Protecting legacies for Protected Parties

Generally, disabled people tend to have limited life chances and income. As such an inheritance can be life changing. However, many such people are long term recipients of means-tested benefits. Consequently, receiving substantial capital often dis-entitles those people to the benefits on which they rely. The regulations apply so that the capital is useable only to replace their subsistence benefits.

I have previously written on the subject of vulnerable people being left out completely from a family estate, often due to this issue. In those circumstances it is possible to apply under the Inheritance (Provision for Family & Dependants) Act 1975 for an award of damages out of the estate. This can be settled into a discretionary vulnerable person’s trust, which ringfences the award for the purposes of means testing.

However, the position where a person is given a legacy under a will or trust is more problematic. As set out below, putting those monies, either through a deed of variation or a direct transfer, into such a trust is seen as a deliberate deprivation of capital and therefore can be reversed. Until recently, this was thought to apply even if the person was a protected party whose finances are managed through an attorney or a deputy under the Mental Capacity Act (MCA).

The recent case of FSS v LMS [2020] EWCOP52, seems to provide a mechanism for overcoming this problem where the beneficiary lacks mental capacity and falls within the jurisdiction of the Court of Protection.

The Facts of the case

LMS, a protected party, was in receipt of Employment and Support Allowance, a means-tested benefit. She also received means-tested funding from the local authority towards her placement at a specialist residential facility.

LMS was named as a beneficiary under her grandfather’s will. She had been left 30% of his residuary estate, which was to be held on trust subject to her attaining the age of 25. At 25 she would be entitled to take the legacy unconditionally. Furthermore, the trust was not set up so as to avoid means-testing. The estimated value of her share in her grandfather’s estate is £170,000. Consequently, upon receipt of the inheritance, her capital exceeded the threshold and she no longer was eligible to receive means-tested benefits.

The Applicant, LMS’s mother, made an application to the Court of Protection seeking to execute a deed of variation of the will which would allow LMS’ legacy to be placed into a disabled person’s trust. This would have the effect of ringfencing the inheritance, so that her entitlement to means-tested benefits is not affected.

However, the Official Solicitor, who represented LMS, opposed the application on the basis that if LMS’ inheritance is placed into such a trust this would amount to a deprivation of capital and consequently would not protect her entitlement to means-tested benefits. They also believed that a trust would not have the same safeguards as a deputyship, which would be required in the usual course of events.

The Court’s Decision

District Judge John Beckley first considered whether it was in LMS’ best interests for her grandfather’s legacy to be placed into a disabled person’s trust. In a very detailed analysis, District Judge John Beckley accepted the Official Solicitor’s argument that unless the trust protected LMS’ entitlement to means-tested benefits, it would not be in her best interests.

The Court therefore had to decide whether or not the deed of variation would protect LMS’ entitlement to means-tested benefits.

It is well established that if a person deprives themselves of capital for the purpose of retaining entitlement to means-tested benefits, the person will be treated as still possessing the value of the actual capital. The central question to be considered is whether the ‘significant operative purpose’ in depriving the person of the capital was to establish entitlement to means-tested benefits.

The Court in this case found that the significant operative purpose of the proposed deed of variation was not to deprive LMS of capital so that her entitlement to means-tested benefits remains unaffected. Rather, it was intended to ‘better effect LMS’s grandfather’s intention that his will would financially benefit LMS’. The deed of variation was therefore approved.

However, if a Benefits Tribunal were to review the transfer into the trust, would it not find that protecting her entitlements, amounted to a significant operative purpose for depriving LMS of her legacy?

The Court dealt with this by looking at the well-known factors that apply, when it makes statutory wills and dispositions. One important factor the court must consider is what the protected party (not her grandfather) would want. Although it is not clear that LMS had the capacity to consider the issue, or even knew her grandfather, it was held that she would have wanted to honour her grandfather’s wishes. The court went on to say that it was the court, not LMS making the decision. It was doing so on the basis of the above criteria and its purpose was not to establish entitlement to means-testing benefits.

Conclusion

The case does seem to open a way for protected parties with limited current resources to continue to claim an entitlement to means tested benefits. However, this is a first instance decision and the Benefits Tribunals may see things differently. It will be interesting to see whether it might be appealed or challenged in due course.

In the meantime, however, those looking after the interests of protected parties, who have been left a substantial inheritance, might think to apply to the Court of Protection. Any such application would be fact specific and need to be put forward so as to meet the criteria suggested in this case.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*