The Court of Protection has recently approved variation of a disabled person’s share of an estate, but what does this case mean for disabled beneficiaries or any beneficiary who stands to lose means tested benefits or local authority care funding from now on?
The Case
The case of Re LMS [2020] concerned the inheritance belonging to LMS, a 21 year-old with severe autism, who had been assessed in July 2020 as lacking the mental capacity to manage her own financial affairs. LMS’s grandfather had sadly passed away, leaving a Will which left 30% of his estate to LMS, for her to inherit at the age of 25. This share of the estate amounted to approximately £170,000.
LMS is in receipt of Employment and Support Allowance, which is a means-tested benefit. She also has a placement at a specialist residential college for young people with learning disabilities. This placement is funded by the local authority and the residential component of that funding is also means-tested.
Unless action was taken, upon reaching the age of 25, LMS’s entitlement to means-tested benefits and the accommodation component of her placement would have ceased due to receipt of her inheritance. This would have led to LMS needing to pay for her college placement and all necessities covered by her Employment and Support Allowance out of her inheritance, until her funds were reduced to the point that she re-qualifies for means tested benefits.
LMS’s mother, who is also her Attorney for Property and Financial Affairs, applied to the Court of Protection for permission to place the money into a Disabled Person’s Trust to be managed by LMS’s parents for her benefit. The hope was that placing the money into trust in this way would preserve LMS’s right to receive means-tested benefits whilst ensuring that she enjoys the full amount of her inheritance from her late grandfather.
The Official Solicitor was appointed to act as the litigation friend for LMS and opposed the application, submitting that it would not be in LMS’s best interests. The objection was on the grounds that writing the inheritance into trust may represent a deprivation of capital, with the result that she may lose her eligibility for means-tested benefits in any event. Furthermore, the settlement of the inheritance onto trust would be contrary to a capacitous decision made by LMS, for her finances to be managed by her attorneys, with less supervision of the trustees than the statutory regime under the Mental Capacity Act 2005 provides for.
Perhaps surprisingly, the Court authorised the creation of the trust. The Judge held that varying LMS’s inheritance so that her share passed into a disabled person’s trust was in her best interests, on the ground that this gives effect to her grandfather’s intention that his Will should benefit LMS financially. It was heard in evidence that the grandfather had made enquiries into LMS’s financial circumstances before making his Will, but had not been provided with the correct information by her parents. If he had understood that LMS would lose her benefits, he is likely to have made a different Will, incorporating a trust for her benefit. The Judge further ruled that in this case, preserving LMS’s eligibility for benefits was not the primary consideration, compared to giving effect to the grandfather’s intentions.
What does this mean for LMS?
Although the words of the judge may be persuasive, it is not for a judge in the Court of Protection to make a decision as to whether or not LMS will retain her benefits and local authority funding as a result of settling the inheritance onto trust (a point made by the judge himself within the judgement). These decisions will still be made by the relevant authorities, here the local authority and the Department for Work and Pensions. It therefore remains unclear whether the variation of the estate will have the effect that LMS’s parents desired.
Can I vary my own or another’s entitlement to an estate in order to preserve entitlement to means tested benefits and social care funding?
It is always possible to vary your own entitlement to an estate if you have capacity to do so. This is done by Deed of Variation if you wish to decide who receives the funds instead (or to settle into a trust), or by a Deed of Disclaimer if you wish to give up your entitlement entirely. However, it has always been understood that such actions are often viewed as a deprivation of capital for means tested benefits and local authority funding. It may be an uphill battle to persuade the relevant authorities to accept that retaining eligibility for such benefits was not your primary reason for any such variation.
If you act as an attorney or deputy of someone who lacks capacity and receives some form of means tested benefit or funding, you may be tempted to assume this case means you may be successful in asking for the Court of Protection’s approval of such action. However, caution should still be undertaken, the Re LMS case was determined very much on its specific facts, and each case would be assessed by the judge on its own merit. Even if the application to vary the entitlement to leave their share in trust was approved, means tested benefits and social care funding may still be lost. You will need to carefully consider if such an application is, therefore, in the best interests of that person. If you would like to discuss your particular circumstances further, please contact us.
Leaving an inheritance to someone on means tested benefits or funding
If you intend to leave any part of your estate in your Will to someone you know receives benefits or local authority funding, it is essential to consider whether you should be leaving them a direct inheritance. This case serves to demonstrate that receiving a generous gift in a Will outright can have unforeseen negative consequences for some beneficiaries.
Your solicitor will be able to help you find the right solution, which may involve leaving their share or the entire estate in trust. Our team of experts can assist, please contact Charlotte Crawford for further information.
Charlotte Crawford, Head of our Private Client team - contact Charlotte by email or telephone - 0161 871 3680