Re HM

Summary: Where a person lacks capacity to manage property and affairs the usual process is for the Court of Protection to appoint a deputy. In some cases however, there is an argument that a person's estate can be dealt with more effectively through the creation of a trust. Trusts are often created for claimants in personal injury cases to protect an award from being treated as capital when assessing entitlement to means-tested benefits. Prior to the Mental Capacity Act 2005 coming into force such trusts were often created by the Court of Protection for persons who lacked capacity, often on the grounds that a trust would be cheaper and more flexible to administer compared to a receivership.

Since the new Act came into force, there has been some uncertainty as to what the approach of the Court of Protection should be on an application. This has now been considered with great thoroughness by HH Hazel Marshall QC in the case of Re HM (11870543 4 November 2011).

The case was heard by HHJ Marshall on an application for reconsideration under rule 89 Court of Protection Rules. The case originated in an application for a personal injury award to be placed in trust. Liability was limited on causation and therefore there was only partial recovery. It was contended by the applicant that a trust, with HM's mother and a solicitor acting as trustees would be cheaper in the long run as being in the best interests of HM. The application was refused by District Judge Gordon Ashton whose decision recorded the grounds on which a trust would not be in HM's best interests as follows:

1. the jurisdiction of the Court of Protection has been established by statute specifically for managing and administering the financial affairs of persons who lack mental capacity to do so for themselves;
2. the procedures of the Court of Protection and role of the Public Guardian are for the benefit of the incapacitated person and provide safeguards that Parliament has deemed necessary;
3. there would not necessarily be a significant reduction in overall costs in the event of a Personal Injury Trust and the involvement of the Court of Protection would be required in any event upon a change of trustees;
4. any overall financial savings that may be achieved would not justify a departure from the statutory jurisdiction;
5. there would be less supervision and diminished protection if [HM']s funds were placed in a personal injury trust;
6. any future intervention would potentially involve the Chancery Court as well as the Court of Protection and would in consequence be more protracted and expensive;
7. the principal benefit of a personal injury trust, namely ring-fencing from means-testing, is likely to be available if the fund is retained in the Court of Protection.

HHJ Marshall received representations from the Official Solicitor, who supported the original decision, as well as from solicitors specialising in both deputyships and private trusts. She concluded that while every such application had to be considered on its merits, the facts of this case would allow a trust to be created. The judge identified three factors, "without which I would not have been prepared to authorise the creation of the relevant settlement" (at para 172). These were:

1. the administration of a trust, based on the evidence in this case, would be cheaper than a deputyship (there would for instance be no security bond premium or Public Guardian supervision fee);
2. HM's mother was "a competent, forceful, well-educated and responsible person" (para 169) and her presence as a trustee would provide a means of monitoring legal costs (in the absence of the procedure for detailed assessment required by a deputy); and
3. the proposed professional trustee, Andrew Cusworth of Linder Myers, had agreed that his firm's costs would be limited to the guideline rates that would be allowed on detailed assessment.

Comment: The difficulty with this case is that it was decided on its very particular facts and despite the decision to approve the creation of a trust, it should not be seen as a green light for trusts to be created as a matter of course where there is a personal injury award. A party proposing a trust must complete a detailed analysis of the costs and benefits of a trust compared to a deputyship and show that the former will be more cost effective without prejudicing the safety of the trust assets. Evidence would need to be produced of the professional trustee's charges and commitment to a charging policy as well as to the lay trustee's competence. The Official Solicitor will need to be instructed and there is no guarantee the Court will agree. This process alone will add risk and cost to any application and will deter all but the most determined (and well founded) applications.