Estate Planning Guide

11 10 THE ESTATE PLANNING LANDSCAPE THE ESTATE PLANNING LANDSCAPE The OPG states that attorneys cannot use a discretionary management service without this specific authorisation in the Power of Attorney: Once an LPA has been granted, the donor cannot extend the attorney’s authority informally and additional costly and time- consuming legal processes will be required to do so. Nevertheless, it’s also worth pointing out that this guidance may develop further. My attorney(s) may transfer my investments into a discretionary management scheme. If I already had investments in a discretionary management scheme before I lost capacity to make financial decisions, I want the scheme to continue. I understand in both cases that managers of the scheme will make investment decisions and my investments will be held in their names or the names of their nominees. Life Insurance with Long Term Care Benefits A new trend of adding long term care benefits as an option to whole of life assurance policies may be emerging. The benefits may be in the form of: • a once and final lump sum pay-out if the person covered meets the criteria for care cover (permanent and irreversible failure of three or more stated activities or severe cognitive impairment), or • the use of some or all of the life cover early if the policy holder needs long term care, for an additional one quarter to one third of normal premiums depending on the severity of the illness. Any remaining Life Cover and Lifestyle Care Cover reduces by the amount of the pay-out and is paid on death or when a specified level of incapacity is reached by the policy holder. Court of Protection Case Re PP The Court of Protection case Re PP [2015] EWCOP 93 and [2016] EWCOP 65 concerns unauthorised gifting by attorneys under an LPA and the investment of PP’s money in IHT efficient investments, in this instance a combination of AIM listed and unlisted BR qualifying investments (see Section 2.6). The son-in-law (also husband and father of the heirs) of PP, an elderly lady with dementia, was one of the attorneys empowered by her LPA in relation to property and financial affairs and for health and welfare. The other was a Solicitor. Fiduciaries must seek Court approval before making material gifts of capital. Consequently, when the son-in-law, BB, made a gift of £324,000 of the £1.3 million estate to his wife he, at the suggestion of the Public Guardian, applied for a ratification of the gift on the basis that this was sensible tax planning on PP’s part and constituted a potentially exempt transfer (PET) for IHT purposes. The Court ordered that the £164,000 not be ratified and should be repaid to PP. The balance, which had been invested into a property, was to be adjusted for in the ultimate distribution of PP’s estate. BB also invested £350,000 of the estate into BR qualifying assets so that his wife and children, who were heirs of PP’s estate, would benefit from IHT mitigation after a two-year holding period and the death of PP. The Official Solicitor who acted as Litigation Friend to PP and the Office of the Public Guardian both criticised the investment on the grounds of loss of investment income, a poor return compared to a relatively high risk profile and the potential for a fall in value and illiquidity, particularly in the event that BR is ever withdrawn. When making investment decisions for an incapacitated person the best interest test is paramount. The Court did not accept BB’s contention that IHT mitigation was automatically in PP’s best interest. It emphasised that whether or not it was depends upon all the circumstances of the individual case. PP had apparently sought advice on IHT mitigation whilst she had capacity and had ultimately decided to take no action of her own. Both the Official Solicitor and the Public Guardian agreed it is not wrong for attorneys to consider IHT planning and neither sought to argue that it is never in the best interest of an incapacitated person to do so. The Court concluded that in making BR investments, BB had lost sight of PP’s best interests. The Judge, DJ Batten, found: “I consider that BB did not act in PP’s best interest in instructing an IFA to make investments whose primary purpose was for the saving of IHT.” The attorneys’ appointments for property and affairs were revoked and a Panel Deputy was appointed. The BR investments were allowed to stand as the capital was still available to PP if she needed it and the extent of her capital meant that “the relatively poor return on the investment will not have a significant impact on her”. Action to mitigate lifetime taxes is likely to be in an incapacitated person’s best interest. Steps to mitigate IHT, however, should probably not be a primary concern for fiduciaries but may be appropriate, where perhaps an individual has already taken action to mitigate IHT during their lifetime or where they have surplus capital to ensure their financial security. But any investment must treat the person’s best interest as paramount and the Court may consider the risk/return and liquidity profile of investments to be directly relevant. The fact that BR qualifying investments do not involve a gift does not exempt them from scrutiny by the Court. Acting in the best interest of an incapacitated person generally means that fiduciaries are required to make suitable and diversified investments. Suitability considerations rest with a financial adviser rather than the Court. Fundamentally, when making investments, consideration must be given to the potential effect on the protected party’s future financial security. The Court highlighted various factors which could have adversely affected PP’s future expenditure, particularly increasing care costs. In all cases, investment advice to fiduciaries and applications to Court for the approval of gifts should be backed by comprehensive analysis to show that the proposed investment gift will maintain and not compromise financial security. It is also important to recognise the potential for conflicts of interest, especially where the fiduciary is a family member and heir. Residence Nil Rate Band The RNRB became applicable from 6 April 2017, and as with the main NRB, it is transferable