By Martin Terrell and Brian Bacon, Partners in Court of Protection. This article first appeared in the May 2012 edition of PS, the magazine of the Law Society's Private Client Section.
It has now been over four years since the Mental Capacity Act 2005 (MCA 2005) came into force on 1 October 2007. The new Court of Protection (CoP) that was created under the act is still, within context, very much in its infancy.
Nonetheless, it is already evolving, and bodies such as the Office of the Public Guardian’s (OPG’s) court user group provide input, on behalf of the profession, as to areas which need attention. This has led to developments such as forms being refreshed, and the Court of Protection Rules being revised.
Inevitably, the role of the CoP, its interpretation and application of the act, its application of the best interests test in different situations, and the manner in which it exercises its authority – particularly in relation to the delegation of its powers to court-appointed deputies – have been evolving, and will continue to do so. The last 12 months have seen various changes. This article will highlight and summarise some of the developments most relevant to those dealing with the CoP and OPG.
Supervision fee changes
The supervision fees that are levied on deputies and charged by the OPG underwent a restructuring as from 1 October 2011, following a consultation earlier in the year.
The four levels of supervision still remain. These are:
- type 1 – "close supervision";
- type 2A – "intermediate supervision";
- type 2 – "low supervision"; and
- type 3 – "minimal supervision".
Previously, each level of supervision was charged a different fee, but there is a now a flat rate supervision fee of £320 for types 1, 2A and 2. A small "administration fee" of £35 for type 3 has also been introduced; this level previously attracted no fee.
Type 3 categorisation, assuming that there are no other issues or factors that would suggest the case deserves a closer level of supervision by the OPG, is based on the level of capital. The current capital threshold for type 3 cases is £18,000. From 1 April 2013, this will increase to £19,500, and from 1 April 2014, it will increase again to £21,000.
However, following concerns raised in the consultation about the slow speed of this increase. the OPG's consultation paper indicated that it will, in October 2012, "assess how cases have fallen into the two supervision fee categories [types 2 and 3] over the period and consider if there is any possibility of arriving at the £21,000 figure sooner than 1 April 2014".
It should be remembered that it is the responsibility of the deputy to advise the OPG of any change of circumstances which may affect the level of supervision previously allocated. This does not only affect cases where the estate is falling in value. An estate may increase in value if, for example, the client’s property is sold, or if there is an inheritance, thereby increasing their liquid assets. Similar considerations apply where the level of security is concerned, which may also be affected by changes in the value of the assets under the deputy’s control.
Exemptions and remissions
The exemption and remission criteria for OPG fees (including fees for enduring and lasting powers of attorney, and Deputy supervision and set-up fees) also changed as of 1 October 2011.
Now, if the client is in receipt of certain means-tested benefits below and has not been awarded damages of more than £16,000 which were disregarded when determining eligibility for the benefit, they are eligible for a full exemption. The qualifying means-tested benefits are:
- income support;
- income support allowance (income-related);
- income-based Job Seeker’s Allowance;
- pension guarantee credit element of State Pension credit;
- a combination of working tax credit and either child tax credit, disability element working tax credit or severe disability element within the working tax credit (this does not include disability living allowance or invalidity benefit);
- housing benefit;
- council tax benefit; or
- local housing allowance.
One of the main changes in the October 2011 review was the abolition of partial remissions and the introduction of new redemption criteria. Now, the position is that if the client has gross annual income of less than £12,000, they will be eligible for a 50% redemption of the fee. Previously, there was a 100% remission available for those in this position.
Gross annual income includes money received from employment, non-means-tested benefits (such as disability living allowance), pensions, and interest from capital investments.
[subheading] Exemption from CoP fees
Although there were no changes to the exemption and remission criteria relating to CoP fees, it is worth highlighting that these criteria are separate from those outlined above, which relate to OPG fees. This distinction can sometimes be overlooked.
The qualification criteria for exemption from CoP fees are the same as outlined above in respect of supervision fees. This covers charges such as the initial application fee and hearing fee. However, the remission criteria are slightly different. This is dealt with on a sliding scale based on P’s gross income. The different levels are shown in Table 1. Gross income is defined in the same way as for the remission criteria for OPG fees.
