Lifetime Transaction and Lifetime Gift Disputes

What Are Lifetime Transaction and Lifetime Gift Disputes?

Lifetime gifts (also known as inter vivos gifts) are transfers of property, money, or assets made during someone’s lifetime rather than through a will. Lifetime gifts are typically gratuitous transfers, whereas lifetime transactions are a broader category covering all types of asset transfers.

Disputes can arise out of lifetime transactions or gifts, such as when elderly relatives transfer their home to one child, or someone makes substantial gifts shortly before death. While most lifetime transactions are legitimate, disputes can arise when there are concerns about the circumstances surrounding the transaction.

Common Grounds for Challenging Lifetime Gifts

There are five common legal grounds for challenging a lifetime gift or transaction:

• lack of mental capacity
• undue influence
• fraud or misrepresentation
• breach of fiduciary duty (by attorneys or deputies)
• proprietary estoppel claims

Each ground requires different evidence and has distinct legal tests, but multiple grounds can apply to a single gift. For example, there would be grounds for a challenge on the basis of lack of mental capacity and undue influence where an elderly person with dementia transfers their home after being pressured by a carer.

Lack of Mental Capacity

The legal test for mental capacity when making a gift depends on the nature and size of the relevant transaction. The “sliding scale” principle applies so that the larger the gift, the stricter the legal capacity test. The test is decision-specific and time-specific as it is acknowledged that an individual’s capacity to make decisions may fluctuate.

There is a presumption of capacity for lifetime gifts, but this can be rebutted by evidence including medical records, GP notes, care home records, and expert medical evidence. Mental capacity is commonly affected by dementia, Alzheimer’s, brain injury, and mental illness, but each case must be considered on its facts.

Undue Influence Claims

Undue influence is when improper pressure or coercion is applied to overcome someone’s free will. The law distinguishes between actual undue influence and presumed undue influence.

Actual undue influence can be proven through evidence of overt pressure, threats, or coercion.

Undue influence is presumed in relationships of trust and confidence, such as solicitor-client, doctor-patient, parent-child (where the child is young), religious advisor-follower, and carer-vulnerable person. The person claiming presumed undue influence only needs to demonstrate the existence of a relationship of trust and confidence and that a transaction requires an explanation. The burden then shifts onto the person in the dominant position to prove that the other party made the gift freely.

Warning signs that someone is making gifts under undue influence can include isolation of the donor, sudden changes in patterns of gifting, and gifts that deplete the donor’s estate. If you notice any of these signs, you should consider obtaining independent legal advice.

Fraud, Misrepresentation and Forgery

Lifetime gifts can be set aside if obtained through fraud or misrepresentation. Misrepresentation is divided into three categories: fraudulent misrepresentation (knowingly making false statements); negligent misrepresentation (carelessly making false statements); and innocent misrepresentation.

Examples of misrepresentation could include someone deceived about the nature or effect of documents they’re signing or being misled about their financial situation.

Forgery of signatures on deeds or transfer documents is both a criminal and a civil offence. The burden of proof for a civil claim is on the claimant to prove that the forgery happened, on the balance of probabilities. In a criminal case, the standard of proof is higher – the court must be satisfied beyond reasonable doubt that the forgery took place. In both cases, types of evidence needed can include handwriting experts’ reports, witness testimony, and documentary evidence.

If misrepresentation is proven, it usually makes the transaction voidable, meaning the aggrieved party may set it aside by informing the other party or applying to the court.

If forgery is proven, the transaction will be void “ab initio”, meaning that the transaction is unenforceable.

Unauthorised Gifts by Attorneys or Deputies

There are strict limitations on attorneys under Lasting Powers of Attorney and Court of Protection deputies. Attorneys generally cannot make gifts except small customary gifts (such as for birthdays and weddings or to charities) unless specifically authorised by the Court of Protection. The court considers various factors when asked to authorise gifts, including the donor’s past gifting patterns, tax planning needs, and what the donor would have wanted.

An attorney who makes unauthorised gifts may be in breach of their fiduciary duty. Where an attorney has made an unauthorised gift, the remedies available include requiring the attorney to replace the gifted funds or assets and removing the attorney from their role. Attorneys should therefore keep detailed records of any gifts or transactions.

Attorneys should also carefully consider their conflict of interest if making a gift to themselves or to close family members. It may be prudent to apply to the Court of Protection for authorisation.

Proprietary Estoppel and Broken Promises

Proprietary estoppel is an equitable doctrine that can create property rights based on promises or assurances. There is a three-stage test:

• one party makes an assurance
• the claimant relies on that assurance to their detriment
• the court considers it would be unconscionable not to enforce the promise

This is the opposite situation to most lifetime gift disputes - here the dispute is that a promised gift was not made during lifetime. One example of proprietary estoppel could be where family members work on a farm for decades based on promises of inheritance. Another example could be where someone cares for an elderly relative based on assurances of receiving their property.

The court takes a flexible approach to remedies in proprietary estoppel cases. Remedies can include transfer of property, monetary compensation, or granting a right to occupy property.

Deathbed Gifts (Donatio Mortis Causa)

A deathbed gift (also known as “donatio mortis causa”) is a special type of gift made in contemplation of death. There are three main requirements:

• the gift must be made in contemplation of impending death
• the gift must be conditional on death occurring
• there must be delivery of the property or the means of accessing it (e.g., handing over keys or deeds)

Deathbed gifts are distinguished from ordinary lifetime gifts and testamentary gifts in wills. A deathbed gift automatically reverts if the donor recovers but otherwise passes directly to the recipient (and not to the personal representatives of their estate). Examples could include someone terminally ill giving car keys to their daughter or handing over bank account details during a final illness.

