Re JDS
Summary: Senior Judge Lush has recently handed down an important decision upon an application for a gift to be made to the parents of a young man awarded damages for clinical negligence for purposes of reducing the amount of Inheritance Tax that they may have to pay on his death.
The young man in question, born in 1991, had a life expectancy of another 20-25 years (at which point his parents would be in their mid to late 60s). He had been awarded a very significant sum by way of damages for clinical negligence arising out of the circumstances of his birth. His (professional) deputy submitted an application which (in the form that ultimately came before the Court for consideration) was for:
"Permission to transfer £325,000 of the patient's funds into a flexible power of appointment trust with the intent that substantial Inheritance Tax will be saved (at today's rates £130,000) provided he lives 7 years."
As noted above, the intent was that the trust would be for the benefit of the young man's parents. The Official Solicitor opposed the application.
Senior Judge Lush (whilst noting at para 30 that he had had some reservations in the past as to its utility in all property and affairs cases) applied the balance-sheet analysis derived from Re A. His consideration of the various factors identified 9 in favour and 14 against, but noted that this was not necessarily conclusive before discussing whether there was any factor of 'magnetic importance'. At paragraphs 34 ff, he noted as follows:
"34. In paragraph 22 of her skeleton argument Georgia Bedworth, counsel for the applicant, stated that 'there is no statutory or other justification for the presumption that the court should not direct a settlement where P's capital derives from a damages award.' I agree that there is no such presumption, but, in my judgment, in most cases where an individual's assets derive exclusively from a damages award for personal injury, when determining whether making an inter vivos gift is in his or her best interests, the factor of magnetic importance is likely to be the purpose for which the compensation was awarded and the assumptions upon which it was based. This is not confined to the multiplicands and multipliers that have been applied in a specific case, but extends to the fundamental principles that underlie personal injury and clinical negligence litigation generally. … 36. In very simple terms, if the calculation for James's future care costs was correct back in 2001 when his claim settled, then, on the last day of his life, he should be in the process of spending the last pound of that head of damages. There should be nothing left over after his death. If the sum awarded runs out before then, it could be said that his parents and his deputy have been extravagant and imprudent. Conversely, if there are substantial funds left over, it could be argued that they have been parsimonious and may have denied him the care, attention and quality of life to which he was entitled. … 39. As I have said, the court is generally sympathetic towards family members who take on a caring role and dedicate their lives to looking after an injured relative. It seeks to support them so far as is possible and practicable and in the best interests of the person concerned, and it does so in a variety of ways. However, 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 the 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. For the sake of the record, each year between 300 and 400 claimants who have been awarded damages for personal injury or clinical negligence come within the court's jurisdiction. Speaking from personal experience, over the last fifteen years the number of applications of this kind does not extend into double figures."
Senior Judge Lush therefore dismissed the application as not being in JDS's best interests, having regard to all the circumstances including the purpose for which the damages were awarded and the preponderance of disadvantages over benefits. Noting that his parents were de facto, if not de jure, the applicants and that they were more or less entirely dependent on his damages award, he declined to depart from the general rule regarding costs in property and affairs cases by ordering them to pay the costs of the proceedings personally.
Comment: This is the second important decision on the approach to be taken to compensation received by way of damages for personal injury to have been handed down recently (first being Re HM (SM v HM) Case No 11875043/01), and is of particular importance in emphasising the - relatively - limited room for manoeuvre before the Court of Protection as regards the management of the property and affairs of the recipients of such awards.