The exemption and remission criteria should always be considered when making an application to the CoP.
|Table 1: Scale for remission of Court of Protection fees
|Up to £12,000
||There is no fee to pay
|£12,001 to £13,500
||75% remission – fee will be charged at 25% of the full fee
|£13,501 to £15,000
||50% remission – fee will be charged at 50% of the full fee
|£15,001 to £16,500
||25% remission – fee will be charged at 75% of the full fee
|£16,501 and over
||No entitlement to a remission
Return of nominated officers
As many practitioners will have experienced, the birth of the new CoP and the subsequent teething period has not been without its frustrations, and for court users, court staff, and the judiciary alike.
The MCA 2005 has proved to be an impressive piece of legislation that combines financial and welfare matters within a single judicial framework. However, these benefits have, for many practitioners, come at a price. While a formal judicial process is necessary where such important decisions are being made for persons who lack capacity, the act requires a degree of formality that is overly complex for many uncomplicated and routine applications. Furthermore, the requirement that each decision or order had to be made by a judge created a bottleneck where a handful of judges would have to work through a huge caseload. Often quite straightforward applications would be held up in a lengthy queue, taking their place with cases involving complex and time-consuming applications, hearings and directions.
The increase in the amount of time taken by the court to process applications has been a significant issue, particularly when dealing with vulnerable clients and anxious relatives (as well as their solicitors). This problem seemed unlikely to improve without the appointment of new judges, which would be unlikely in a time of financial constraints. However, a glint of light was seen in mid-2011, when the Ministry of Justice issued a consultation paper addressing the possibility of some court decisions being made by court officers rather than by judges. It had been the practice prior to the MCA 2005 for "nominated officers" to make orders; in practice, most property and affairs decisions were dealt with on this basis. Following that consultation, the Court of Protection (Amendment) Rules 2011 (SI 2011/2753), which came into force on 12 December 2011, have revived the role of the old nominated officer, albeit with a new label: "authorised officer".
These very senior civil servants, many of whom have been working at the CoP for a long time, will now be processing non-contentious property and financial affairs applications. They will be allowed to deal with matters such as initial applications to: appoint a property and affairs deputy; appoint and discharge a trustee; sell or purchase real property on behalf of P; vary security; and release funds for P’s maintenance.
Many matters will still continue to be decided through the judges within the CoP. This will include all applications relating to the CoP's personal welfare jurisdiction; applications for section 49 reports; deprivation of liberty cases; and cases involving statutory wills, settlements, large gifts and other complex or contested matters.
It is certainly hoped that these changes will free up the CoP's time to deal with the more significant applications quickly, and also allow some of the more straightforward applications to be turned around in a much speedier fashion. However, although it has been three months since the changes came into effect, evidence of significantly quicker turnaround times has not yet been noted.
Not-for-profit deputyship services
When the CoP reviewed its panel of deputies in March 2011, one of the things it was keen to do was invite applications from third sector organisations. However, very few applications were received. This low response from the ‘not-for-profit’ (NFP) sector prompted the OPG to instigate a call for evidence on the NFP delivery of deputyship services. The call for evidence was opened on 4 August 2011, and closed on 27 October 2011.
This call for evidence followed from the OPG’s belief that there are a significant number of people whose administrative needs are very straightforward, and would benefit from an NFP organisation handling their finances. The paper itself says: “Many of these people would benefit from the “soft” or pastoral skills of advocates, social workers and similar, and the value for money represented by organisations run on a not-for-profit basis.” However, the OPG does agree that, in some of the more complex cases, it is certainly necessary to involve the services of an experienced solicitor in the administration of a person’s finances.
The results from the call for evidence have not yet been published. It will be interesting to see how the NFP sector responded, and what conclusions the OPG reaches. It certainly remains to be seen whether the third sector has the resources, or indeed the desire, to take on the risk associated with managing the finances of the vulnerable. One important matter for consideration will certainly be the fees that these organisations would be allowed to charge for acting as deputies.
Rules of the Court Funds Office
The Court Funds Office is now integrated with the National Savings and Investment Office in Glasgow.
It should also be noted that the Court Funds Rules 2011 came into force on 3 October 2011, and now govern the way in which funds are paid into, dealt with, and paid out of, the CoP.
The rules set out: what documents are required to deposit funds; the investment options for a fund in court; who makes investment decisions and when investments may be made; deals with payments out of the fund in court; and what documents are required for payment out.
