PBC v JMA & Ors [2018] EWCOP 19 (16 th April 2018)

Neutral Citation Number: [2018] EWCOP 19 Case No.: 12719352 COURT OF PROTECTION MENTAL CAPACITY ACT 2005 IN THE MATTER OF JMA PBC Applicant and (1) JMA (acting by her Litigation Friend, the Official Solicitor) (2) BRITISH HEART FOUNDATION (3) MIND (4) JAA Respondents David Rees QC (instructed by Penningtons Manches LLP) for the Applicant Sarah Haren (instructed by the Official Solicitor) for the First Respondent Stephanie Rodgers (of Ward Hadaway Solicitors) for the Second and Third Respondents Claire Watson (instructed by Pepperells) for the Fourth Respondent Hearing date: 29 th March 2018 The hearing was conducted in public subject to a transparency order made on 5 th April 2017. JUDGMENT The issue for determination 1. PBC is the son of JMA, and was appointed as her sole attorney for property and affairs by a Lasting Power of Attorney executed on 5 th August 2010 and registered by the Public Guardian on 16 th December 2010. He seeks the authority of the Court to make from JMA’s estate various gifts together exceeding £7 million. The purpose of such gifting, openly stated from the outset of the application, is to achieve – as long as JMA lives at least a further 3 years - reduction of inheritance tax liabilities. 2. The parties have reached an agreement between themselves. Together, they ask the Court to make orders to give effect to their agreement. The matter was listed for hearing because the Court sought assistance in order to reach a conclusion as to whether or not the terms of that agreement are in the best interests of JMA. Documents considered 3. I have read the following documents, most of which have been collated into a hearing bundle in two files: For the Applicant: Statements by PBC dated 30 th June 2015, 14 th February 2017, 3 rd April 2017 and 26 th October 2017; Statements by Neil Morris solicitor dated 30 th June 2015, 24 th December 2015 and 28 th March 2018; Position statement by Mr Rees QC dated 26 th March 2018 For JMA: Statement by Karen Bayley solicitor dated 23 rd March 2018 Submissions by Sarah Haren of Counsel dated 5 th October 2017, 21 st November 2017 and 26 th March 2018 For the Second and Third Respondents: Statements by Gaynor Jackson solicitor both dated 5th October 2015 Submissions by Deborah Spence solicitor dated 26 th March 2018 For JAA: Statement by JAA dated 19th April 2017 Statement by JMA (his father) dated 18th April 2018 Statement by SA (his stepmother) dated 4th June 2017 Statement by RC (his girlfriend’s stepfather) dated 1st June 2017 Statement by CW (his employer) dated 5th June 2017 Position statement by Ms. Watson dated 27th March 2018 4. Additionally I have read quite extensive correspondence which has been gathered together in Part A of the main bundle and tabs 1 -5 of the supplementary bundle. The Proceedings 5. The application was made on a COP1 form dated 29th June 2015. The proposed gifts were identified at section 5.2. In response to the question at section 5.3 (“How would the order benefit the person to whom the application relates?”) it was stated that “…if the following gifts were made now and [JMA] were to survive at least a further three years, then there would be significant inheritance tax savings on her death.” 6. The Court made various directions orders on 6th August and 1st December 2015, 28th January, 27th April, 24th June and 24th September 2016, and 3rd January 2017. The matter was then listed for an attended directions hearing before a District Judge on 9th March 2017. On that occasion JAA was joined as party, the Applicant was directed to file a further statement and the matter was set down for final hearing. That hearing did not take place because the parties reached agreement. Further orders were made on 14 th June and 2 nd August 2017, each by consent providing further time for the parties to file agreed submissions and draft orders. 7. The paper submissions were considered by District Judge Eldergill on 11 th October 2017. He did not grant the application but directed the Official Solicitor to: “file a further statement which assists the courts ( sic ) with the following matters: (a) The existing case law as to why the court should assume that a significant IHT saving is in P’s best interests, rather than the interests of beneficiaries or donees in cases where P has not previously made significant arrangements to mitigate tax liability. [1] (b) The status of the deeds referred to in paragraph 8 of the Position Statement of 5 th October 2017.” 8. The District Judge gave permission to the Applicant to file a statement addressing the same issues if he so wished and required him to file a copy of the will of RA, JMA’s deceased husband. 9. The matter was subsequently referred to me. On 26 th February 2018 I made an order which listed the matter for an attended hearing, explaining in the recitals that: “The Court requires further assistance as to why the proposed order is considered to be in the best interests of the Donor. In particular, the Court is concerned to establish: a. In what sense the proposed gifts may be for the benefit of the Donor; b. To what extent the proposed gifts may be in accordance with the Donor’s past and present wishes, feelings, values and beliefs (including as to tax planning and previous levels of gifting); c. Whether proper consideration has been given to the expression of a wish in the will of RA (the deceased husband of the Donor, from whom it is said that the bulk of her estate derives) that the Donor “consider making gifts similar” to those set out in paragraphs 6-8 of his will…” 10. At the hearing I had the benefit of oral submissions from Mr. Rees QC, Ms. Rodgers, Ms. Watson and Ms. Haren. Their submissions have been of considerable assistance and I am now able to reach a conclusion, although I acknowledge that I have not had the benefit of adversarial argument. Factual Background 11. JMA was born on 15 th December 1945 and is therefore now 72 years old. Sadly she suffers from an early onset dementia and requires full time care. Since June 2014 she has lived in a care home which she pays for privately. In an attendance note by her legal representative, JMA is described as wheelchair bound and no longer able to converse, although “she can look at you and maybe smile when you speak to her;” and it is said that she does recognise PBC and the care staff. 12. A COP3 assessment by JMA’s GP has been filed. The parties agree, and I accept, that JMA no longer has capacity to make decisions about making gifts. The same GP has considered JMA’s life expectancy and estimates it as “up to 10 years” but considers it “more likely that she will only survive between 3 and 5 years” ( ). 