“Survival to late twenties and early thirties is probable if current pattern of care is sustained.”
“I would expect James to survive into his mid forties and perhaps into early fifties if his current pattern of round the clock care and appropriate medical treatments are given to him. This is an upward revision in his estimated survival figure from my last report.”
“For James this raises his life expectancy to between 40 and 45 years at present, as per the joint statement agreed by Drs Ramesh and Rosenbloom. However the data continues to show improved survival rates and it may well be that revision of the epidemiology in years to come may show further increments in James’ life expectancy. For these reasons I feel it is entirely reasonable to perform major structural renovations at his home.”
“The patient lives with his parents who are his main carers. The benefit to him is twofold. Firstly he is taking a step which preserves the value of his estate post death as he would want his parents to benefit to the extent that tax is saved. Only he can do this. Secondly by enhancing their future inheritance prospects in the way proposed, it is all the more likely that his parents will be better enabled to remain living with the patient together under one roof in the years ahead and this clearly will be of great benefit to him.”
“Permission to transfer£325,000 of the patient’s funds into a flexible power of appointment trust with the intent that substantial Inheritance Tax will be saved (at today’s rates£130,000 ) provided he lives 7 years.”
“The Proposed Scheme 14. The Deputy proposes that James should transfer£325,000 into a Flexible Power of Appointment Trust. Details of the scheme are set out in Mr Kelly’s reports. The proposed form of declaration of trust is at [page numbers]. 15. The scheme operates in the following way. Insurance policies are purchased with successive maturity dates, which are held on bare trust for the settlor (James). The settlor then takes all rights under the policies on a discretionary trust from which he is excluded from benefit but retains the maturity benefit. At the maturity date of the policy, the trustees (who will include the deputy) have discretion whether to postpone the maturity date, surrender the policy or allow it to mature. If the policy is allowed to mature, the benefit is to be paid to James. If the trustees do nothing, this is the default position. Inheritance Tax (“IHT”) Consequences 16. IHT is mitigated by transfer of property out of a person’s estate. The proposed gift is within the current nil rate band so that although the creation of a discretionary trust is an immediately chargeable transfer, there will be no IHT immediately payable. If James survives for 7 years, the sum will be left out of account in calculating IHT on James’s estate, resulting in an IHT saving of£130,000 . 17. There are anti-avoidance provisions at s.102-102CFinance Act 1986 which prevent a donor from giving away property but retaining a benefit in it. This is known as reservation of benefit. 18. Under the proposed arrangement, James is capable of benefiting from the policy on maturity. At first sight, this appears to be a reservation of benefit. The reservation of benefit provisions avoid a person “having his cake and eating it.”
“29. Given the unfortunate circumstances and consequences of James’ birth, he is not able to partake in the decision-making process. Furthermore, he cannot (and never has been in a position to) comment on the proposals currently before the court or to express any relevant wishes or feelings that might be of assistance to the court in determining what is in his best interests. In the circumstances, therefore, several of the factors set out in s.4 of the MCA 2005 and several of the propositions that arise from the decision of Munby J. in Re M are of no assistance to the court in determining what is in James’ best interests as regards the proposal before the court. 30. In the circumstances, therefore, the court is limited in the factors upon which it can sensibly rely when determining what is in James’ best interests. 30.1 The court must have regard to the beliefs and values that would be likely to influence James if he had capacity and other factors that he would be likely to consider if he had capacity to do so. In the case of a person such as James, whose capacity has been severely impaired since birth, there is little (if any) scope for the court to rely on subjective beliefs and values. It is limited to relying on an assumption that James would have been guided by the belief that, all other things being equal, he should seek to arrange his affairs in such a way as to minimise insofar as is financially prudent and reasonably practicable, the exposure of his estate to IHT with a view to maximising the benefit from that estate receivable by his family. However, given that this is a mere generalisation and is not reflective of any particular beliefs or values that, in fact, are exhibited by James, the weight to be attributed to this factor must be limited. In more general terms, however, the Official Solicitor accepts that James would, if he had the requisite capacity, wish to benefit his parents (who, of course, are his primary carers) as far as is reasonably possible, practicable and sensible in the light of his own actual and potential needs and requirements. 30.2 As noted above, the court may (and, in the Official Solicitor’s submission, should) have regard to the views of the deputy and James’ parents as to what is in the best interests of James. Although they have adduced no evidence, it is understood that James’ parents support the deputy’s application. 30.3 As regards the obligation to have regard to the other factors to which James would have regard if he had capacity and, more generally, the obligation to have regard to all the relevant circumstances, the Official Solicitor submits that there are two factors of overwhelming – or, to use the language of Munby J. in Re M, magnetic – importance. They are the same two factors as were relied upon by the Official Solicitor when the original application came before District Judge Dawson in January 2009, viz. the financial prudence and affordability of the proposal, and the effectiveness of the tax planning. Prudence and affordability 31. The deputy is candid in explaining the motivation behind this application: it is an attempt to reduce the IHT that will arise in respect of James’ estate upon his death (which, as matters now stand, will pass to his parents under the rules relating to intestacy). The Official Solicitor does not consider that the gift would provide any other direct benefit to James. 