Publication of CoP judgments
One of the aims of the MCA 2005 was to increase public awareness of capacity, through raising the profile of the CoP as a court of record. This would include the reporting of decisions to guide practitioners, healthcare professionals and carers in their dealings with persons who may lack capacity. Since October 2010, there has been a database for CoP judgments on the website of the British and Irish Legal Information Institution (BAILII).
Although CoP cases are more widely reported, most of the cases that have been reported recently relate to welfare matters, which are beyond the scope of this article. Financial cases still attract less attention and are not always easy to track down, since they are often buried in the deepest recesses of the Ministry of Justice website. However, as from 1 January 2012, Jordans is now producing CoP reports. The series commenced with a one-off consolidated volume reporting judgments made between 1 October 2007 and 31 December 2011, followed by quarterly reports.
Case law roundup
Some very interesting cases have recently been heard which will undoubtedly be of significant interest to practitioners. These include Re HM, which considered the use of personal injury trusts, and JDS, which related to the application of the best interests test.
One very helpful judgment was given on 4 November 2011 by Her Honour Judge Marshall QC in the case of Re HM (11870543). The case addressed the suitability of a trust being used to administer a personal injury award, in place of a deputy acting under the jurisdiction of the CoP. Where a person lacks capacity to manage property and affairs and there is no lasting power of attorney in place, then it is assumed that the CoP will appoint a deputy for that person. In some cases, however, there is an argument that the estate can be dealt with more effectively through the creation of a trust. Trusts are typically created in personal injury cases to protect an award from being treated as capital when assessing entitlement to means-tested benefits. Prior to the MCA 2005 coming into force, such trusts were often created for persons who lacked capacity, on the grounds that a trust would be cheaper and more flexible to administer, compared to a receivership.
Since the MCA 2005 came into force, there has been some uncertainty as to what the approach of the CoP should be on an application. The case of Re HM provided a welcome opportunity for this important question to be considered with the care and thoroughness it deserves. The case originated in an application to the CoP for authority to create a trust to hold a personal injury award and then to discharge the deputy. Liability in the case was limited on causation, and therefore there was only partial recovery. The applicant contended that a trust, with HM’s mother and a solicitor acting as trustees, would be cheaper in the long run, and this would be in the best interests of HM.
The application was refused at first instance by District Judge Gordon Ashton. His decision set out succinctly the established view that a trust would not be in HM’s best interests. Judge Ashton gave the following reasons:
- The jurisdiction of the CoP has been established by statute specifically for managing and administering the financial affairs of persons who lack mental capacity to do so for themselves.
- The procedures of the CoP and role of the Public Guardian are for the benefit of the incapacitated person, and provide safeguards that Parliament has deemed necessary.
- There would not necessarily be a significant reduction in overall costs in the event of a personal injury trust, and the involvement of the CoP would be required in any event upon a change of trustees.
- Any overall financial savings that may be achieved would not justify a departure from the statutory jurisdiction.
- There would be less supervision and diminished protection if HM’s funds were placed in a personal injury trust.
- Any future intervention would potentially involve a Chancery Court as well as the CoP, and would, in consequence, be more protracted and expensive.
- The principal benefit of a personal injury trust, namely ring-fencing from means-testing, is likely to be available if the fund is retained in the CoP.
Her Honour Judge Marshall received representations from the Official Solicitor, who supported the original decision, as well as from solicitors specialising in both deputyships and private trusts. She concluded that, while every such application had to be considered on its merits, on the facts of this case, a trust could be created, in the context that the personal injury award was not fully funded and the setting up of the trust would represent a tangible cost saving which would free up funds for HM’s care. Having established a need to save costs, the judge identified three factors, “without which I would not have been prepared to authorise the creation of the relevant settlement” (at paragraph 172). These were:
- The administration of a trust, based on the evidence in this case, would be cheaper than a deputyship (there would, for instance, be no security bond premium or Public Guardian supervision fee).
- HM’s mother was “a competent, forceful, well-educated and responsible person” (paragraph 169) and her presence as a trustee would provide a means of monitoring legal costs (in the absence of the procedure for detailed assessment required from a deputy).
- The proposed professional trustee, Andrew Cusworth of Linder Myers, had agreed that his firm’s costs would be limited to the guideline rates that would be allowed on detailed assessment.
