London
New York
STEP London Central
Geneva
Greenwich
Vulnerable Settlors and Vulnerable
Beneficiaries
Hong Kong
Julia Abrey
Withers LLP
Milan
New Haven
Vulnerable settlors
Making gifts
• Law Society’s Practice Note 6.10.2011
'you must ensure that the client fully understands the nature,
effects, benefits, risks and foreseeable consequences of making
the gift, in order to enable them to form a view as to the wisdom
of the proposed transaction‘
• Motivations
• Fact Finding
• Risks and benefits
• Tax implications
Capacity
• Re Beaney [1978]
'the degree or extent of understanding required in respect of any
instrument is relative to the particular transaction which it is to
affect…Thus, one extreme, if the subject matter and value of a gift are
trivial in relation to the donor's other assets, a low degree of
understanding will suffice. But, at the other extreme, if its effect is the
dispose of the donor's only asset of value and thus, for practical
purposes, to pre-empt the devolution of his estate under [the donor's]
Will or …intestacy, then the degree of understanding required is as
high as that required for a Will, and the donor must understand the
claims of all potential donees and the extent of the property to be
disposed of '.
Mental Capacity Act 2005
• 2(1)For the purposes of this Act, a person lacks capacity in
relation to a matter if at the material time he is unable to make a
decision for himself in relation to the matter because of an
impairment of, or a disturbance in the functioning of, the mind or
brain.
• 3(1)For the purposes of section 2, a person is unable to make a
decision for himself if he is unable—
Mental Capacity Act 2005
• (a)to understand the information relevant to the decision,
• (b)to retain that information,
• (c)to use or weigh that information as part of the process of
making the decision, or
• (d)to communicate his decision (whether by talking, using sign
language or any other means).
Lifetime gifts and influence-1
Hart v Burbidge [2013] EWHC 1628
• Facts
• Actual v presumed influence?
• When can the Court intervene in presumed influence?
• Rebutting the presumption
• Attorneys and duty of care
• Relief
Lifetime gifts and influence-2
Brown v Stephenson [2013] EWHC 2531
• Facts
• Presumed undue influence?
Gifts and Powers of Attorney
Day and Another v Day [2013] EWCA Civ 280
• Effect of a general power
Gifts and EPAs
•
Enduring Power of Attorney – Schedule 4 paragraph 3 (3) MCA 2005
•
(3)Without prejudice to sub-paragraph (2) but subject to any conditions or
restrictions contained in the instrument, an attorney under an enduring power,
whether general or limited, may (without obtaining any consent) dispose of the
property of the donor by way of gift to the following extent but no further—
•
(a)he may make gifts of a seasonal nature or at a time, or on an anniversary, of
a birth, a marriage or the formation of a civil partnership, to persons (including
himself) who are related to or connected with the donor, and
•
(b)he may make gifts to any charity to whom the donor made or might be
expected to make gifts,
•
provided that the value of each such gift is not unreasonable having regard to all
the circumstances and in particular the size of the donor's estate.
Gifts and LPAs
•
12 Scope of lasting powers of attorney: gifts
•
(1)Where a lasting power of attorney confers authority to make decisions about P's property
and affairs, it does not authorise a donee (or, if more than one, any of them) to dispose of
the donor's property by making gifts except to the extent permitted by subsection (2).
•
(2)The donee may make gifts—
•
(a)on customary occasions to persons (including himself) who are related to or connected
with the donor, or
•
(b)to any charity to whom the donor made or might have been expected to make gifts,
•
if the value of each such gift is not unreasonable having regard to all the circumstances and,
in particular, the size of the donor's estate.
•
(3)“Customary occasion” means—
•
(a)the occasion or anniversary of a birth, a marriage or the formation of a civil partnership,
or
•
(b)any other occasion on which presents are customarily given within families or among
friends or associates.
•
(4)Subsection (2) is subject to any conditions or restrictions in the instrument.
Public Guardian Practice Note-Gifts (No 2/2102)
• Who is it for?
• Amount
• P’s financial circumstances
• Recipient
• P’s will
Gifts, attorneys and joint account
Day v Harris [2013] EWCA Civ 191
Using EPA and LPA to maintain 3rd parties
• Re Bloom 16.3.2012
'I direct my attorneys to use such of much capital and income as
they shall deem necessary to make provision for my wife's
maintenance and benefit’.
