Where an individual is mentally incapacitated, the way in which their assets should be managed is often a point of contention. It is, however, an important decision in regards to the individual and the future of how their assets are dealt with.
The case of SM v HM highlights this deliberation process, as well as the nature of the test which the court will apply to the facts at hand.
The Court of Protection has numerous powers in relation to asset management of someone who is mentally incapacitated. They may authorise the creation of a trust to contain the property of the individual, or appoint a deputy to be in charge of the property and affairs. When deciding the best option to choose, the best interests of the individual must be considered.
Due to complications at her birth, seven-year-old HM lacked mental capacity as a sufferer of cerebral palsy. She was awarded a £450,000 payment following litigation with the NHS Trust, as well as annual payments of £25,000, rising to £50,000 once she reached 18.
Prior to the structured settlement order, negotiations with HM’s counsel had mentioned the set-up of a personal injury trust to administer the award. As outlined in the order, HM’s solicitors were directed to apply to the Court for authorisation to create a personal injury trust.
The trust proposal was heard by DJ Ashton, who refused it on the grounds that instead, a deputyship order was in HM’s best interests where administration of her personal injury damages was concerned.
The mother of HM wished for the decision to be reconsidered and applied once again to the Court of Protection. As the application raised additional issues, the Official Solicitor agreed to act as HM’s litigation friend.
The original order made by DJ Ashton was on the foundation that only in exceptional circumstances, when managing assets of a mentally incapacitated individual, would a trust be created as opposed to a deputyship order or direct instruction under Court of Protection jurisdiction. The case brought up the issue of whether it would ever be appropriate for the Court to favour the trust creation over appointment of a deputy. On this basis, it was felt that rehearing HM’s application would be appropriate so that the various issues could be fully explored and guidance could be laid out by the court for future cases of this nature.
Under the powers of the Mental Capacity Act 2005, Court of Protection Judge Hazel Marshall QC held that a deputyship order should always be the starting point when considering such a decision. If thought to be in the best interests of the individual, this starting point would not preclude the court from instead making the decision to create a settlement.
When reaching a decision, the court should consider various fundamental factors and apply them to the case at hand.
- Deputyship limits in comparison to a settlement
- Capability of dealing with the totality of the individual’s affairs
- Possibility of both deputyship and a settlement running parallel
- If any family members would be suitable trustees
- If trust had been presented to the court to consider, was this suitable with sufficient trustee powers?
- Whether the method was the least restrictive option for the individual
- Consideration of the views of the individual’s carers as well as those interested in their welfare
- Whether the method offered the best protection for the individual’s assets
- Whether there were any safeguards to monitor the trustee or deputy actions
- The level of asset protection offered by both methods
- Whether one method would give a more favourable outcome in relation to the future tax liability of the individual
- Whether one method would be a preferable way of retaining eligibility for means-tested benefits, should the individual be entitled to them
- The overall expense of both methods
- Whether one method would allow greater powers of scrutiny and control in relation to continuing costs
- Where the case concerned personal injury, whether budget sums had already been accounted for in relation to the individual’s award
- Whether one method would provide favourable powers of investment
- Whether future Court of Protection involvement would be beneficial
- Whether the use of a trust would improve family involvement
In considering HM’s case in relation to these numerous factors, it was held that creation of a trust to manage personal injury damages was in HMs’s best interests.
As HM’s award was reasonably small in scale and unlikely to cover her financial needs, the judge viewed the cost savings by using a trust as more important than usual.
A further important contributor to the decision was HM’s mother who displayed a great level of competency, as well as being responsible and educated. The court believed she could provide a safeguard against any professional fee escalation that may rise from the use of a trust, by appointing her as a trustee. The potential professional trustee in HM’s case had offered to bring his costs in line with what a deputy would be permitted to charge through capping his fees.
The judge also considered potentially appointing both the professional trustee as well as HM’s mother as deputies, but concluded that the overall costs saved using a trust would make it the preferable option.
