A recent ruling from the Court of Protection suggests that families can undertake inheritance tax planning for incapacitated relatives.
In FL v MJL (By His Litigation Friend, the Official Solicitor), an application was made for ratification of gifts previously made on behalf of MJL and authority to make prospective gifts on behalf of MJL, pursuant to s.18 (1) (b) of the Mental Capacity Act 2005 (MCA 2005). The Applicant, FL, was appointed as MLJ’s sole deputy for property and affairs by orders dated 21 July 2008 and 23 January 2012.
MJL is in his sixties: when he was 54, he fell into a persistent vegetative state from which he has not recovered. He now lives in a hospital and has NHS funding. His parents have died, he is unmarried and has no children. His four siblings are the Applicant (FL), RL, BL and AR: each of them “is acknowledged to be wealthy” and have children. MJL has an estate valued in excess of £17 million . There is no prospect that MJL will ever recover and it is clear (and accepted by the parties) that he lacks capacity within the meaning of s.2 MCA 2005 to make the gifts proposed.
When MJL had capacity, he made various gifts to political organisations and charities. After he lost capacity, a distribution of £2,445,000 was made to the family’s charitable foundation, from one of the family trusts, to which MJL would have had entitlement. MJL had expressed a wish that this money should be given to charity.
The case’s key issue centred on tax planning. It was argued for the Applicant that structuring one’s affairs to enhance the provision that can ultimately be made under one’s will for family and other beneficiaries is capable of being in a person’s best interests and that the Court could therefore properly conclude that the proposed gifts would be in MJL’s best interests. The Official Solicitor disagreed, arguing that “there could be no assumption that MJL would have embarked on tax planning and/or lifetime gifting or tax planning. The only assumption under the MCA 2005 is the assumption of capacity: Everything else requires an analysis of best interests under the principles of Section 4”. As MJL’s Litigation Friend, the Official Solicitor did not agree that the Applicant’s proposal was in MJL’s best interests and instead proposed a different scheme . Part of the argument was whether or not, given MJL’s left-of-centre political views, he would have indulged in tax planning had he the capacity to do so .
The Court of Protection [District Judge Sarah Ellington] concluded that:
- the factors in favour of the proposed gifts supported by the Official Solicitor outweighed the factors against those gifts and the factors in favour of the gifts proposed by the Applicant
- gifting in different proportions between the will beneficiaries was not in MJL’s best interests
- the gifting proposed at paragraph 6 of the Official Solicitor’s position statement was authorised
- gifting as proposed in part 1 of the application was approved
- the family gifts fell within the deputy’s authority
- the gifts to political organisations continued what MJL had set up when he had capacity and were in his best interests.
In short, District Judge Ellington gave particular weight in carrying out the “balancing exercise” to the following:
- how MJL would want to be remembered
- the tax planning (or lack of it) that MJL had undertaken when he had capacity
- the extent to which he had made charitable donations when he had capacity
- his political views
- his feelings towards his family and their wealth
- the terms of his statutory will.
She did not, however, accept the proposition that structuring one’s affairs in a manner which enhances the provision that can ultimately be made under one’s will for family and other beneficiaries, clearly affects how a person is remembered.