Background to case
This case concerned a request for the Court of Protection to approve the settlement of an inheritance of LMS who was the beneficiary into a Disabled Persons Trust.
The applicant was LMS’s mother and her attorney under a Lasting Power of Attorney (LPA). The application was not opposed by any family member but it was opposed by the Official Solicitor (OS) who was the litigation friend for LMS.
LMS was 21 years of age and suffered from Sotos syndrome. She attended a specialist college for those with a learning disability and also received means tested state benefits.
LMS’s grandfather had died in 2018 leaving a Will made three years earlier of which 30% of his residuary estate went to LMS on reaching the age of 25. This share was worth about £170,000. LMS’s attorney sought to place this inheritance into a Disabled Persons Trust by applying the Court of Protection to vary LMS’s grandfathers Will through a Deed of Variation.
The LPA was registered with the Court of Protection and therefore it would have been confirmed that LMS had sufficient capacity to understand and enter into an LPA which would appoint an attorney to manage her financial affairs. However, it had also been confirmed that LMS did not have sufficient capacity to understand a Deed of Variation to the Will and this is why the Court of Protection were involved.
If LMS did receive the inheritance at the age of 25 then she would no longer be entitled to means tested state benefits or for payment of her residential care fees by the Local Authority. This inheritance would impact both benefits.
The Court decided to allow the Deed of Variation stating that their motive for doing so was not to enable LMS to continue with means tested state benefits but to better effect LMS’s grandfathers intention which was that any gift would financially benefit her.
Points to note
The attorney proposed that the inheritance was settled into a Disabled Persons Trust and this would mean that the capital would not be taken into account for means testing. However, the OS that this would amount to a deliberate deprivation of assets and thus the settlement would be pointless as the capital would still be taken into account for calculating means tested state benefits.
The Court had to consider if the settlement would be caught under the anti-deprivation provisions. They held that any decision they made on behalf of LMS would be attributed to her.
The Court had to look at the purpose of the settlement. The question of whether the disposable capital was to deliberately deprive oneself of assets was considered by Mr Howell QC in R (H) 1/06. The question was whether the securing of such entitlement to benefits was a “significant operative purpose” of the Claimant’s actions in disposing of their capital.
In this case the Court was persuaded that the securing of the entitlement to benefits was not a “significant operative purpose” of the settlement as it would better represent LMS’s grandfather’s wishes i.e., to benefit LMS.
The Court therefore decided to approve the settlement into a Disabled Persons Trust.
This judgement is interesting and may set a precedent for future similar applications. Also it should put those preparing Wills to be alert to situations which involve a person with a learning disability who may not have the capacity to manage their own finances. If the gift had been made straight into a Disabled Persons Trust then all of this could have been avoided. However, please ensure that you do take advice from a specialist as to the advantages and disadvantages of a Disabled Persons Trust.
Please speak to our Head of Wills Trusts and Probate Paul Lowery who can be contacted on firstname.lastname@example.org
So, when putting money into a trust for a person who is receiving means tested state benefits you will need to look at the primary reason as to why it is being done. Is it to secure means tested state benefits (in which case this will be a deliberate deprivation of assets) or is it to fulfil some other intention of the testator (in which case you may be able to ask the Court to place such assets into a Trust)?
For more information about how the Court of Protection team could help you email Ruth Meyer at email@example.com.