In the case of Re AK (Gift Application) the Court of Protection was asked to consider the making of a gift from the damages award of a disabled 11 year old boy to his parents. AK suffered with cerebral palsy due to clinical negligence sustained at birth. He had received a substantial lump sum payment of over £1m together with index-linked periodical payments for the rest of his life by way of damages award. Those funds were managed by a professional Deputy and medical experts predicted that AK was unlikely to live beyond the age of 15. AK’s funds were invested in a property in Essex (the family home) and the majority of the remaining capital was invested in a managed portfolio. AK had an income of almost £160,000 per annum which (after deducting expenditure on care and other matters) left him with a surplus income of over £95,000 per annum.

AK lived in the UK with his parents, although his family were Pakistani and AK had many relatives in Pakistan. AK would visit Pakistan with his parents for approximately 4-6 months of every year. AK’s parents had purchased some land in Pakistan with the intention of building a family home close to other extended family members. AK’s parents had requested £150,000 from the Deputy as a contribution to the construction of the property so that it could be built and adapted to meet the very specific physical needs of AK. 

The Deputy was concerned about the ability to obtain valid receipts and indeed monitor a building project in Pakistan and felt that a gift to the parents, who would in turn apply the funds directly towards the build and adaptations costs, would therefore provide a more practical solution. It was understood that AK benefited from the climate in Pakistan, had strong connections with his family there and that despite the proposed capital expenditure, there would be a saving on care costs (for the part of the year in which AK would be in Pakistan) which were shown to be significantly less in Pakistan than in the UK.

The Official Solicitor was invited to act as AK’s litigation friend and expressed some concern about the Court making an outright gift to AK’s parents, preferring a solution where AK retained some interest in either the land or the property by way of security of investment. The Official Solicitor did acknowledge that if it was not practical or appropriate for AK to have a secured interest in the land/property then a gift should be authorised on the condition that “the Deputy …be satisfied that it has been used by AK’s parents within some period for the construction or adaptions of a building appropriate for AK to live in”. Senior Judge Lushapplied a ‘balance-sheet’ approach setting out the advantages and disadvantages of the proposal. The advantages focused on the benefits of AK spending time in Pakistan with his extended family, care being provided in a more cost effective manner, health benefits from the climate in Pakistan and the ability of AK’s family providing suitable and safe accommodation for him in Pakistan. Disadvantages included a reduction in AK’s capital, the lack of costings, plans or proposals for the intended build and the inability to obtain an enforceable guarantee that the proposed gift would actually be applied by AK’s parents for the intended purpose.

Senior Judge Lush distinguished the case of Re JDS: KGS v JDS [2012] EWHC 302 COP (see previous blog) where he dismissed an application for a gift to the parents of a disabled man from a Personal Injury award, the primary purpose of that gift being to reduce the amount of inheritance tax payable on death. In that case, Senior Judge Lush felt that a cautious approach to expenditure and any potential gifts was preferable and that the saving of tax was not to be deemed a proper use of funds. Senior Judge Lush noted that in contrast with Re: JDS, the purpose of the application of the £150,000 from AK’s fund was to “provide suitable adapted accommodation for AK’s use and enjoyment, which is both a recognised head of damages and a proper use of his funds”. 

Senior Judge Lush did not authorise the gift per se but deemed it to be in AK’s best interests for matters to proceed by way of an interest free loan of £150,000 to AK’s parents stating that “AK will retain the capital as part of his estate and it is more likely to ensure that his parents comply with the purpose for which the loan is intended”.  The loan was ordered to be repayable at a rate of £15,000 per annum although the Deputy was simultaneously authorised to make annual gifts of £15,000 to AK’s parents “if there is sufficient income surplus to his requirements in each accounting period, to assist them in repaying this loan”.  The approach in this case is an interesting one as it has, for all intents and purposes, served to provide AK’s parents with the funds requested, whilst simultaneously protecting AK’s capital position should his circumstances change (the authority to make the £15,000 gifts each year were dependent on there being sufficient surplus income generated in AK’s fund).

The Mental Capacity Act 2005 limits a Deputy’s authority to make substantial gifts from a Patient’s funds and this approach has historically been supported by case law. It is however encouraging to see that the Court is prepared to construct perceptive and original solutions to help support the needs of a vulnerable child.