The Mental Capacity Act 2005 grants a Deputy various powers in respect of a Patient’s property and affairs and of particular note is the authority granted under section 16 (b) to “the sale, exchange, charging, gift of other disposition of P’s property”. This power enables a Deputy to gift the Patient’s property so long as the proposed gift is in the Patient’s “best interests”.
Section 4 of the Mental Capacity Act provides guidance on the factors that should be considered by a Deputy when making a decision about best interests. This includes the Patient’s past and present wishes, feelings, beliefs and values, as well as any other factors that the Patient would be likely to consider, if he or she were able to do so.
In the recent case of KGS v JDS  EWHC 302 COP the matter of making a substantial gift to the parents of a young man (“P”) – a victim of clinical negligence at birth and suffering with cerebral palsy – came before the Court of Protection.
An application was made by P’s Deputy of Property and Affairs for permission to gift £325,000 of P’s compensation settlement into trust. The intention was to achieve a substantial Inheritance Tax saving on P’s death. It was predicted that P would pre-decease his parents, as a result of his complex medical problems. The intended beneficiaries were P’s parents.
Senior Judge Lush, in addition to the best interest considerations under section 4, also considered factors of “magnetic importance” stating that:
“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 on which it was based”.
In paragraph 36 he goes on to say that:
“in very simple terms, if the calculation for P’s future care costs was correct back in 2001 when his claim settled, then, on the last day of his life, he should be in the process of spending the last pound of that head of damages. There should be nothing left over after his death. If the sum awarded runs out before then, it could be said that his parents and his deputy had been extravagant and imprudent. Conversely, if there are substantial funds left over, it could be argued that they have been parsimonious and may have denied him the care, attention and quality of life to which he was entitled”.
Senior Judge Lush concluded that although the Court is generally sympathetic towards family members who take on a caring role and dedicate their lives to looking after an injured relative, he states, at paragraph 39, that:
“it is not the function of the court to anticipate, ring-fence or maximise any potential inheritance for the benefit of family members on death of a protected party, because this is not the purpose for which the compensation for personal injury was intended. The position would be different, of course, if the individual concerned had substantial funds surplus to his requirements that were derived from another source, such as an inheritance or a lottery win”.
This establishes that Court will be reluctant to authorise a substantial gift to family members from a Patient’s compensation award. It will usually take the view that a Deputy should maintain a conservative approach to spending and budgeting for future needs. This is no least because a Patient’s future circumstances can rapidly change. An injured party might require additional, more expensive care in the future. Alternatively, where care is provided by family members, a Deputy may not be in a position to rely on the care being in place indefinitely.
The Court will however differentiate those persons who, in addition to their damages award, have wealth from an independent source. In those circumstances, the Court may take a different approach to a proposed gift, if the future needs of a Patient are comfortably provided for. Exception may also be made in circumstances where the value of a compensation award has significantly increased or where investments have significantly out-performed predictions.
However in reality, as a significant proportion of compensation awards are compromised at under 100% recovery, the fund is compromised from the outset. It will, therefore, be even more important to ensure sustainability by adopting a cautious approach to expenditure and any potential gifts.