the donor's property by making gifts except to the extent permitted by subsection (2). (2). The donee may make gifts— (a). on customary occasions to persons (including himself) who are related to or connected with the donor, or (b). to any charity to whom the donor made or might have been expected to make gifts, if the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of the donor's estate. (3). “Customary occasion” means— (a). the occasion or anniversary of a birth, a marriage or the formation of a civil partnership, or (b). any other occasion on which presents are customarily given within families or among friends or associates. (4). Subsection (2) is subject to any conditions or restrictions in the instrument.[96]The Code of Practice to the Mental Capacity Act 2005 is not binding on an attorney appointed under a Lasting Power of Attorney for Property and Affairs but he is required to have regard to it when exercising his functions as attorney. Chapter 7 deals with Lasting Powers of Attorney and paragraph 7.40 to 7.43 deal specifically with the issue of gifts out of the donor’s estate. What gifts can an attorney make under a property and affairs LPA? 7.40. An attorney can only make gifts of the donor’s money or belongings to people who are related to or connected with the donor (including the attorney) on specific occasions, including:• births or birthdays• weddings or wedding anniversaries• civil partnership ceremonies or anniversaries, or• any other occasion when families, friends or associates usually give presents (section 12(3)(b)). 7.41. If the donor previously made donations to any charity regularly or from time to time, the attorney can make donations from the person’s funds. This also applies if the donor could have been expected to make such payments (section 12(2)(b)). But the value of any gift or donation must be reasonable and take into account the size of the donor’s estate. For example, it would not be reasonable to buy expensive gifts at Christmas if the donor was living on modest means and had to do without essential items in order to pay for them. 7.42. The donor cannot use the LPA to make more extensive gifts than those allowed under section 12 of the Act. But they can impose stricter conditions or restrictions on the attorney’s powers to make gifts. They should state these restrictions clearly in the LPA document when they are creating it. When deciding on appropriate gifts, the attorney should consider the donor’s wishes and feelings to work out what would be in the donor’s best interests. The attorney can apply to the Court of Protection for permission to make gifts that are not included in the LPA(for example, for tax planning purposes).

Relevant case law

[95]As referred to by the Official Solicitor, the judgment of Munby J (as he then was) in the case of ITW v Z [2009] EWHC 2525 sets out at paragraph 35 how the court should approach a consideration of the wishes and feelings of a person who lacks capacity to make a relevant decision (described as P) “In considering the weight and importance to be attached to P's wishes and feelings the court must of course, and as required by section 4(2) of the 2005 Act, have regard to all the relevant circumstances. In this context the relevant circumstances will include, though I emphasise that they are by no means limited to, such matters as: a) the degree of P's incapacity, for the nearer to the borderline the more weight must in principle be attached to P's wishes and feelings: Re MM; Local Authority X v PP (by the Official Solicitor) and KM [2007] EWHC 2003 (Fam), [2009] 1 FLR 443, at para [124]; b). the strength and consistency of the views being expressed by P; c) the possible impact on P of knowledge that her wishes and feelings are not being given effect to: see again Re PP; Local Authority X v PP (by the Official Solicitor) and KM [2007] EWHC 2003 (Fam), [2009] 1 FLR 443, at para [124]; d) the extent to which P's wishes and feelings are, or are not, rational, sensible, responsible and pragmatically capable of sensible implementation in the particular circumstances; and e) crucially, the extent to which P's wishes and feelings, if given effect to, can properly be accommodated within the court's overall assessment of what is in her best interests[96]Senior Judge Lush set out the parameters for considering whether the amount of a gift was unreasonable in the case of Re Gladys Meek [2013] EWCOP 2966. While that case concerned deputies for property and affairs his judgment is highly relevant to the issues in this case:65. As regards the amount given, the gift must be of such a value that it can properly be described as not unreasonable. This should be ascertained by having regard to all the circumstances, although by way of emphasis reference is made to the size of GM's estate.66. In this context 'estate' should be construed as meaning the totality of P's current and anticipated income and capital, expenditure and debts.67. The first and paramount consideration must be whether the gift is in P's best interests, and other circumstances to which regard should be given, in addition to the size of P's estate, include, but are not limited to, the following: ◦ the extent to which P was in the habit of making gifts or loans of a particular size or nature before the onset of incapacity; ◦ P's anticipated life expectancy; ◦ the possibility that P may require residential or nursing care and the projected cost of such care; ◦ whether P is in receipt of aftercare pursuant to section 117 of the Mental Health Act 1983 or NHS Continuing Healthcare; ◦ the extent to which any gifts may interfere with the devolution of P's estate under his or her will or intestacy; and ◦ the impact of Inheritance Tax on P's death. 97. In the case of Re Treadwell COP no 11444940 Senior Judge Lush approved the approach of the Public Guardian to quantifying the loss to an estate through gifting, first by identifying the gifts that a deputy was authorised to make and second any additional gifts that, having regard to all the circumstances might reasonably have been ratified by the court. He said in relation to the wishes and feelings of the person lacking capacity “in the context of someone’s property and financial affairs, I can think of no written statement that is more relevant or more important than a will, and when testators make a will, they have a reasonable expectation that their wishes will be respected.” Senior Judge Lush found that the deputy in that case had used lifetime gifting to undermine the effect of Mrs Treadwell’s will and refused to ratify the gifts that had been made.

