Combining a Power of Attorney with Effective Tax Planning
Attorneys acting under a Continuing and Welfare Power of Attorney must comply with the five guiding principles set out in the Adults with Incapacity (Scotland) Act 2000. Arguably, the most important of these is that an Attorney must always act in the best interests of the adult.
Best interests of the adult – not always clear cut?
At first glance, it seems that deciding what is in the best interests of the adult is pretty straightforward. However, grey areas often emerge. One of those grey areas relates to Inheritance Tax planning – although this may be something which the adult was in the habit of doing himself, is it really in his best interests to reduce his assets?
A similar grey area arises in relation to nursing home fees. The current threshold above which you must contribute to the cost of your care in Scotland is £23,000 – although not guaranteed to be successful, some clients attempt to limit their liability for nursing home fees by reducing their estate below this threshold, e.g. by gifting to family/friends. Can an attorney engaging in such activities be sure they are acting in the best interests of the adult?
The recent Dilnot Report recommends that the threshold in England & Wales above which individuals will be fully liable for their care home fees be raised from £23,000 to £100,000. Unless/until a similar approach is adopted in Scotland, the number of queries in this regard from clients and attorneys is likely increase.
What action can Attorneys take?
To date, The Office of the Public Guardian has allowed Attorneys to engage in tax/financial planning activities provided they have been granted specific powers to do so in the Power of Attorney.
If undertaking such activities, Attorneys should be aware of another of the 2000 Act’s guiding principles – they must take into account the past and present wishes of the adult. At TC Young, we recommend that clients completing a Power of Attorney fill out a Questionnaire noting their thoughts and wishes on particular matters – this gives the Attorney a starting point and provides a record of the adult’s past wishes.
If you are thinking about putting a Power of Attorney in place or would like advice on acting as attorney, I would be happy to help, please contact me.