13. JMA was one of eight children but only one of her siblings is mentioned in the papers as having continuing significance in her adult life: her sister, JG, who is now deceased but whose husband and son have visited JMA in her current care home. JMA’s long-term adviser, Neil Morris, says that “Before this application, I was not aware that [JMA] had other siblings.” (para 3.3 of third statement ) 14. JMA had two children from her first marriage – the Applicant, and a daughter JA. The Fourth Respondent, JAA, is JA’s son and JMA’s only grandchild. There were two further marriages and then, in or around 1998, JMA married RA. 15. There is no information before the Court as to the relationship between RA and JMA’s children [2] both of whom, I summise, were adult before his marriage to their mother. There is also no information before the Court as to JMA’s financial resources or standard of living before her marriage to RA but the Applicant explains in his first statement (125) that: “It was [RA] who created my mother’s wealth. He and his first wife sold a business….and this accounted for a substantial part of their wealth. I believe the businesses were sold for approximately £11 000 000 in the 1990s.” 16. In April 2002 JMA purchased a property at 4SH “with monies supplied by… RA at the time that [PBC’s] marriage broke down….it provided a home rent-free for [PBC]” ( statement of Neil Morris at 180 ) 17. In January 2009, JMA’s daughter sadly died. The circumstances before and of her death have clearly had a significant impact on family relations both then and now, across all three generations. 18. In January 2010, RA also died. His will (321), which was made on 20 th January 2005, left his entire estate to JMA provided that she survived him by thirty days. An attendance note of the day when RA executed his will ( supplementary bundle tab 13 ) records that he: “… just wanted to make sure that there was provision for [JMA] in that she would get the whole of his estate should anything happen to him. In this regard [RA] read the first page of the will and was satisfied that [JMA] was provided for as discussed….” 19. In the event that JMA did not survive RA as provided, his will made “residuary provisions” including pecuniary legacies ranging between £50 000 and £500 000 to his two brothers, his sister, his six nieces and nephews, and three named individuals who had worked at RA’s company; and legacies ranging between £100 000 and £500 000 to each of six charities. 20. Clause 5 of RA’s will provides that if JMA inherits: “…it is my wish that [she] has regard to…..[the Residuary Provisions] that I had intended to take effect if [JMA] had not survived me for a period of thirty days and [JMA] shall consider making such similar or lesser gifts as those contained in the Residuary Provisions as her circumstances allow and as she thinks fit to those beneficiaries named in the Residuary Provisions either in her lifetime or by her will.” 21. An attendance note of the day before the will was executed ( supplementary bundle tab 13 ) records a telephone discussion between Mr Morris and RA: “ You need to make a codicil to your will that everything should go to [JMA]…. You are having a hernia operation tomorrow and you want to sign this before the operation. In the unlikely event of you dying you hope that she would make some bequest in line with your previous will and there should be a wish expressed to that effect.” 22. On 5 th August 2010, JMA executed a Lasting Power of Attorney for property and financial affairs in which she appointed her son, PBC, as the only attorney. At section 8, where there is the option to identify people to be told when the LPA is registered, JMA identified only her sister, JG. The Part B Certificate of understanding was completed by Neil Morris, JMA’s long-standing solicitor and adviser. The LPA was registered on 16 th December 2010. 23. In October 2010 JMA provided funds of £586 499 for the purchase of 3DR, the property where PBC now lives. Neil Morris explains that “After [RA] died, [JMA] wanted [PBC] to live in a better area.” ( ) 24. On 12 th April 2011 JMA executed a will ( ) which: a. Gave specific legacies to her sister JG and her husband jointly or the survivor of them, and to her sister’s son; b. Gave to her grandson JAA a legacy of £100 000; c. Gave to each of eight charities a legacy of £100 000; d. Left the residuary estate to her son, PBC absolutely. 25. Some insight into JMA’s approach to her will can be gleaned from the various attendance notes exhibited to statements: · A note dated 26 th April 2010 ( supplementary bundle tab 13 ) records that JMA’s sister and her husband “have been very good to [her] in respect of the property…that was held for her daughter [JA] who died last year.” · A note dated 1 st November 2010 ( ) records that four of the charities were included “because the money had derived from RA and [RA] was particularly fond of these charities.” (In fact all six of the charities named in RA’s will were also named as beneficiaries in JMA’s will.) The “limited benefit” to JAA is also explained as based upon limited contact with him. 26. In April 2012, on the sale of a property at 1CC, which JMA owned but her late daughter had lived in, JMA made a gift of £50 000 to PBC “to provide a fund for [PBC] to help maintain the properties” ( ). At the same time she made a gift of £15 000 to her sister, JG. 27. JMA’s estate is currently worth “in the region of £18 650 000” ( ). When the application was made, it included her matrimonial home but that has been sold so that, apart from five paintings of significant value, the estate is now entirely held in investments. JMA’s lifetime gifting 28. It is clear that over a considerable period RA and JMA together and, since RA’s death, JMA alone have taken professional advice about the management of their assets: “both have retained Neil Morris whose specialist area is tax advice for high net worth individuals.” ( ) 29. The gifts made by JMA (as set out chronologically above) are listed by the Applicant in a schedule exhibited to his second statement ( ). There is no suggestion of any gifting other than the provision of rent-free accommodation to both PBC and JA during the lifetime of RA but within ten months of RA’s death, JMA gifted to her son the purchase cost of the home where he now lives; and within approximately 3 years, a further £50 000 liquid funds and the beneficial interest in the property at 4SH to the Applicant, and £15 000 to her sister. 30. An attendance note dated 1 st March 2012 ( ) records discussions about the cash gifts in the following terms: “[JA] died four years ago and her house was now being sold at just over £92 000. You had already agreed that £15 000 from the sale proceeds should go to your sister [JG] and her husband. [Mr. Morris] mentioned that you had very kindly set [PBC] up with his own house and had also given him [4SH]. However, he does not have any cash for maintenance or anything else and it would be kind to give him some money. It was agreed that £50 000 from the sale of the house…should be paid to [PBC]. You said that you had been very remiss when it came to cash where [PBC] was concerned and you had been thinking that you should make some payment to him to set him up financially.” 31. A subsequent attendance note just over a month later (11th April 2012) ( ) is rather different in tone, recording JMA’s confirmation that: “…£50 000 should be paid to your son [PBC] to give him a fund to support the properties that you have given him. [PBC] has had a lot of money in the past and this will be the last payment to assist him. You wanted to give [PBC] protection when his wife kicked him out some years ago and that was when [4SH] was purchased. [PBC] has to know that this is the end of financial support from you. The balance of sale proceeds should go to your Barclays account.” 