Best interests

[98]I must consider the matters set out in the best interests checklist in section 4 of the Mental Capacity Act 2005. I must consider all the relevant circumstances in this particular case.[99]I am satisfied that PP lacks capacity to make the relevant decisions and that there is no likelihood that she will recover such capacity in the future. PP has not been offered an opportunity to participate actively in the proceedings. The Official Solicitor has not visited her to provide an insight into her current views on the application. However the Public Guardian arranged for a Court Special Visitor to visit her in 2014 and her views at that time are set out in the Public Guardian’s report.[100]I must consider PP’s past and present wishes and feelings.[101]As to PP’s past wishes and feelings, I am struck by the fact that PP did not take any steps to gift any significant sum of money to JB or other members of the family while she had capacity. I accept that her money was tied up in property until about 2011 (£750,000 and the French property) but given that her whole estate amounted to at least £1.3 million she would have had sufficient funds to make gifts to JB and her family. She did not choose to do so. She also did not choose to make JB her attorney, whether for property and affairs or health and welfare.[102]I note that PP had in the past discussed tax planning to reduce IHT liability on her estate with PS, but they had agreed to postpone any action until her property was sold. Apart from that there is no evidence that PP sought advice on IHT liability when making her will, or took any steps to minimise the impact of IHT on her estate for the benefit of her beneficiaries, at any time before she lost capacity.[103]In February 2013 BB describes PP as turning a corner in that she was no longer able to manage her property and affairs. BB’s evidence is that she wanted to be reassured that there were sufficient funds to buy her a house and for her to live on. Provided that was the case she was happy for the PET to be made to JB. In contrast PP told PS on the telephone on 26th February 2013 that she did not want to engage in IHT tax planning because she and JB did not get on. She took no steps in response to PS’s letter of advice of the same date.[104]BB describes PP as being changeable in her views, because of her dementia. At times she wanted to give money to JB and the grandchildren, at others she was suspicious of JB. I note that in response to questions from persons other than the family, PP continued to express distrust of JB because she believed that she had taken her money behind her back. This impression was lodged in her mind when she visited the bank with PS in June 2013, if not before, and was still a source of anxiety and distress at the time of the Court Special Visitor’s examination in February 2014. She continues to express distrust of JB to staff at her care home.[105]I must take into account in particular any relevant written statement made by PP when she had capacity. In this case the statement of significant relevance is PP’s will. She chose to divide her residuary estate, under which the bulk of her estate was to pass, equally between JB and her grandchildren.[106]As to PP’s past and present beliefs and values, I do not consider that I have very much information. I am aware of her commitment to animal welfare. I have been told of her close relationship with one of her sons. With JB and CH, it seems that her relationships have at times been difficult but nonetheless PP has demonstrated commitment to her family by the terms of her will, her decision to live close to BB and JB and to accept the support and care they offered.[107]I must also take into account the views of anyone named by PP as a person to be consulted on the issue of gifting; so far as I am aware no one has been named. I must take into account the views of anyone engaged in caring for the person or interested in her welfare. All family members have been consulted and support the application, including the children whose inheritance will be reduced if the gifting is authorised. CD, co attorney with BB, has written a letter endorsing the action he took, albeit that she was not involved in the decision.[108]I must also take into account the views of the Public Guardian. The Public Guardian has carried out an investigation. He did not endorse the level of gifting but required BB to apply to the court for retrospective authorisation. He did not make an application for revocation of the LPAs or consider that BB should cease being an attorney.