32. The Official Solicitor accepts that, in an appropriate case, the court may authorise the gift of a property as being for the benefit of an incapacitated person where the sole motivation is IHT mitigation. An example of such a situation, albeit one that arose under the pre-MCA 2005 legislation, is Re C (a Patient). The Official Solicitor is not satisfied, however, that the present case is an appropriate one for a substantial gift that is driven purely by an intention to save IHT. 33. The Official Solicitor submits that this is not a case where an incapacitated person has more capital than he could possibly need, even on an overly-cautious view, for the rest of his life. Where a person has such a surplus, it may well be in his interests to mitigate future IHT by making gifts inter vivos. A clear example of such a case would be where an elderly person (but one with a life expectancy of more than seven years) has considerably more capital than he could reasonably need to meet, even on a worst-case scenario, his needs for the remainder of his life. The Official Solicitor submits, however, that a purely tax-driven disposal of assets can be in the best interests of the disponor only if the court is satisfied that the disposal of the capital would result in no risk to his future financial security, even on a cautious appraisal of his future needs. 34. The amount of capital that James received by way of damages was calculated on the basis that it should provide for losses already incurred and for his future care and other needs for the duration of his life. As noted above, James’ life expectancy has been revised upwards since the date of the settlement. The Official Solicitor submits that, where a damages award has been calculated to make provision for an incapacitated person for the rest of his life, it cannot be said that any part of those damages is surplus to that person’s requirements and, hence, it cannot be in that person’s best interests to dispose of any part of his damages award. 35. Even if James’ financial position has improved, i.e. even if the income from his assets is now expected to be sufficient to cover his future expenses or if there has been an unexpected or unaccounted for capital appreciation (and in the present case there is no evidence of such capital appreciation except in the case of the property), it is still in his best interests that he should retain significant amounts of capital to cover as-yet unforeseen circumstances (including, it is to be hoped, future increases in his life expectancy). For example, if James’ parents were to predecease him or become unable for them to care for him themselves, his care costs could well increase. It is in his best interests that he should retain sufficient capital to deal with such a possibility. 36. In Re S (Gifts by Mental Patients)[1997] 1 FLR 96 at 97, Ferris J. held that the evidence before him showed that an elderly spinster had “a substantially greater estate than she needs for her current purposes or, on any realistic and even cautious appraisal of what may happen in future, she is ever likely to need.”
“(1) the balance sheet approach” in Re A (Medical Treatment: Male Sterilisation)[2000] 1 FLR 549 ; and (2) factor of magnetic importance” in Crossley v Crossley[2007] EWCA Civ 1491 ,[2008] 1 FLR 1467 , at para [15], where he said, “All these cases are fact dependent and this is a quite exceptional case on its facts, but if ever there is to be a paradigm case in which the court will look to the prenuptial agreement as not simply one of the peripheral factors in the case but as a factor of magnetic importance, it seems to me that this is just such a case.”
“I turn from the outcome in the present case to some more general observations. There can be no doubt in my mind that the evaluation of best interests is akin to a welfare appraisal. The speeches in Re F (mental patient: sterilisation)[1990] 2 AC 1 ; sub nom F v West BerkshireHealth Authority (Mental Health Act Commission intervening)[1989] 2 All ER 545 read in their context can only bear this interpretation: see particularly the speech of Lord Goff ([1990] 2 AC 1 at 77,[1989] 2 All ER 545 at 567). Subsequently the Law Commission in their 1995 report on mental incapacity recommended an extensive evaluation of best interests: see para 3.28. The latest statement of government policy in Making Decisions shows that the government currently accepts the Law Commission’s recommendation: see para 1.10. Pending the enactment of a checklist or other statutory direction it seems to me that the first instance judge with the responsibility to make an evaluation of the best interests of a claimant lacking capacity should draw up a balance sheet. The first entry should be of any factor or factors of actual benefit. In the present case the instance would be the acquisition of foolproof contraception. Then on the other sheet the judge should write any counterbalancing dis-benefits to the applicant. An obvious instance in this case would be the apprehension, the risk and the discomfort inherent in the operation. Then the judge should enter on each sheet the potential gains and losses in each instance making some estimate of the extent of the possibility that the gain or loss might accrue. At the end of that exercise the judge should be better placed to strike a balance between the sum of the certain and possible gains against the sum of the certain and possible losses. Obviously only if the account is in relatively significant credit will the judge conclude that the application is likely to advance the best interests of the claimant. I suggest this approach only because Sumner J’s judgment in the present case seems to me to concentrate too much on the evaluation of risks of happenings, some of which seem to me at best hypothetical. A risk is no more than a possibility of loss and should have no more emphasis in the exercise than the evaluation of the possibility of gain.”