32. Mr Morris puts a gloss on this later attendance note in his second statement ( ): “Although [JMA]…is recorded as saying that that would be the last financial support of [PCB], that was not actually what she meant. Over a period of two years, [JMA] had given [PCB] effectively two properties and £50 000 and she intended to hold back for a period.” 33. JAA does not accept that Mr Morris’ explanation of the later attendance note is reasonable ( ) : “If my grandmother advised him that she no longer wished to support my Uncle, it is confusing that he is able to infer that this is not what she meant, recollecting events some 4-5 years later.” 34. A more expansive account of JMA’s gifting is set out in the third statement of Neil Morris ( tab 13 of supplementary bundle ), dated just 2 days before the hearing. Mr Morris additionally identifies that JMA “gifted each of the six charities listed in [RA’s] will £10 000 each in September 2010.” Copies of the covering letter for each donation, and the Gift Aid form, are exhibited to the statement. Similarly he describes a further gift of £5 000 to JG and her husband, and exhibits a covering letter dated July 2010. 35. In respect of those persons named in the Residuary Provisions of RA’s will, Mr. Morris provides an account of JMA’s views: a. ( paragraph 3.4 ) RA had created an inter-vivos trust which held £200 000 – £250000 when he died. RA “had expressed a wish that this should pass to his brother MA but the trustees refused to do so without the consent of [JMA]. [JMA] subsequently instructed that the trust fund should be distributed to [MA]. At some later point [MA] informed me that he did not need all of the money in view of his age and was passing £50 000 to his son, [FA];” b. ( ex NDM8 ) He exhibits a file note referring to the death of RA’s other brother; c. ( paragraph 3.7 ) He reports that “[JMA] explained that apart from [MA], she was not close to [RA’s] relatives…… It has generally been clear that [JMA] did not wish to give any member of [RA’s] family money. I understand that she felt they were not supportive of her after [RA’s] death;” d. ( paragraph 3.6 ) He also recounts discussion with JMA about the persons who had worked at RA’s company, when she explained that “they were not in contact with her and therefore she was not interested in benefitting them.” 36. It would appear therefore that JMA’s lifetime gifting from her own assets amounted to some £936 499, most of it to PBC. JMA’s tax planning 37. The Applicant asserts that both his mother and her late husband RA “took actions to reduce their tax liabilities.” In so far as JMA’s actions are concerned, that assertion is based on two separate matters: a. The bond : In 2011, “some £3m of the monies that [JMA] had with Barclays were transferred into a bond so as to help reduce [JMA’s] income tax liability. We were hoping to keep her below the 50% tax rate” ( ); b. 4SH : By November 2010 JMA was in discussion with Mr Morris about disposal of the property which had originally been bought to provide a rent-free home for PBC. She is described in an attendance note ( exhibit NDM11 to third statement of Neil Morris ) as “happy to give the flat to [PBC]” but was advised that “It would be better from a tax point of view to put the flat into trust so that there could be a hold over for capital gains tax purposes…. The intention would be to break the trust after a reasonable period of time and hold over the gain on transferring the flat to [PBC.]” In July 2011 [ ] JMA was advised that there would be “capital gains tax liability of approximately £33 600 (28%)” but the use of a trust as previously described avoided that liability “which [JMA] was keen to do.” JMA subsequently gave PBC a life interest in the in the property on 24 th August 2011, and transferred to him the entire beneficial interest on 19 th February 2013. 38. It is to be noted that each of these actions of JMA, in so far as they were concerned with limitation of tax liability, are seemingly focussed on lifetime taxes. The only mention of post-death tax planning appears to be incidental to that focus. The attendance note of 1 st November 2010 records that “transferring the flat to [PBC] would start the seven years running for inheritance tax purposes.” In his second statement Mr. Morris states that JMA “expressed her satisfaction” that if she survived seven years from the gifts of the properties to PBC “that would avoid inheritance tax” but the contemporaneous attendance note is silent as to JMA’s view of the impact on post-death taxes. The agreement reached between the parties 39. The agreement which the parties have come to amongst themselves is complex and multi-faceted. I adopt the helpful summary which Mr. Rees has set out in his position statement: “It has been agreed (subject to court approval) that the following should be authorised: (a) The execution of a statutory will for [JMA]. This replicates [JMA’s] existing will save that: (i) It also includes a legacy of £100 000 for the Alzheimer’s Society; (ii) It ensures that the amount received by the nine named charities is not less than the amount…..necessary to ensure that the estate is taxed to IHT at the lower rate of 36%; and (iii) In the event of the Applicant predeceasing [JMA], [JAA] and the charities must bring into hotchpot any gifts made to them under the court order. (b) A gift of £6M to the Applicant; (c) Gifts of £50 000 to each of the charities who are named as legatees under the 2011 will, and also to the Alzheimer’s Society; (d) A gift of £422 800 to be transferred to the trustees of a discretionary settlement under which [JAA] is the primary beneficiary. The IHT in respect of this gift is to be paid out of [JMA’s] estate; (e) Further gifts of certain chattels to the Applicant. The Applicant has agreed to enter into further agreements [3] under which he covenants with [JAA] and the eight charities named in the 2011 will that he will make a will which provides that if he predeceased [JMA] they will receive the sums that they would have received under [JMA’s] 2011 will had the gift to the Applicant not been made.” 40. The tax effect of this agreement, if authorised, has been set out in a schedule [4] ( ). Using rounded figures, if no further gifts are made from her estate during JMA’s lifetime, the inheritance tax liability on her death will be approximately £6 200 000. On the other hand, if the proposed gifts and testamentary provisions are made, the inheritance tax liability will taper from approximately £5 600 000 if JMA were to die today, to approximately £3 million if she lives until March 2025. 41. The effect of this agreement, if authorised, on JMA herself would be that her available assets reduce to approximately £10 million ( ), which is commonly agreed to be more than amply sufficient to meet all her needs. There is no suggestion that she would have any understanding of the proposed arrangements such as might either give her pleasure or cause her anxiety. The Law 42. Where a person lacks capacity to make a decision in respect of their property and affairs, the powers of the court are set out generally in section 16 of the Mental Capacity Act 2005, and more specifically in section 18. The power to make a gift is set out in section 18(1)(b), and to execute a will in section 18(1)(i). 