My decision

[109]In my judgment the PET fell outside the ambit of the authority given to attorneys by section 12 of the Mental Capacity Act 2005 to make gifts out of the estate of a person who lacks capacity to do so. PP’s estate including the PET is £1,332,243. The PET amounts to 24% of PP’s total estate. The question is whether the amount of the PET is reasonable in all the circumstances of this case, having regard to the factors identified by Senior Judge Lush in the case of Re Gladys Meek, and so should be ratified by the court.[110]I have already alluded to the fact that there is no history of gifting of money by PP to JB or other family members.[111]I do not have a specific life expectancy estimate for PP. However her GP states that she is in good physical health. I am aware that she comes from a long lived family, her mother now being over 100. It is not therefore fanciful to anticipate that PP may live for as much as another 20 years. Her GP considers that she may need nursing care in the future.[112]PP’s income is currently slightly higher than her outgoings. Factors which could result in her outgoings exceeding her income include increases in her residential care costs, substantial increase in care costs because she needs nursing care, liability for expenditure on her rental property increasing and/or rental income not being as anticipated.[113]If PP required nursing care from now on (which I accept is a worst case scenario), her annual expenditure would be £56,676 using the care home figures (£53,316 on care and £3,360 on other items (E95, Official Solicitor’s position statement)). Her annual income is £39,245. There would therefore be an annual income shortfall of £17,431. Over twenty years, this would amount to about £350,000. Care costs tend to rise at a higher rate than general inflation and as such the size of the shortfall would probably be greater.[114]Other circumstances which could lead to a significant increase in her expenditure include the need to move PP to another more expensive home with better quality of care, or to provide care for her in her own home, should the quality of her current care deteriorate. If her total expenditure were £80,000 per annum (including items other than care) and income stayed at current levels, annual shortfall would be £40,755, which over 20 years would amount to £815,000. This may be an over pessimistic calculation of the differential between income and expenditure but it reveals that PP’s care costs could absorb a considerable amount of her capital over a twenty year life expectancy. PP has capital assets. She has clearly stated that she wants them to be available to meet her needs. In my judgment it is right that there should be sufficient funds retained to keep PP in comfort and with a good quality of care for the rest of her life. There should be a cushion over and above the likely cost of meeting PP’s care costs to meet unforeseen needs, for example the need for private medical treatment.[115]I have set out in the section on IHT at paragraphs 75 to 80 the effect of IHT on PP’s death, on the one hand if the gift is returned and on the other if it is retained by JB. On the figures in Scenario E of the IHT calculations, if the PET were ratified, there would be no liability to IHT once the 7 year period had elapsed.[116]I do not accept BB’s contention that the saving of IHT is automatically in PP’s best interests. It depends on all the circumstances of the individual case. Each person for whom a best interests decision is to be made has different wishes and feelings, beliefs and values. Some have already taken steps to minimise IHT liability or expressed a wish to do so. Others do not wish to reduce the IHT liability on their estate or are indifferent.[117]By 2013 PP had lost capacity to made decisions about gifts. I accept that she may have expressed different views to BB than she expressed to others, including PS about whether she was willing to give JB money with a view to saving IHT. She was worried about whether such a gift would leave her with enough to live on. That is a reasonable concern which should be taken into consideration. I am not satisfied that PP’s wishes and feelings were given full and appropriate weight by BB in the decision to make the PET to JB. I do not have evidence that PP was given any choice in the matter.[118]Thereafter she was shocked and surprised to learn that the amount of the PET had been removed from her bank account in June 2013. That continued to cause her anxiety and distress and has been a recurring theme in her comments about JB.[119]In my judgment the factor of magnetic importance in this case is the provisions of PP’s will, made in 2011 when she had testamentary capacity, whereby she gave half of her residuary estate to JB and the other half to her grandchildren. There is no evidence that PP wished to privilege JB over her grandchildren by giving her a lifetime gift of almost one quarter of her estate. The effect of the PET is to alter the percentage shares in PP’s estate so that JB receives about 63-66% of the estate (depending on the incidence of IHT) and the seven grandchildren about 33-37% to share between them. This is not what PP intended.[120]I am also concerned that there is a risk, albeit a small one, that PP will have an insufficient cushion against unforeseen events if the gift stands.[121]Taking into account all the matters set out, I have decided that it is not in PP’s best interests that the PET of £324,000 to JB should stand.[122]I have given thought as to how BB should make restitution of the gift. I have decided that the sum of £164,000 retained by JB should be repaid immediately to PP. Despite PP’s lack of interest in exploring IHT savings schemes, I acknowledge that there is some evidence of past discussion with PS about IHT savings, which suggests that PP did not rule it out. I acknowledge that BB, JB and their family have taken the brunt of responsibility for PP since she moved to be near them in 2011 and that she derives benefit from the fact that they live so close to her. Therefore I will not require repayment of the amount of £160,000 used by JB and BB in the purchase of their current home. However it must be brought into hotchpot, so that it forms part of JB’s 50% share of PP’s estate. A statutory will or codicil must be drafted to give effect to that decision.[123]I will not require repayment of the gift of £6,000 to JB or the small gifts payments to JB’s children. I will however direct that equivalent payments must be made to AH and MH so that they are treated in the same way as JB’s children, since this is the clear intention of PP’s will.[124]No further gifts will be permitted save that gifts of the annual small gift allowance, currently £250, may be made to all PP’s grandchildren in each tax year, provided that PP’s needs have been met on each occasion and that it is in her best interests to do so. I order this relying on BB’s evidence that PP likes to give monetary gifts to her grandchildren.[125]I have concerns as to the motive for and value to PP of the investment in Octopus. However the capital sum so invested is still available for PP’s use if she needs it and she has sufficient capital that the relatively poor return on the investment will not have a significant impact on her.

