Court of Protection – effect of use of deputyship to protect compensation over PI Trust

 In Wills

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Case Summary from LawSkills | Private Client specialist trainersThis significant and long-awaited case establishes a set of guidelines on when the personal injury damages of a mentally incapacitated person should be administered through a personal injury trust rather than through a deputyship.

The case – HM v SM [2011] COP 11875043 01 – also verifies the principle that funds from a personal injury award held within a deputyship account have the same umbrella of protection as those held within the ambit of a personal injury trust. Effectively, they are treated as ‘disregarded capital’, for the purposes of assessment for means-tested benefits,

Facts

The case involved HM, a 7 year old, who as a consequence of injuries sustained at her birth suffers with cerebral palsy. HM was awarded damages after proceedings were brought against the NHS. However, the damages were substantially discounted – a lump sum of £450,000 with periodical payments of £25,000 per annum increasing to £50,000 on HM attaining the age of 18. The damages were well below HM’s potential claim and were the result of a compromise order in which her advisers quantified, after taking leading counsel’s advice, that the claim had less than a 50% chance of success.

During the proceedings HM’s advisors proposed to set up a personal injury trust to administer the damages and the final structured settlement order directed that an application should be made on HM’s behalf to the Court of Protection to obtain authority to set up a personal injury trust to administer the damages for the benefit of HM.

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The original application to apply for an order to set up a personal injury trust was heard by DJ Ashton who took the view that HM’s damages should be administered through the structure of a deputyship rather than a personal injury trust on the basis that it was in HM’s best interests in accordance with section 1(5) Mental Capacity Act 2005 (MCA 2005) and that a personal injury trust would only ever be required in exceptional cases.

HM’s mother subsequently applied to the Court of Protection to have the order authorised by DJ Ashton reconsidered. The issues of the case were considered very significant and that guidance was required by the Court of Protection to verify the circumstances for when the creation of a personal injury trust was appropriate rather than a deputyship. Accordingly, authority was given for the order to be reconsidered before Judge Hazel Marshall QC.

The Law

The case hinged upon whether it was ever applicable for the Court of Protection to authorise the creation of a personal injury trust under section 18 MCA 2005 to manage a damages award on behalf of a  mentally incapacitated person rather than managing an award under the structure of a deputyship in accordance with section 16 MCA 2005.

The decision

Judge Marshall ordered that a deputyship should always be the starting point or the normal arrangement but this would not prevent the Court authorising the creation of a personal injury trust if this structure was in the incapacitated person’s best interests. In reaching her decision Judge Marshall specified, that the court should consider the following set of guidelines and apply them to the facts of each case in order to ascertain which management structure was appropriate and in the best interests of the incapacitated person. These are:-

  1. The limits of a deputyship regime compared to a settlement
  2. The ability to deal with totality of the mentally incapacitated person’s affairs
  3. The possibility of having joint deputies
  4. The availability of  a suitable family member as a trustee
  5. The statutory considerations of managing the mentally incapacitated person’s affairs through a deputyship or a trust
  6. The views of the mentally incapacitated person’s carers and those interested in his or her welfare
  7. Whether a deputyship or trust offered the best protection for the person’s assets
  8. What safeguards were in place to supervise a trustee or deputy
  9. What degree of protection could be given to the incapacitated person by a trustee in comparison to a deputy
  10. What structure would achieve be most advantageous for tax for the individual
  11. Which structure would give the better protection for retaining means-tested benefits
  12. The comparative cost and expense of a trust to a deputyship
  13. The availability of budget sums in any award for personal injury damages
  14. What was the best structure to oversee costs
  15. What structure would give the most administrative efficiency
  16. What structure would give the best investment powers
  17. Would the future involvement of the Court of Protection be an advantage or a disadvantage
  18. Would family involvement be increased through the structure of a trust

Judge Marshall applied the above set of guidelines to HM’s case and held that it was in HM’s best interests to create a personal injury trust to hold HM’s damages. One of the key factors in this judgment was that it was more cost effective to manage HM’s damages through a personal injury trust than through a deputyship, given that HM’s damages award was substantially discounted and would probably not meet her lifetime financial needs. Another key factor was that HM’s mother was to act as a trustee and was well-educated and competent and would provide a good safeguard.

Practice Points

  1. Practitioners should note that the Court of Protection regards a deputyship as the starting point or the normal arrangement to manage personal injury damages on behalf of an incapacitated person.
  2. Although a deputyship is regarded by the Court as the normal arrangement this does not prevent it from authorising the creation of a personal injury settlement. Practitioners should apply Judge Marshall’s set of guidelines to their case and if it is deemed in the best interests of the incapacitated person the Court will grant authority to create a personal injury trust.

By Gail Frankland & Gill Steel

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