“31. It is, in contrast, a process very familiar to judges in the Family Division, with their long experience of applying structurally somewhat similar schemes such as the statutory schemes undersection 1 of the Children Act 1989 andsection 1 of the Adoption and Children Act 2002 and, in a financial context, undersection 25 of the Matrimonial Causes Act 1973 . And a similar approach has, unsurprisingly, been adopted by the judges when exercising the inherent jurisdiction of the Family Division in relation to incapacitated or vulnerable adults: see, for example, Re MM; Local Authority X v MM (by the Official Solicitor) and KM[2007] EWHC 2003 (Fam) ,[2009] 1 FLR 443 . 32. Deriving from that experience it may be useful to make three points, very familiar in the context of those other jurisdictions, which, allowing for the somewhat different context with which I am here concerned, seem to me to be of equal application to the statutory scheme under sections 1 and 4 of the 2005 Act: i) The first is that the statute lays down no hierarchy as between the various factors which have to be borne in mind, beyond the overarching principle that what is determinative is the judicial evaluation of what is in P’s “best interests”. ii) The second is that the weight to be attached to the various factors will, inevitably, differ depending upon the individual circumstances of the particular case. A feature or factor which in one case may carry great, possibly even preponderant, weight may in another, superficially similar, case carry much less, or even very little, weight. iii) The third, following on from the others, is that there may, in the particular case, be one or more features or factors which, as Thorpe LJ has frequently put it, are of “magnetic importance” in influencing or even determining the outcome: see, for example, Crossley v Crossley[2007] EWCA Civ 1491 ,[2008] 1 FLR 1467 , at para [15] (contrasting “the peripheral factors in the case” with the “factor of magnetic importance”) and White v White[1999] Fam 304 (affirmed,[2001] 1 AC 596 ) where at page 314 he said “Although there is no ranking of the criteria to be found in the statute, there is as it were a magnetism that draws the individual case to attach to one, two, or several factors as having decisive influence on its determination.”
“31. The issue which needs to be addressed in the present case is: is it in the best interests of Mrs G to make payments to her daughter C? 32. One response to this question might be that, whilst such payments will be for the benefit of C, the payments will not be, in any real sense, for the benefit of Mrs G. If the word “interests” in the phrase “best interests” refers to the self-interest of Mrs G, it might be asked: what self-interest of Mrs G is advanced by payments to C? If the suggested answer is that such payments will benefit Mrs G and be in her interests because Mrs G will be pleased that the payments are made to her daughter, on the facts of this case, Mrs G will never know that the payments are being made and there will be no reaction, of pleasure or otherwise, to that fact.”
“The provisions of section 4(6) (b) and (c) extend beyond the actual wishes of P. They refer to the matters which P would be likely to consider if he were able to make the relevant decision. P would be likely to consider any relevant beliefs and values and all other relevant factors. Therefore, the matters which the court must consider under these paragraphs of section 4(6) involve the court in drawing up the balance sheet of factors which P would be likely to draw up if he were able to do so. Of course, the ultimate question for the court is: what is in the best interests of P? The court will necessarily draw up its own balance sheet of factors and that may differ from P’s notional balance sheet. The court is not obliged to give effect to the decision which P would have arrived at, if he had capacity to make the decision for himself. Indeed, section 4(6) does not expressly require the court to reconstruct the decision which P, acting reasonably or otherwise, would have reached. Nonetheless, if the court considers the balance sheet of factors which would be likely to influence P, if P had capacity, the court is likely to be able to say what decision P would be likely to have reached. The court is not obliged to give effect to the decision which P, acting reasonably, would have made (the test of “substituted judgment”) but section 4(6) appears to require the court to consider what P would have decided (or, at least, the balance sheet of factors which P would be likely to have considered). My provisional view is that, in an appropriate case, a court could conclude that it is in the best interests of P for the court to give effect to the wishes which P would have formed on the relevant point, if he had capacity.”
“62. I next ask myself whether there are any other matters to be reflected in the balance sheet of relevant matters. At the hearing, there was reference to the fact that lifetime gifts from Mrs G to C might result in some modest saving of inheritance tax on Mrs G’s death, depending on how long Mrs G continued to live after making any relevant lifetime gift. The submissions of Miss Rich and Mr Rees on that point attached comparatively little weight to that consideration. I agree with their approach. The tax saving possibility is a factor in favour of making the gifts in question but the factor has limited weight on the facts of this case having regard to the amount involved and the life expectancy of Mrs G. Nonetheless, this factor does not count against the making of the order which is sought. 63. For the sake of emphasis, I wish to repeat a matter I referred to separately earlier in this judgment. I have referred to the question whether Mrs G would retain sufficient funds to allow the Deputy to make proper provision for her for the remainder of her days. I also stated that an assessment of this kind must be a cautious one. These are plainly relevant matters.”
“I do not think there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sums of money to be given for reparation of damages you should nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which he is now getting compensation or reparation.”
“If a claimant dies much earlier than expected, a lump sum award will provide a windfall for the heirs of that claimant and it will be they who benefit most from the award. It is sometimes argued that this does not matter because the lump sum payment still serves to penalise the defendant. But the purpose of tort law in these cases is to compensate claimants for loss, in particular by restoring them, so far as possible, to the financial position they enjoyed before the accident: it is not to punish defendants or provide heirs of the deceased with a financial gain beyond any compensation that was awarded to them by the court. And the cost of any ‘windfall’ or ‘profit’ is ultimately borne, for example, by other insurance premium payers or by users of the NHS.”