The attorneyship

[126]I have set out above in some detail the course of events which led to this application. Despite the views of the Public Guardian, I feel disquiet at the actions of BB as attorney for PP under the Lasting Power of Attorney for property and affairs. All attorneys are required to act in the best interests of the person who has appointed them to be attorney and they must not exceed their authority under the instrument. The purpose of their authority is not to benefit themselves and their family. As attorney on a joint and several basis, BB acted without involving CD who despite her legal qualification did not draw BB’s attention to his obligations in relation to making gifts.[127]BB says that he wishes to remain acting as attorney for PP. I do not know whether CD wishes to do so. I heard no evidence or submissions on this issue.[128]The options before me appear to be as follows:(i) to make no order, thus allowing BB and CD to continue to act under the Lasting Power of Attorney for property and affairs(ii) to revoke the appointment of one of BB or CD leaving the other as sole attorney(iii) to revoke the Lasting Power of Attorney and appoint BB and CD or one of them as deputy for property and affairs for PP, thus subjecting them to the supervision of the Public Guardian, requirement for filing annual report and accounts, and provision of a security bond(iv) to revoke the Lasting Power of Attorney and appoint a professional deputy from the Public Guardian’s panel of deputies[129]It would not be fair to BB or CD for me to make a decision without giving them an opportunity to put forward their case. However I have already heard evidence over one day of hearing in which an exhaustive investigation of BB’s actions was conducted. My preliminary view is that it would not comply with the overriding objective to hold a further attended hearing, particularly as regards costs, timely resolution and proportionate use of the court’s resources. Instead BB and CD should be given an opportunity to file a witness statement and position statement (in one form COP24) setting out their evidence and arguments and the order they seek from the court. I will then consider whether to make a decision on the papers or to hold a brief telephone hearing to give my decision.[130]Counsel for both parties are asked to draft an order to give effect to my judgment, to include repayment of the sum of £164,000 to PP, the drafting of a statutory will or codicil to bring the further sum of £160,000 into hotchpot, and provisions as to future gifting. The order should be submitted to me within 14 days ie by 29th May 2015.[131]After resolution of the issue relating to the Lasting Power of Attorney for property and affairs, I will ask the parties to make submissions on costs.