43. The exercise of those powers is subject to principles set out in section 1 of the Act, including the requirement at section 1(5) that “An act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done, or made, in their best interests.” 44. The meaning of ‘best interests’: As has often been observed, the concept of ‘best interests’ is not defined within the Mental Capacity Act. Instead, at section 4 of the Act, a series of requirements of the decision-maker are set out: the person making the determination (in this case the court) (1)… must not make it merely on the basis of (a) a person’s age or appearance, or (b) a condition of his or an aspect of his behaviour which might lead others to make unjustified assumptions about what might be in his best interests; (2) … must consider all the relevant circumstances; (3) … must consider (a) whether it is likely that that the person will at some time have capacity in relation to the matter in question and (b) if it appears likely that he will, when that is likely to be. (4)… must, so far as reasonably practicable, permit and encourage the person to participate, or to improve his ability to participate, as fully as possible in any act done for him and any decision affecting him. (5) … (6) … must consider, so far as is reasonably ascertainable – (a) the person’s past and present wishes and feelings (and, in particular, any relevant written statement made by him when he had capacity), (b) the beliefs and values that would be likely to influence his decision if he had capacity, and (c) the other factors that he would be likely to consider if he were able to do so. (7) …must take into account, if it is practicable and appropriate to consult them, the views of – (a) … (b) anyone engaged in caring for the person or interested in his welfare, (c) any done of a lasting power of attorney granted by the person, and (d)…. as to what would be in the person’s best interests and, in particular as to the matters mentioned in subsection (6) …. 45. It is now well understood that the concept of “best interests” is a broad one. For example: a. An NHS Trust v. MB & Anor [2006] EWHC 507 (Fam) , per Holman J at para 16(v): Best interests are used in the widest sense and include every kind of consideration capable of impacting on the decision. In particular they must include the nature of the medical treatment in question, what it involves and its prospects of success and the short, medium and longer-term outcome, best interests goes far beyond the purely medical interests. They must also include non-exhaustively medical, emotional, social, psychological, sensory (pleasure, pain and suffering) and instinctive (the human instinct to survive) considerations. b. Secretary of State for the Home Department v. Sergei Skripal [2018] EWCOP 6 per Williams J at para 26: …the evaluation of what order is in the best interests of [the protected persons] involves a far broader survey or whether the taking of blood samples will have any medical benefit to them and whether the disclosure of their medical records will bring any medical advantage to them. It includes every consideration that might bear on what is in their best interests. 46. It is less commonly considered but equally beyond serious doubt that the concept of “best interests” is not restricted to “self-interest.” For example: a. The Law Commission Report no. 231 which preceded the implementation of the Mental Capacity Act 2005 specifically considered the wider scope of “best interests” as compared to the previous legislation: The relevant provisions of the 1983 Act rely on the concept of “benefit” to the person without capacity rather than the concept of his or her “best interests.” This means that a special provision was required to cover the giving of gifts. The new “best interests” factors go wider than “benefit.” b. Mental Capacity Act 2005 Code of Practice at paragraphs 5.47 and 5.48: Section 4(6)(c) of the Act requires decision-makers to consider any other factors the person who lacks capacity would consider if they were able to do so. This might include the effect of the decision on other people, obligations to dependants or the duties of a responsible citizen. The Act allows actions that benefit other people, as long as they are in the best interests of the person who lacks capacity to make the decision. For example, having considered all the circumstances of the particular case, a decision might be made to take a blood sample from a person who lacks capacity to consent, to check for a genetic link to cancer within the family, because this might benefit someone else in the family. But it might still be in the best interests of the person who lacks capacity. “Best interests” goes beyond the person’s medical interests. For example, courts have previously ruled that possible wider benefits to a person who lacks capacity to consent, such as providing or gaining emotional support from close relationships, are important factors in working out the person’s best interests. If it is likely that the person who lacks capacity would have considered these factors themselves, they can be seen as part of the person’s best interests. c. Re G(TJ) [2010] EWHC 3005 (COP) , per Morgan J at para 35: …the word “interests” in the phrase “best interests” is not confined to matters of self-interest, or, putting it another way, a court could conclude in an appropriate case that it is in the best interests of P for P to act altruistically.” 47. The determination of ‘best interests’: The Supreme Court decision in Aintree University Hospitals NHS Foundation Trust v. James [2013] UKSC 67 makes it clear that a holistic approach is to be taken to the application of the best interests test: (39) The most that can be said, therefore, is that in considering the best interests of this particular patient at this particular time, decision-makers must look at his welfare in the widest sense, not just medical but social and psychological; …. they must consider what the outcome of that treatment for the patient is likely to be; they must try and put themselves in the place of the individual patient and ask what his attitude to the treatment is or would be likely to be; and they must consult others who are looking after him or interested in his welfare, in particular for their view on what his attitude would be.” 48. A holistic approach to determining “best interests” is not, however, a “substituted judgment” test. As Charles J was keen to emphasis in Briggs v. Briggs [2016] EWCOP 53 : [56] in my view, the factors that will give indications as to what the individual P wants include the interests of other people who P would have been likely to take into account and so, for example, many if not most Ps when they had capacity would have taken into account their relationships with others (eg spouse and children), how they think their children should be parented and the impact on those closest to them of what they decide to do. [57] Pausing there, it is clear and important to stress that a conclusion on what P would have done is not determinative of the MCA best interests test and so, by stating that the MCA enables the court to do for the patient what he could do for himself if of full capacity, the Supreme Court is not saying that a conclusion on what the patient would have done is decisive. The test is not a ‘what P would have done test’, it is a best interests test and so a test that requires the decision maker to perform a weighing or balancing exercise between a range of divergent and competing factors. 