A power of attorney can save you tax
It is recommended that everyone makes a Lasting Power of Attorney, known simply as an LPA. They have many advantages, but one benefit people often overlook is the fact that a power of attorney can save you tax.
Liability for inheritance tax (IHT) is usually best mitigated while we are still capable of managing our own affairs. People assume that once we have lost capacity then we also lose the power to undertake IHT planning by making gifts. However, If an attorney acts in the best interests of the donor and takes into consideration the donor’s wishes then there is still scope for reducing the size of their estate and thereby the potential IHT bill.
An attorney can make gifts on behalf of a donor who has lost mental capacity for tax planning reasons, provided the gifts are ‘affordable’ and made with the court’s authority.
Every case needs to be assessed on its own merits. A balancing exercise is required that takes into account the Mental Capacity Act.
In a recent case the court looked at such a gift and made it clear that the attorney’s decision to make the gift must be “consistent with the beliefs and values [the donor] demonstrated when she was able to manage her financial affairs”.
So, where there is a clear expression of wishes by the donor and their attorney believes it to be in the donor’s best interests then tax planning gifts can be made which ultimately save IHT.
