Estate planning when acting as an attorney

There are some significant Inheritance Tax (IHT) changes due in 2026 and 2027, including changes to the reliefs available for agricultural and business property relief, and unused pension savings being taken into account for IHT purposes on death. This will affect many people’s estates, with more being subject to an IHT liability, or experiencing a IHT liability increasing significantly.

Individuals are, rightly, obtaining legal and financial advice to understand how these changes may affect them personally and how they can plan for them. Those appointed as attorney by someone else (the donor) to manage the donor’s finances should consider obtaining similar advice – particularly where the donor is deemed to lack mental capacity to manage their own finances and have assets that could be affected by the changes, such as business or farming assets and/or a large pension fund.

When managing the donor’s finances, the attorney must act in accordance with the Mental Capacity Act 2005. They should act in the best interests of the donor, considering the donor’s known wishes/preferences and any restrictions within the registered Property and Financial Affairs Lasting Power of Attorney (LPA) or Enduring Power of Attorney (EPA) in which they are appointed.

Some estate planning advice to an individual may not be suitable to an attorney who is managing the donor’s financial affairs. In cases where the advice is suitable, there will be many more factors for the attorney to consider in determining whether they can act on it.

For example, an individual may be advised to consider gifting assets during their lifetime to alleviate their IHT liability on death, however the position of gifting for an attorney on behalf of the donor is more complex. Attorneys are only able to make gifts on behalf of the donor in certain circumstances. Such as to family or connected people on customary occasions (e.g. birthday, marriage or Christmas or other religious occasion) or to any charity to whom the donor made or might have been expected to make gifts. Such gifts must be reasonable having regard to all circumstances, including the size of the donor’s estate. If the gift is unreasonable in the circumstances, then the attorney lacks the authority to make such a gift. The attorney should apply to the Court of Protection to obtain the court’s approval for the gift to be made.

Additionally, current estate planning advice for individuals may include alterations to their will to be able to pass farming or business assets in a more tax efficient manner on their death. If the donor lacks mental capacity to make a will or amend an existing will (which must be determined by a capacity assessment), the attorney cannot step in and do this on behalf of the donor as they do not have the power to do so. A statutory will application will need to be made to the Court of Protection to create or change a will, which is a complex process and specialist advice should be sought.

Attorneys must act within their powers when managing the donor’s affairs. It is therefore important that attorneys obtain specific advice from an advisor about their powers and role as an attorney. At HCR we have a specific Older and Vulnerable Persons (OVP) team who are happy to help and can advise attorneys on a range of matters.