49. Charles J further considered how to approach the balancing exercise, in the context of property and affairs, in Watt v. ABC and the Official Solicitor [2016] EWHC 2532 (COP) : 71. In my view, an approach based on a presumption, or a starting point that must be displaced, as to the result that is in P’s best interests runs counter to the underlying rationale and purpose of the MCA and, in particular, of its decision and fact sensitive approach to the application of its best interests test in all the circumstances of a given case. 72. Further, in my view an approach such as that which exists under the Freedom of Information Act 2000 of there being a bias in favour of a particular result….does not exist under the MCA in determining what order in a given case should be made to best promote the best interests of the relevant P. In the context of the making of orders that the COP has jurisdiction to make, there is nothing in the MCA that says or has the effect that the result will be “X” unless the factors in favour of another result outweigh those in favour of “X”. … 75. In short, the weighing or balancing of competing factors is at the heart of decision making under the MCA and it does not fit with presumptions, starting points or a bias that have to be displaced. 50. The making of gifts : The parties have identified two authorities which specifically consider the concept of “best interests” in the context of the making of gifts: a. In Re G(TJ) [2010] EWHC 3005 (COP) the parties had reached agreement that, but the Court sought further assistance to determine whether, it was in the best interests of Mrs G for her deputy to make payments by way of maintenance to her adult daughter C. Morgan J’s general approach was that … it is appropriate in this case to be cautious in making assessments ..of what the future might bring… I am satisfied that that the payments which I am asked to direct in favour of C will come out of funds which are surplus to Mrs G’s own proper requirements for the remainder of her days . (para 23) He specifically considered whether the payments proposed could be said to benefit Mrs G: … the payments will not be, in any real sense, for the benefit of Mrs G. If the word “interests” in the phrase “best interests” refers to the self-interest of Mrs G, it might be asked: what self-interest of Mrs G is advanced by payments to C? If the suggested answer is that such payments will benefit Mrs G and be in her best interests because Mrs G will be pleased that the payments are made to her daughter, on the facts of this case, Mrs G will never know that the payments are being made and there will be no reaction, or pleasure or otherwise, to that fact. (para 32) He considered the meaning of “best interests”: .. the word “interest” in the best interests test does not confine the court to considering the self-interest of P. The actual wishes of P, which are altruistic and not in any way, directly or indirectly self-interested, can be a relevant factor. Further the wishes which P would have formed, if P had capacity, which may be altruistic wishes, can be a relevant factor. It is not necessary to establish that P would have been aware of the fact that P’s wishes were carried into effect. Respect for P’s wishes actual or putative, can be a relevant factor even where P has no awareness of, and no reaction to the fact that such wishes are being respected. (para 56) The tax effect of the gifts in question were not a significant factor in the application but Morgan J observed that: …The tax saving possibility is a factor in favour of making the gifts in question but the factor has limited weight on the facts of this case having regard to the amount involved and the life expectancy of Mrs. G. Nonetheless, this factor does not count against the making of the order which is sought. (para 62) Morgan J approved the making of gifts in accordance with the agreement reached between the parties. b. Re KGS [2012] EWCOP 302 concerned an application for a gift to be made to the parents of a young man, James, who had been awarded damages for clinical negligence, for the stated purpose of reducing the amount of inheritance tax that his parents may have to pay on his death. The applicant contended that, if the proposal was implemented, there would be sufficient sums to meet P’s future needs even on a cautious approach but the Official Solicitor on behalf of James did not support the application “mainly because he did not believe that it was in P’s best interests to dispose of such a large amount of capital which he may need in years to come…” (para 13) The Official Solicitor’s submissions included the observation that: In the case of a person such as James, whose capacity has been severely impaired since birth, there is little (if any) scope for the court to rely on subjective beliefs and values. It is limited to relying on an assumption that James would have been guided by the belief that, all other things being equal, he should seek to minimise insofar as is financially prudent and reasonably practicable, the exposure of his estate to IHT with a view to maximising the benefit from that estate receivable by his family. However, given that this is a mere generalisation, and is not reflective of any particular beliefs or values that, in fact, are exhibited by James, the weight to be attributed to this factor must be limited. In more general terms, however, the Official Solicitor accepts that James would, if he had the requisite capacity, wish to benefit his parents (who, of course, are his primary carers) as far as reasonably possible, practicable and sensible in the light of his own actual and potential needs and requirements. (para 19) Senior Judge Lush observed 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 the death of a protected party, because this is not the purpose for which 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. (para 39) He concluded that it was not in the best interests of James to make the proposed gift to mitigate inheritance tax liability. The Parties’ Submissions 51. On behalf of the Applicant , Mr Rees asserts that the application does not seek to change the ultimate devolution of JMA’s estate. Rather, the Court “is being asked to consider if those persons she wanted to benefit could be in the position of benefitting a bit more in order to get tax saving.” He accepts that the gifts proposed are more substantial than gifts actually made during JMA’s lifetime but explains this on the basis of JMA’s own change of circumstances: “ 17… At the time of her husband’s death in 2010 [JMA] was a relatively young widow who had just attained her 64 th birthday. At that point she doubtless looked forward to many years of life still ahead of her. She was not in employment or likely to be so. She was used to a comfortable lifestyle which she needed to fund from her investment income and capital assets. She was understandably concerned to ensure that money was available to meet her expenses when she needed to pay them [ Tab 34 p219 ]. Even then she was willing to make significant gifts to the Applicant (and more modest sums to her selected charities) and was willing to invest her assets in a manner designed to minimise her tax liabilities. Also, at this time a significant part of her wealth was tied up in her house. 