The case of HM was decided on its very particular facts, and despite the decision to approve the creation of a trust, it should not be seen as a green light for trusts to be created as a matter of course where there is a personal injury award. A party proposing a trust would still have to make an application to the CoP and persuade the court that a trust would not only be more cost-effective, but could also be managed so as to protect the trust’s assets as well as the beneficiary’s best interests. The applicant would have to produce evidence of a genuine need to reduce costs, and provide a detailed analysis of the costs and benefits of a trust compared to a deputyship. Evidence would need to be produced of the professional trustee’s charges and commitment to a charging policy, as well as to the lay trustee’s competence. The Official Solicitor would need to be instructed, and there is no guarantee the CoP would agree. The cost of the application itself would also need to be taken into account. The process would clearly add risk and cost to any application – a deterrent to all but the most determined (and well-founded) applications.
First instance decisions of the CoP are rarely reported, yet these cases provide a fascinating and useful insight into how the court exercises its jurisdiction under the MCA 2005. In the case of JDS (10334473), the CoP received an application for a lifetime gift of £500,000. The proposed donor, James, was a young man who recovered compensation of £2,090,000 following a claim for negligence as a result of complications at his birth. The purpose of the gift was to reduce the value of James’ estate for inheritance tax (IHT). It was argued on behalf of James that it was in his best interests to benefit his parents to the extent proposed and that, in return, they would be more likely to provide a home for him for the rest of his life.
Following objections from the Official Solicitor (who was appointed to act as litigation friend to James), the applicant, James’ deputy, applied for permission to make a gift of a reduced amount of £325,000 into a flexible power of appointment trust which would (so it was claimed) qualify as a potentially exempt transfer for IHT purposes. The application was dealt with by way of an attended hearing before Senior Judge Lush, on 21 November 2011.
In a lengthy decision, the Senior Judge considered the evidence and the submissions made with great care, and also set out the CoP's jurisdiction when making a gift on behalf of a person who lacks capacity. This covered not just the MCA 2005, but also case law, including the decision in Re G(TJ)  PWHC 3005 (COP). In that decision, Mr Justice Morgan had approved the use of a “balance sheet approach” in the context of assessing a person’s best interests. While the court should consider what a person’s likely decision would be if that person had capacity, it was not obliged to decide or implement the decision which that person would have reached. However, while the court should, where possible, give effect to a person’s likely wishes, it should not be overly concerned with a saving of IHT. Of more importance was the need to ensure that any gifts would not prejudice the ability of the deputy to make “proper provision for her for the remainder of her days” (at paragraph 63).
In applying the “balance sheet approach” to James’ case, the Senior Judge listed in detail the advantages and disadvantages of the application. He also sought a factor of “magnetic importance” which would help to tilt an otherwise finely balanced decision in one direction or the other. In this case, the factor of “magnetic importance” was the purpose for which James’ award had been made. As the judge explained (at paragraph 35) “in most cases where an individual’s assets derive exclusively from a damages award for personal injury, when determining whether making an inter vivos gift is in his or her best interests, the factor of magnetic importance is likely to be the purpose for which the compensation was awarded and the assumptions upon which it was based. This is not confined to the multiplicands and multipliers that have been applied in a specific case, but extends to the fundamental principles that underlie personal injury and clinical negligence litigation generally.” In this case, the award had been made to provide for James’ care and maintenance during his lifetime. It was not intended to be used to provide a benefit or potential benefit for family members. It was not in James’ best interests to secure a benefit for someone else after his death, when he was no longer living. This situation would have been different if James’ money had derived from another source, such as an inheritance or a lottery win. In this case, however, the court had to have regard to all the circumstances “including the purpose for which his damages were awarded and the preponderance of disadvantages over benefits” if the gift were to be made. The judge concluded that, regardless of the efficacy of the tax-planning arrangement that had been proposed, it would not be in James’ best interests to make a gift to mitigate the effect of IHT on death.
Although the case of JDS may set a precedent where tax planning measures are proposed for a claimant in a personal injury claim, it does not mean that no gifts can ever be made. There may be cases where a claimant (unlike James) may have capacity to wish to confer a benefit on someone else, and derive pleasure from this. The estate in this case was also a large one; the position might be different if the property were the main asset in the estate and would have to be sold to pay IHT. it is also common for small gifts to be made to relatives and carers which are in the best interests of the donor, proportionate, and do not prejudice the donor’s financial security.
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