• Re Strange 21.5.2012
'I wish my attorneys to provide financial needs for my husband
in the same manner that I might have been expected to do if I
had had capacity to do so'.
• Re Drew 2012
EPA v LPA? Are the powers different?
EPA- Schedule 4 paragraph 3(2) MCA 2005
3 (2)Subject to any conditions or restrictions contained in the instrument,
an attorney under an enduring power, whether general or limited, may
(without obtaining any consent) act under the power so as to benefit
himself or other persons than the donor to the following extent but no
further—
(a)he may so act in relation to himself or in relation to any other person if
the donor might be expected to provide for his or that person's needs
respectively, and
(b)he may do whatever the donor might be expected to do to meet those
needs
Deputies and Gifts
‘The Deputy may (without obtaining any further authority from the
Court) dispose of P’s money or property by way of gift to any
charity to which he made, or might have been expected to
make, such gifts and, on customary occasions, to persons who
are related or connected with him, provided that the value of
each such gift is not unreasonable having regard to all the
circumstances and, in particular, the size of his estate’.
Cases-1
Re GM [2013] COPLR 290
• Facts
• Approved gifts and rejected gifts
• Deputies expenses
• Reasonableness
• De minimis
• Calling in the bond
• Criminal sanctions?
Cases-2
Re Treadwell [2013] EWHC 2409
• Facts
• Reasonableness
• Published judgement-Munby Statement
• Calling in the bond-?post death
• Factor of magnetic importance
Being removed- Re Harcourt [2013] COPLR 39
?A8 ECHR
Trusts for Vulnerable Beneficiaries
Introduction- a time of change
• Welfare Reform Act 2012
• HMRC review
• FA 2013 s216 and Sch 44
• Autumn Statement 2013
• Summary and when used
Who is a disabled person?
Prior to 8 April 2013, a disabled person was defined in IHTA 1984, s 89(4) as a person who,
when property was transferred into the settlement, was:
•
incapable, by reason of mental disorder, within the meaning of the Mental Health Act 1983,
of administering his property or managing his affairs; or
•
in receipt of an attendance allowance under the Social Security Contributions and Benefits
Act 1992, s 64 or the Social Security and Benefits (Northern Ireland) Act 1992, s 64; or
•
in receipt of a disability living allowance under the Social Security Contributions and
Benefits Act 1992, s 71 or the Social Security and Benefits (Northern Ireland) Act 1992, s 71
by virtue of entitlement to the care component at the highest or middle rate
Now- in receipt of PIP by virtue of entitlement to the daily living or mobility component at the
standard or enhanced rate
Personal Independence Payment and WRF 2012
• What is PIP?
• What is wrong with DLA?
• Who can claim PIP?
• Structure, components and activities
• Assessments
• Qualification
• Timeline
• Existing trusts
What is mental disorder?
•
organic mental disorder – Alzheimer's or other forms of
dementia;
•
affective disorders such as bipolar or depression;
•
schizophrenia and delusional disorders;
•
neurotic disorders including phobias, obsessive compulsive
behaviour, PTSD;
•
autistic spectrum disorders including Asperger’s syndrome;
•
learning disabilities;
•
personality changes arising from brain injury;
•
personality disorder.
Taxation of Trusts for Vulnerable Beneficiaries
S89 IHTA 1984
Disabled Persons Interest
•
section 89B(1)(a) – an interest in possession to which a disabled person is
treated as being beneficially entitled.
•
•
section 89B(1)(b) – an interest in possession to which a person with a
condition expected to lead to disability is treated as beneficially entitled.
•
•
section 89B(1)(c) – an interest in possession to which a disabled person
is actually beneficially entitled.
•
•
section 89B(1)(d) – an interest in possession to which a person with a
condition expected to lead to a disability is actually beneficially entitled.
Taxation- IHT
• Entry,exit and periodic charges
• Charge on death
Benefitting non-disabled beneficiaries
£3000 or 3%
Vulnerable beneficiaries FA 2005 s23-41
• Definition of vulnerable beneficiaries
• Qualifying for the regime
• The relief
• Election
• Practical points
TCGA 1992 Sch1 para 1
Advantages and disadvantages of disabled trusts
• S89 regime favourable (inc for benefits) but..
• Not as good as it should be but got much better
• restrictive after the changes
• Accounting tricky and VB regime heavy on
paperwork
But.. Further change to come?