18. The position has now fundamentally changed. Her life expectancy has in all probability been limited by the onset of dementia. The impact of the dementia has also shrunk the boundaries of her world. She is now in permanent residential care and her house has been sold. .. The balance between her overall wealth on the one hand and the funds that she may need to meet her expenditure has shifted, such that there is now (unlike in 2011) a clear surplus capable of being gifted to effect a substantial tax saving without in any way adversely affecting her care or quality of life.” 52. Mr Rees submits that the proposed arrangements are in accord with JMA’s past wishes and feelings in that they benefit the persons and bodies she selected for benefit in her will; and in accord with the beliefs and values that would be likely to influence her in that she previously demonstrated willingness to structure her affairs in a tax efficient manner. They reflect an agreement reached between interested parties, which is a factor JMA would have considered if she were able to. Where JMA was fully open to the prospect of minimising tax liabilities in the past, and there is the possibility of effecting a very substantial tax saving by accelerating gifts to persons who stand to benefit under her will in any event, it would be “the right thing [5] ” for the court to approve the gifts proposed. 53. In respect of RA’s wishes expressed at clause 5 of his will, Mr Rees orally submitted that the best evidence of the extent to which those wishes would now be taken into account by JMA is how she did in fact take them into account in the terms of her own will. When asked, Mr Rees did not accept that the “fundamental change” as to availability of surplus wealth would impact on her consideration not just of when persons may receive benefit from her estate but also of who should benefit, asserting that there is “nothing to justify interfering with what JMA set out in her will.” 54. Addressing the question posed in District Judge Eldergill’s order, Mr. Rees submits that “it is not surprising that [JMA] did not embark on IHT planning” in the light of her relative youth when she lost capacity but “within those constraints, she did seek tax advice and took steps to deal with her estate in a tax efficient manner.” He submits that “in the absence of evidence that P is going to act in a manner which does not mitigate tax, the default position should be that most people are motivated by a desire to save tax if that benefits their relatives.” He distinguished the taking of “aggressive steps” from the proposals currently under consideration, which he characterised as “plain vanilla” tax planning, “such as any High Street Solicitor would recommend to any client.” The absence of any such steps taken by JMA herself whilst she had capacity does not, Mr Rees says, take the matter out of his ‘default’ approach because of the fundamental change in her circumstances: what is possible now, was not possible when she had an expensive lifestyle and was concerned about meeting her needs. Instead, the matter falls squarely within the ‘default’ approach because of the evidence that JMA was motivated to save lifetime tax where she could, even to the extent of a “slightly esoteric” trust arrangement. Mr Rees accepted that “there are limits” to this default approach, emphasising that the gifts under consideration will still leave JMA with “ten times more than what she needs.” 55. In respect of the benefit to the recipient of the gifts, Mr Rees submitted that such benefit is a relevant consideration, because benefitting her son, the charities and JAA was something that JMA herself wanted to do. She selected them all for benefit under her will. Her best interests now include consideration of her capacitous wish to benefit these people and bodies. The change of circumstances means that she can accelerate and maximise the benefits she can bestow. In so far as any concern may arise from the magnitude of the proposed gifts, Mr. Rees submitted that “the quantum does not affect the principle.” 56. On behalf of the Respondent charities , Ms. Rodgers declined the opportunity to make oral submissions. Their written submissions made clear their support of the Official Solicitor’s position. 57. On behalf of JAA Ms. Watson’s written submissions conceded that the proposed gifts “will not be of any direct financial benefit to JMA” but adopted the Official Solicitor’s submissions as to why they could nonetheless be considered to be in her best interests. In oral submissions, she referred to a “reasonable presumption…that, by benefiting family members in a tax efficient manner, one is also benefitting the Donor.” She relied on “the clear evidence, in the way in which JMA dealt with her property and affairs when she inherited, of her desire especially in difficult times, to see that family members were supported;” and submitted that “if [JMA] were appraised of [JAA’s] circumstances, she would wish to do that for him.” 58. On behalf of the Official Solicitor acting as Litigation Friend for JMA, Ms. Haren’s first written submission ( ) identified the factors relevant to determination of her best interests as: a. The value of JMA’s estate; b. The fact that substantial gifts are affordable without any risk that JMA will be left with insufficient to meet her needs for the rest of her life; c. The likelihood that JMA, if she had capacity, would have been advised about the potential inheritance tax savings which…in effect, accelerate the inheritance the applicant would take under her will; d. Evidence that JMA would structure her affairs so as to reduce her exposure to tax where she could do so without adversely affecting her own financial security; e. JMA’s provision for the charities in her will; f. There is agreement between the parties, which provides for the position of the substitutionary beneficiaries if the applicant predeceases and which may lessen disharmony in family relations. 59. In her second written submissions ( ) Ms. Haren addressed the magnitude of the gifts proposed in the light of JMA’s previous gifting: “… one cannot infer from the fact that JMA did not make a gift of this magnitude whilst she retained capacity that she had formed a decision never to do so. It is not clear that she was ever given advice about IHT planning in this way and in any event understandable that she should not have contemplated doing so at a time when she was relatively young and healthy.” And she (cautiously) added to the list of factors in favour of the application, the side agreement reached between the parties: “..because it means that on JMA’s death the question of who benefits from the assets now in JMA’s estate will be much the same whether or not the gift is made. However, it does not seem to the Official Solicitor that the factor impinges greatly on the assessment of JMA’s best interests. It seems unlikely that, if JMA had retained capacity and was contemplating making a gift of this sort, she would in normal circumstances have been significantly influenced in the decision whether to do so by the possibility that the applicant might predecease her.” 60. In her third written submissions Ms Haren addressed factors to be taken into consideration in slightly different terms: a. It might reasonably be expected that someone in JMA’s position would wish to try to minimise the tax burden on her estate and to maximise the amount which the principal beneficiary actually receives, if that can be done without impinging on her own financial security (para 6.1); b. ... before any gift made with the aim of estate planning can be contemplated as being in a donor’s best interests it is a necessary, though not sufficient, condition that the donor is left with ample resources to meet her own needs (estimated on a cautious basis) (para 6.4) ; c. … medical evidence suggests there is a realistic prospect of JMA surviving [the gifts] by at least 3 years, so reducing the rate at which inheritance tax will be charged…. Although there is also a real prospect that JMA will die sooner than that, the chance of JMA’s estate benefitting from taper relief is something which, in the circumstances, someone in JMA’s position might reasonably regard as worth trying to benefit from. (para 7). 