There are frequently evidential difficulties in proving these gifts and disputes can arise between alleged recipients and beneficiaries under the will. Deathbed gifts can be challenged on grounds of lack of capacity or undue influence like any other gift.

Inheritance Act Claims and Lifetime Gifts

Lifetime gift disputes can fall into the ambit of the Inheritance (Provision for Family and Dependants) Act 1975 (the Inheritance Act). The court has a power under Section 10 of the Inheritance Act to treat certain property given away within six years of death as still part of the estate. An example could be where the deceased transfers the family home shortly before death, without receiving full valuable consideration in return. The court considers whether the transfer was made to defeat a claim for reasonable financial provision. Inheritance Act claims can be brought by certain categories of people including spouses, former spouses, cohabitants, children, and dependants of the deceased.

Time Limits and Taking Action

It is important to act quickly when challenging lifetime gifts. Most claims must be issued within specified time limits, including:

• Fraud: six years from the date of the fraud or when it was discovered (but no limit for fraudulent breach of trust)
• Recovery of land: 12 years
• Inheritance Act claims: within six months of the Grant of Representation

While there is no strict limitation period for proprietary estoppel claims, delay can be fatal to a case through the doctrine of “laches” (unreasonable delay in equity claims).

It is essential to preserve evidence, especially where capacity or undue influence is alleged. Interim measures can be taken, like entering a caveat to delay the Grant of Probate and prevent property being sold. In all cases, early consultation with specialist solicitors is recommended.

Evidence Required to Challenge a Lifetime Gift

Different types of evidence are required for different grounds of challenge.

For capacity challenges:

• medical records
• GP notes
• care home assessments
• hospital records
• witness statements about the person’s condition
• expert medical evidence
• evidence of the complexity of the transaction.

For undue influence grounds:

• evidence of the relationship dynamics
• evidence of isolation from other family
• evidence of sudden changes in behaviour
• financial records showing the pattern of gifts
• evidence of vulnerability.

For fraud claims:

• documentary evidence
• expert handwriting analysis
• witness testimony
• evidence of what the donor was told compared with the effect of their actions.

Contemporaneous evidence is generally more persuasive than reconstructed evidence.

The Legal Process and Remedies

Before commencing a claim, there are various pre-action steps to take including gathering evidence, obtaining legal advice, and corresponding with the other side to set out your position and, where appropriate, negotiate. If a settlement cannot be reached, then court proceedings may become necessary. We can assist with filing a claim or defence, advise on your disclosure obligations, witness statements and, where necessary, attend trial.

The courts have a wide discretion as to remedies in lifetime gift disputes, but potential remedies include setting aside the gift (requiring the return of property or funds), monetary compensation, declaration that the property is held on trust, account of profits from attorneys who breached duties, and damages.

At all stages of the process, it is prudent to consider making offers to settle under Part 36 of the Civil Procedure Rules and to approach the other side to resolve the dispute via alternative dispute resolution (ADR). Part 36 and ADR offers both help to protect a party’s position when the court comes to decide on costs.

FAQs

Can I challenge a gift made before someone died?

Lifetime gifts can be challenged on various grounds including lack of mental capacity, undue influence, fraud, or if made by an attorney without proper authority. If you wish to challenge a lifetime gift, it is important to act quickly and gather relevant evidence.

What is the difference between presumed and actual undue influence?

Actual undue influence involves proving specific acts of coercion or pressure, while presumed undue influence arises automatically in certain relationships of trust and confidence when a transaction calls for explanation, shifting the burden onto the recipient to prove the gift was freely made.

How long do I have to challenge a lifetime gift?

Time limits vary depending on the legal ground for the challenge. Generally, the limit is six years for fraud claims and twelve years for land recovery. For Inheritance Act claims involving lifetime gifts, the claim must generally be brought within six months of grant of representation.

While there is no strict limit for some proprietary estoppel claims, unreasonable delay (known as the doctrine of laches) can bar claims.

What happens if an attorney made unauthorised gifts?

Attorneys who make gifts beyond their authority are in breach of their fiduciary duties and can be required to repay the funds to the estate, may be removed as attorney, and could face prosecution in serious cases involving dishonesty or abuse.

Can a gift be challenged if the person had dementia?

Yes, if the person lacked the mental capacity to understand the nature and effect of the gift at the time it was made. The test is time-specific and decision-specific, so capacity must be assessed at the moment the gift was made.

What evidence do I need to prove undue influence?

You may need evidence of the relationship between donor and recipient, the donor’s vulnerability, isolation from other family members, sudden changes in gifting patterns, circumstances surrounding the gift, lack of independent legal advice, and witness testimony about the donor’s state of mind.

Are deathbed gifts legally binding?

Deathbed gifts (donatio mortis causa) are legally binding if they meet specific requirements. They must be made in contemplation of death, conditional on death and with delivery of the relevant property or means to access it. They can still be challenged on grounds like lack of capacity or undue influence.

How does a lifetime gift affect inheritance tax?

Gifts made within seven years of death may be subject to inheritance tax (as “potentially exempt transfers”).