Mother gifting whilst in care home

Culzean

My 97 year old Mother went into a care home about 3 months ago paying her own fees. Her house has recently been sold and she wishes to gift each of her 3 children a fairly sizeable amount (TBD but perhaps £50,000). With the house proceeds (and before any gift) her assets are about £750,000 and her care home fees are roughly £4000 per month. We have a POA which we use to manage her finances because it can confuse her but she does not have dementia.

Firstly, is it OK for her to gift this sort of money (IHT is not a consideration just the 'legality' of doing so)? Secondly can anyone point me in the direction of any publication which deals with gifting by the elderly more generally?

Thanks

Browntoa

Deprivation of assets , Google that

It's too late to gift such a large amount

bowlhead99

I don't have a favourite 'gifting by elderly' link. But if you are asking about legality, it is not a problem.

She can give money to whoever she likes, and if you have the necessary legal power of attorney to act for her, you can do it (obviously subject to moral/ethical conflicts of interest if you are considering giving yourself her money, but am not suggesting that's the case if she is of sound mind).

Sounds like you understand the IHT angle (at that size, she can't say this is a normal gift out of income, but assuming we are talking about a normal UK person the IHT bill will be reduced because of this 'potentially exempt transfer' which will taper away as years pass).

The other angle as Browntoa mentions is 'deprivation of assets' where someone gives away their money such that they have too little money left to be self supporting, and can therefore qualify for means tested benefits or government-supported care which they would not have qualified for otherwise. The affect of the application of those rules would be to presume the gift have never been made, because they deliberately deprived themselves of the money to get the benefit.

With enough assets left after £150k of gifts to cover 150 months in a care home at current prices - from age 97, when cohort life expectancy is 3 years and there's only a 1 in 10 chance of reaching 103 if she's in average health... this does not seem like it is an issue.

So I would disregard the comment from Browntoa who says it is too late to give money away. It is not illegal to give money away. The only issue is that if you deliberately give it to friends or family or throw it in the bin and then say you don't have enough money to pay for your own care or to buy the things that means-tested benefits could buy, the person considering giving you a handout will say it's your own fault and count it as if the gifts hadn't been made. That doesn't seem an issue here with the amounts involved.

getmore4less

bowlhead99 wrote: »

I don't have a favourite 'gifting by elderly' link. But if you are asking about legality, it is not a problem.

She can give money to whoever she likes, and if you have the necessary legal power of attorney to act for her, you can do it (obviously subject to moral/ethical conflicts of interest if you are considering giving yourself her money, but am not suggesting that's the case if she is of sound mind).

Sounds like you understand the IHT angle (at that size, she can't say this is a normal gift out of income, but assuming we are talking about a normal UK person the IHT bill will be reduced because of this 'potentially exempt transfer' which will taper away as years pass).

The other angle as Browntoa mentions is 'deprivation of assets' where someone gives away their money such that they have too little money left to be self supporting, and can therefore qualify for means tested benefits or government-supported care which they would not have qualified for otherwise. The affect of the application of those rules would be to presume the gift have never been made, because they deliberately deprived themselves of the money to get the benefit.

With enough assets left after £150k of gifts to cover 150 months in a care home at current prices - from age 97, when cohort life expectancy is 3 years and there's only a 1 in 10 chance of reaching 103 if she's in average health... this does not seem like it is an issue.

So I would disregard the comment from Browntoa who says it is too late to give money away. It is not illegal to give money away. The only issue is that if you deliberately give it to friends or family or throw it in the bin and then say you don't have enough money to pay for your own care or to buy the things that means-tested benefits could buy, the person considering giving you a handout will say it's your own fault and count it as if the gifts hadn't been made. That doesn't seem an issue here with the amounts involved.

£150k gift won't get taper relief.

le_loup

If you "manage" her finances within a POA, I should be very careful about giving her money to yourself.
Under the power that you have been given, you should not benefit yourself.
If she has a will paying her estate to the children, I would wait for a few years when you will benefit anyway.

bowlhead99

getmore4less wrote: »

£150k gift won't get taper relief.

The £150k is potentially exempt from IHT and will not affect the chargeable estate at death if the person lives longer than 7 years. If they survive only 0-3 years, it is counted in full as if it were still in the estate (to stop people dodging IHT by giving away assets from their death bed). But the amount that the £150k counts will taper down over time: survive 3-4 years and only 80% of it counts, 4-5 years only 60%, 5-6 only 40%, 6-7 only 20% (so only £30k out of £150k) and nothing at all thereafter.

So, while the OP specifically didn't want to know the ins and outs of IHT, and was only interested in legality, so I only mentioned out in passing: the cash leaving the estate via gift will potentially get outside of being counted in the total size of the estate, and the amount that it counts will taper down. So it is worth making such a gift to help IIHT planning, even though that wasn't the purpose of the post and may not be the purpose of the gift.

If you think that's incorrect I'm sure we'd be grateful for the education. Maybe things have moved on drastically since I took my exams.

From a general legal perspective it is not illegal for a person to make a gift nor receive one, and it isn't "taxable income" to the recipient, just a transfer of wealth from one person to another.

An exception would be if the money wasn't from a wholly innocent and legitimate house sale and was instead generated from proceeds of crime which were used to buy or improve the house at some point in the past. Then it would be money laundering.

As mentioned earlier, consider the conflict of interest, especially if you are the only attorney making the decision as you don't want someone suing you for breaching your fiduciary duty to manage mum's financial affairs in her best interest and taking their money for yourself. You say "we" have PoA but if you (three of you children of the person?) are not the only beneficiaries of the estate, some other interested parties could say you ransacked the estate for your own ends, as a breach of trust of the poor old lady.

If you only have financial PoA because she has diminished capacity for understanding and is easily confused, lawyers for some aggrieved party would say that the fact she "would like you to all have £50k" is neither here nor there because she doesn't know what it means for her own wealth. You could perhaps get both her and a doctor to sign to attest to the fact now that she is in fact now of sound mind and appoints you to have the power to take £50k for yourselves and then manage her affairs thereafter.

The above does not constitute professional tax or legal advice

Culzean

Thanks for taking the time to reply in detail.

It reinforces what I thought the case to be, which is somewhat disappointing, see below.

The conflict of interest/ethics is the more concerning point. I think the proposed might be as a result of the encouragement of my Brother who has little money and has been financially dependent (or supporting his lifestyle) of my Mother for many years. He dresses it up as payment for his provision of care, even though she has had carers for the past 2/3 years. Frankly he has provided very little but has been gifted reasonably large sums on a fairly frequent basis over the last 4 or 5 years, which I've only discovered since taking control of her finances in the past year. The POA we have allows any of the three of us to take decisions and fortunately (or unfortunately perhaps) I have managed to wrestle all the paperwork, log ins etc under my control so he can't raid anything (he didn't before, it came directly from my Mother). The problem is though that he can 'work' my Mother very skillfully and I am reluctant to put a stop to it as I know it will cause her distress, and perhaps more, potentially impact on my relationship with her. My Sister sits somewhere in the middle, she doesn't really care as long as she doesn't have any sort of burden beyond the monthly visits she makes and has some sympathy for our Brothers parlous financial situation, despite it being largely of his own making. I'm also concerned he might encourage Mother to change her Will but I think I know how to challenge that if he does even though I might not discover it until after the fact

I don't think there's any advice for all of that but it's an additional troublesome part of this and reason why I'd rather this gift wasn't made and why I posted, hoping I would be told it shouldn't be and therefore I could 'justifiably' stop it!!

p00hsticks

bowlhead99 wrote: »

So I would disregard the comment from Browntoa who says it is too late to give money away. It is not illegal to give money away.

If they are using a POA because the lady is 'confused' then I think it would be difficult to argue that giving £150k away is in her best interests, as is legally required when acting under a POA

Culzean

p00hsticks wrote: »

If they are using a POA because the lady is 'confused' then I think it would be difficult to argue that giving £150k away is in her best interests, as is legally required when acting under a POA

Confused in that managing her finances on line, and dealing with some of the ambiguous paperwork that accompanies things like Bond renewals, dividend notifications etc are just too much for her. She is prone to making errors, but in all other respects she is capable

I accept there is a case for not proceeding with this (her best interests) but as mentioned in last post it may well produce consequences that I am not certain I wish to provoke

Keep_pedalling

p00hsticks wrote: »

If they are using a POA because the lady is 'confused' then I think it would be difficult to argue that giving £150k away is in her best interests, as is legally required when acting under a POA

It is possible for an elderly person to struggle with day to day finances, but to still have sufficient mental capacity to make a decision like this. Yes her POAs have to act in her best interests but from the sounds of it she still has the capacity to make such a decision, and the level of gift she is thinking about is not going to effect her ability to pay her care fees for the rest of her life.

Unless you have reached the stage where her bank has been informed that she has lost all capacity to act for herself, putting her finances in the sole control of her attorneys then this should not be a problem.

getmore4less

bowlhead99 wrote: »

The £150k is potentially exempt from IHT and will not affect the chargeable estate at death if the person lives longer than 7 years. If they survive only 0-3 years, it is counted in full as if it were still in the estate (to stop people dodging IHT by giving away assets from their death bed). But the amount that the £150k counts will taper down over time: survive 3-4 years and only 80% of it counts, 4-5 years only 60%, 5-6 only 40%, 6-7 only 20% (so only £30k out of £150k) and nothing at all thereafter.
......

If you think that's incorrect I'm sure we'd be grateful for the education. Maybe things have moved on drastically since I took my exams.

.........

try a google

hmrc taper relief on gifts

Taper relief only applies to gifts that would be taxable.

Less than the nil rate band there is no tax to pay so no taper relief it just uses up the nil rate band.


picking one
http://justwillsandlegalservices.co.uk/latest-news/the-7-year-rule-inheritance-tax-and-lifetime-gifts/

Reduction of Gift versus Relief on Tax Payable

One of the most common misconceptions about Taper Relief is that the ‘tapering’ refers to a reduction in the amount of the original gift that will count as part of the estate. This is not the case. If you gift £100,000 five years prior to your death, then £100,000 will count as part of your assets on your death (potentially minus two years of your annual tax-free gift allowance of £3000).

The tapered relief applies not to the amount counted against your non-taxable threshold, but against the 40% Inheritance Tax owed one your entire estate has been assessed.

Also, Transfers (including Lifetime Gifts and the Transfer of your estate on death) will be assessed for IHT chronologically, so Lifetime Gifts that fall under the £325,000 threshold may actually effectively increase the tax liability to be shared among your benefactors if you decide to give some loved ones their inheritance ‘early’.