61. In respect of JMA’s comment recorded in an attendance note that the £50 000 cash gift should regarded as “the end of financial support” for the Applicant, the Official Solicitor “considers that it is significant that the gifts made by JMA to PBC at that time served a different purpose from the Proposed Gifts (ie financial support rather than an acceleration of inheritance) and this comment should be seen in that context.” ( para 10.1.3 ) 62. In respect of RA’s wishes at clause 5 of his will, Ms. Haren notes ( para 15 ) that: “… JMA discussed with [Mr. Morris] the terms of her husband’s will, expressed some displeasure about at least one member of RA’s family and was advised that she was under no obligation to make the gifts referred to in RA’s will. It therefore seems that JMA did indeed consider the provisions of RA’s will, decided to benefit (both by lifetime gift and by including them in her will) the charities he would have favoured, but not the individuals.” 63. In her oral submissions Ms. Haren referred to an “assumption that, unless there is evidence to the contrary, most people would choose to maximise inheritance to persons they’ve chosen to inherit their estates.” She confirmed that RA’s death had created no inheritance tax liability for JMA. She pointed to discussions of JMA’s own approach to investment risk ( 211-12) , whereby she chose to leave investments unmoved rather than trigger a tax charge by changing them to suit her own investment preferences, as indicative of JMA’s likely approach to tax planning. She emphasised that the proposed gifts are “once in a lifetime” gifts – the circumstances which now make them possible did not exist before, and will not arise again if the agreement is approved. She agreed with the Applicant that JMA had herself already made a decision in respect of RA’s wish in clause 5 of his will, and that there was no reason to think that the identity of people she wished to benefit had changed. Conclusions 64. Affordability : I agree with the Official Solicitor that, where the court is considering the authorisation of gifts, affordability is a “necessary but not sufficient” consideration. The future needs of the protected person must be considered on a cautious basis, and the level of gifting not such as may put in doubt the donor’s ability to meet those needs. I am satisfied that, even though the gifts proposed in this case are very large, they are amply affordable for JMA. If the parties’ agreement is given effect, she will still have at her disposal funds which are more than sufficient to meet her conceivable needs. That in itself is not however sufficient basis to conclude that making the proposed gifts would be in her best interests. There is no expectation on people who retain capacity to make gifts of their surplus wealth during their lifetime, and nor should there be any expectation that it is in the best interests of persons who lack capacity so to do. 65. Default position/assumption : The purpose of the gifts presently under consideration has always openly been stated as tax mitigation. In support of the parties’ agreement Mr Rees referred to a “default position [6] ” and Ms. Haren referred to a “reasonable expectation [7] ” or “assumption [8] ” in favour of such measures. Similarly, I note that the Official Solicitor in Re KGS referred to a “generalisation. [9] ” In my judgment, following the exegesis of Charles J in Watts v. ABC , each of these “runs counter to the underlying rationale and purpose of the MCA and, in particular, of its decision and fact sensitive approach to the application of its best interests test in all the circumstances of a given case.” 66. Mitigation of tax, particularly taxes of inter-generational effect and even by completely lawful “vanilla” means, is a matter on which there may be a range of views. The Mental Capacity Act does not permit the Court to rely on default positions, assumptions or generalisations in making a decision about whether gifts to effect tax mitigation are in the best interests of a particular protected person. The Court must decide the application on nothing more and nothing less than a case-specific application of section 4. 67. The balancing exercise : In my judgment, the factors weighing in favour and against the making of the proposed gifts from JMA’s estate may be summarised thus: IN FAVOUR AGAINST The recipients of the proposed gifts are those whom JMA has chosen to benefit in the will she made when she had capacity to do so: · the benefit they will receive has a good prospect of being increased by the effect of tax mitigation but will otherwise be much the same overall whether or not the gifts are made JMA had on one occasion expressed a wish that her son should know that the end of financial support from her had come. Management of her property and affairs with a view to tax efficiency is consistent with JMA’s beliefs and values as demonstrated by her actions when she had capacity to manage her financial affairs for herself: · when she could, she took regular financial advice and made decisions in accordance with that advice to minimise her exposure to lifetime taxes, including strategies with incidental inheritance tax benefits · JMA’s change of circumstances now makes it feasible to consider post-death tax exposure JMA’s tax mitigation whilst she had capacity did not extend to post-death taxes save where that was incidental to life-time tax planning intended to address her own needs The proposed gifts are amply affordable and will have no discernible impact on her ability to meet her conceivable needs from her remaining funds. The proposed gifts reduce JMA’s estate and therefore the funds available to her during her lifetime by approximately 38%. The proposed gifts reflect an agreement reached between the various recipients and with independent representation of JMA herself: · any further argument is avoided, thereby reducing potential exposure to costs · giving effect to the agreement may have a beneficial effect on family relationships which have been adversely affected by difficult circumstances. 