If you’re the parent or guardian of a child that is expected to lack capacity as an adult, it can be very difficult to navigate the complex minefield of options that exist for managing their financial affairs and decision making.
There seem to be endless confusing options to consider, but what is the right choice – Trustee? Attorney? Appointee? Executor? Or Deputy?
This article will explore these options in more detail in relation to decisions concerning property and affairs.
The two most relevant kinds of Trust are:
- Personal Injury Trusts (PIT), and
- Vulnerable Beneficiary Trusts (VBT).
Personal Injury Trusts (PIT):
A Personal Injury Trust (PIT) is also sometimes referred to as a Compensation Protection Trust.
A PIT is used to ‘protect’ any compensation / payment received in respect of a personal injury from means-tested benefit assessments.
It is essential this is considered very carefully with the litigation solicitor before any claim is settled.
Generally, eligibility for means-tested benefits will be from age 18 years although some 16 and 17-year olds are eligible for Universal Credit.
Even where your child is very young, if they are in receipt of a compensation award as a result of a personal injury, a PIT should be considered to ‘protect’ any means-tested benefits they may be eligible to claim as an adult (including entitlement to Local Authority funded care).
It is possible to set up the PIT at a later stage but the longer it is left once the claim has settled and the compensation paid, the more difficult this may be, especially where the compensation money has been paid in to an account where there is ‘other’ money (benefits, savings etc).
Any compensation award paid to someone under age 18 years must be approved by the Court. That Court would also need to approve the PIT for a child.
Setting up the PIT can be relatively straightforward. There will need to be at least two Trustees appointed. Care should be taken in the choice of Trustees as they will have a responsibility to manage the money properly which includes ensuring it is invested appropriately, tax is paid where necessary, etc.
As a general rule, if your child receives an award of compensation for an injury to them and they are likely to lack capacity to make decisions concerning that money as an adult, then you should consider the appointment of a Deputy (see below) and not a Trustee under a PIT. Usually a PIT is used for a child where they are likely to have the ability to make decisions themselves as an adult. Adults can also make PITs for themselves.
A PIT can not be used to ‘protect’ any non-personal injury money (inheritance, gift etc). A VBT may be the appropriate option here.
Vulnerable Beneficiary Trust (VBT):
Generally, a VBT should be considered where someone (usually a parent, guardian or other family member) wishes to give a sum of money to a disabled person. This could be a gift someone is making during their own lifetime, or a gift they are leaving in their Will.
A VBT can be established to ensure the disabled person isn’t financially assessed in respect of that gift in relation to their means-tested benefits (now and in the future). It is really important that a parent, guardian or other family member considers this carefully before they make a gift or make their own Will.
There can be benefits for the person making the gift and establishing the Trust in respect of liability to Inheritance Tax. Specialist advice should be obtained before establishing such a trust as it may have other tax consequences for the person making the gift (Capital Gains Tax, etc).
A child can’t appoint an Attorney as you must be over the age of 18 years to make a Lasting Power of Attorney (LPA).
An adult can only make an LPA where they have the capacity to make that decision themselves. They must understand what an LPA is and what ‘power’ they are granting to an Attorney.
No one, not even the Court, can make an LPA for someone who doesn’t have the capacity to make it for themselves.
If someone is aged over 18 years, does not have the capacity to make an LPA and needs someone to make decisions concerning their property and affairs, they will need either a Deputy or an Appointee (see below).
Everyone over the age of 18 years who has the capacity to make an LPA should consider making one. Whilst you do not need a solicitor to make an LPA, it is important you consider obtaining specialist advice first. Many solicitors will offer initial free advice, and this may be enough.
An LPA can only be used once it is registered with the Office of the Public Guardian (OPG).
It is essential that any Attorney appointed under an LPA has the ability to manage those financial affairs. If they can’t manage their own money, how can they manage yours?!
Attorneys can only be removed either be the person who made the LPA (providing they still have the capacity to make that decision) or by the Court of Protection.
You can apply for the right to manage the benefits of someone who can’t manage their own affairs either because they are mentally incapable or because they are severely disabled.
An application is made to the Department for Work and Pensions (DWP).
The DWP can only appoint 1 appointee and they can be a friend, relative, or an organisation (solicitor, Council etc).
As an Appointee your responsibilities include:
- Signing the benefits form,
- Informing the DWP of any changes to eligibility,
- Spending the benefits in the claimant’s best interests, and
- Informing the DWP if you cease being an Appointee.
The DWP will visit the claimant to ensure an Appointee is necessary and will interview the proposed Appointee to ensure they are suitable.
You can, in certain circumstances, be responsible for any overpayment of benefits. Only Appointees who can correctly manage those benefits should be considered, including staying aware of changes to eligibility.
The Appointee power only extends to the authority to manage the claimant’s benefits.
Generally, an Appointee is the right option to consider for someone who:
- Is aged over 18 years, and
- Is in receipt of benefits, and
- Is unable to manage those benefits by reason of incapacity or severe disablement, and
- Has no other real property and finances to manage.
If the person who is disabled also has other property and finances (savings, a house etc), then the appropriate option is likely to be a Deputy appointment – see below.
An Executor is appointed under a Will. An Executor has no authority to act and make any decisions until the person who made the Will and appointed them (the Testator) dies.
The duty of an Executor is to carry out the wishes of the Testator as set out in their Will. This is likely to include ensuring any debts have been paid (funeral costs, mortgage etc) and any gifts are paid out.
A Will may also set up a Trust (see VBT above). The Trustees and Executors appointed are not necessarily the same people.
You need to be aged at least 18 years to make a Will. If you do not have the mental capacity (testamentary capacity) to make a Will, the Court of Protection can make a Will for you. This can be quite complex so specialist advice is essential.
A Deputy is appointed by the Court of Protection (COP) for someone (P) who lacks the mental capacity / ability to make decisions for themselves.
The question of capacity is dealt with by the Mental Capacity Act 2005 (MCA).
Generally, the MCA does not apply to children under the age of 16 years. There are however 2 exceptions:
- The decision to be made concerns the property and finances of the child and that child is likely to lack the capacity to make those decisions at age 18 years, or
- There are offences of ill treatment or wilful neglect.
Most of the MCA applies to young people from age 16 years except:
- Lasting Powers of Attorney (LPA) only apply from age 18 years (see above)
- Only those aged at least 18 years can make an Advance Decision concerning medical treatment, and
- The COP can only make statutory Wills for those aged at least 18 years.
What does this all mean?
If your child is aged under 18 years and they are likely to lack the ability to make decisions (capacity) concerning their property and finances at age 18 years, the COP can appoint a Deputy to make decisions for them whilst they are a child.
The property and finances of a child could include an award of compensation, a payment under a policy of insurance, an inheritance, a large gift, etc. If the financial decisions will only be about the child’s benefits income, an Appointee may be the better (and less intense) option.
The COP can also make specific decisions for P concerning a whole host of other matters if they will lack the capacity to make those decisions themselves as an adult (buying a house, paying family to provide care, investments, where they live, what care they should receive etc).
The role of the Deputy ends when P dies. The person who then takes over the management of Ps finances is any Executor appointed under P’s Will (see above).
Whilst you do not need a solicitor to make an application to the COP for the appointment of a Deputy, it’s a complex role so you should consider obtaining specialist advice to ensure you fully understand the duties of a Deputy, and the level of legal complexity that the role includes as standard.
It is really important to obtain specialist advice on the appropriate options to ensure that if you are setting up or taking on any of the roles above, they actually achieve what you want them to.
At Enable Law we have a Court of Protection team who work closely with our specialist serious injury and clinical negligence teams to provide advice that meets our clients’ needs. When additional advice outside our expertise is needed, our professional network can provide the answers.
Stacey Bryant is a Solicitor and Legal Director and heads up the Court of Protection Team at Enable Law, who manage in excess of £150m for clients. She has over 30 years’ experience working in the legal profession and regularly provides expert evidence for the Court on Court of Protection costs.
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