68. I have not entered the tax mitigating effect of the proposed gifts as an independent factor on either side of the balance sheet. Payment of tax from her estate after her death will have no direct impact on JMA either way and it is no part of the Court of Protection’s function to protect either an inheritance or a revenue stream. Inheritance tax mitigating effect can in my view only meaningfully be considered in the best interests balancing exercise as a mechanism which either supports or goes against the particular individual’s wishes and feelings, values and beliefs about gifting and tax planning. In the circumstances of this case, I am satisfied that it is subsumed in the positive factor of enhancing benefit to those whom JMA wished to benefit. 69. JMA herself presently has no discernible wishes in respect of the gifts being proposed or the mitigation of inheritance tax. However, there is clear evidence that she wished in the past to make gifts to her son and charities relevant to her life within the means then available to her; and evidence in the drawing up of her will that she wished to benefit them and her grandson further in due course. Moreover, from the steps she took in respect of the properties which now belong to her son, even if she did not actively turn her mind to post-death tax planning, it is clear that JMA was open to such measures. 70. On one occasion JMA expressed to her professional adviser a wish that her son should know that financial support from her had reached an end. I do not consider that this implies a decision never to benefit her son again during her lifetime. I prefer the interpretation which Mr. Morris gives, on the basis of an established professional relationship with JMA and also RA. I further accept that JMA’s circumstances have now changed significantly; and that the gifts under consideration are not in the nature of ‘financial support.’ In the balancing exercise, what JMA actually did when she had capacity carries greater weight as a guide to her wishes and feelings than what she is recorded as saying in a single attendance note. 71. When JMA felt able to make gifts to PBC and favoured charities without jeopardising her ability to meet her own needs, she did so. When opportunities arose, she opted to follow professional advice and minimise her lifetime tax payments. The occasions of both gifting and tax mitigation may have been quite few in number and over a relatively short period of time but I am satisfied that this reflects JMA’s circumstances at the time and, sadly, the early onset of her dementia. The gifts now proposed, in the current circumstances of her life, are in my judgment consistent with the beliefs and values JMA demonstrated when she was able to manage her financial affairs for herself. 72. RA’s wishes expressed in the Residuary Provisions of his will are a factor which JMA would be likely to consider if she were able to do so. I am satisfied that she has already considered them and made a capacitous decision to make gifts to charities but not (other than by consenting to the release of funds from the inter vivos trust) to any of the individuals. Mr. Morris has given an explanation of JMA’s approach to the individuals, and I find no basis to draw any different conclusion now. I accept the parties’ assertion that JMA’s own capacitous decisions are the best guide to how the Court should consider RA’s wishes in the context of this application. I am satisfied that the proposals reflect JMA’s own considered position in this respect. 73. The views of other relevant persons as to JMA’s best interests with regard to this proposal are unanimously in favour: a. JMA’s sole surviving child makes the application. Of course it may be said that, since he is the recipient of the largest part of the proposed gifting, the application is self-serving but I am satisfied that it has not been improperly brought. JMA appointed PBC as her sole attorney, indicating a significant degree of trust and faith in him and the decisions he is thereby empowered to make. The proposal he now makes is beyond the scope of his powers as attorney but he makes it with Mr. Morris, JMA’s long-standing adviser, fully in support; b. JMA’s only grandchild also now supports the proposals; c. JMA is independently represented, and her representatives support the proposals; d. There is no indication that anyone else engaged in caring for JMA or interested in her welfare takes a contrary view. 74. Taking all things into consideration, I am satisfied that the factors in favour of the proposed gifts outweigh the factors against. In the context of the wider agreement between the parties, I am satisfied that the proposals are in the best interests of JMA. I will make orders in the terms of the drafts submitted by the parties. Carolyn Hilder th April 2018 [1] I have set out the terms of the (handwritten) order which DJ Eldergill actually made. As explained to the parties at the hearing, the order as issued contained a transcription error in that the word “not” before “previously made” was omitted. Additionally, where DJ Eldergill had used the generic ‘P’, the order as issued referred specifically to JMA. [2] Mr Rees describes the significance of the relationship between the Applicant and RA as “tangential,” on the basis that on his death RA “gave the totality of his estate to his wife, knowing that she would be free to dispose of it as she wished.” [3] Ms. Haren explains in her second written submissions that these agreements are “reached between the other parties to the application. JMA is not a party to them and the court is not asked to authorise or approve any part of them on JMA’s behalf. They are referred to so the court has before it the full background to the application in order that it may reach an informed view as to whether the application is in her best interests. The purpose of the deeds is to ensure that in the event that the applicant predeceases JMA the charities and [JAA] (as substitutionary beneficiaries under JMA’s will) are not financially worse off after the gift than they would have been if the gift had not been made.” [4] Ms. Haren identified an error in the schedule. The figures set out above are the corrected ones. [5] Referring to a line of authority derived from the decision of Lewison J in Re P (Statutory Will) [2010] Ch 33 as to the importance of P being remembered for having done “the right thing” by their will. [6] See paragraph 54 above: “ In the absence of evidence that P is going to act in a manner which does not mitigate tax, the default position should be that most people are motivated by a desire to save tax if that benefits their relatives .” [7] See paragraph 60 above: “ It might reasonably be expected that someone in JMA’s position would wish to try to minimise the tax burden on her estate and to maximise the amount which the principal beneficiary actually receives, if that can be done without impinging on her own financial security [8] See paragraph 63 above: “..unless there is evidence to the contrary, most people would choose to maximise inheritance to persons they’ve chosen to inherit their estates .” [9] See paragraph 50(b) above: “… that James would have been guided by the belief that, all other things being equal, he should seek to minimise insofar as is financially prudent and reasonably practicable, the expose of his estate to IHT with a view to maximising the benefit from that estate receivable by his family.” BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII