Julia Lomas v AK (Gift Application) [2014] EWCOP B11

Analysis

This was an application by the deputy of an 11 year-old boy (AK) for a gift of £150,000 to be made by him to his parents from the damages awarded to AK under a settlement of a clinical negligence claim brought by his mother acting as his litigation friend against the local NHS Trust in 2009.

AK was born in October 2002 and suffers from cerebral palsy as a result of a prolonged period of hypoxia at the time of his birth. In 2009, the High Court approved a settlement in his favour of the clinical negligence claim. The settlement included a lump sum payment of £1,050,000 plus the following index-linked periodical payments: (a) £140,000 a year until 15 December 2010; (b) £155,000 a year thereafter until 15 December 2015; (c) £175,000 a year thereafter until 15 December 2020; and (d) £200,000 a year thereafter for the rest of his life. These damages were calculated on the basis of AK’s life expectancy. It was unlikely that he would live beyond the age of 15.

AK’s deputy asked for an order gifting £150,000 to AK’s parents from the damages awarded to AK under the settlement to contribute towards the building of a property in Pakistan suitably adapted for AK’s complex needs.

At the time of the application, AK lived in Essex with his father, a self-employed taxi driver, his mother and his older sister. AK’s estate consisted of up to £1,311,156. He had a surplus income of £95,363,71 per annum because his mother acted as his primary carer at much lower cost than envisaged by the settlement.

The deputy contended that:

1. (a) AK and his family are Pakistani and have a large family in Pakistan who could help with AK’s care;
2. (b) The adapted property in Pakistan will be better suited to AK’s needs;
3. (c) AK benefits from the climate in Pakistan in relation to his respiratory condition;
4. (d) As the property will be in the name of AK’s parents, he would inherit the property as a beneficiary under their will, therefore obtaining a further benefit;
5. (e) As AK’s life expectancy is less than 20 years of age, it is in his best interests for AK to experience a better quality of life with his family.

AK was added to the proceedings. The official solicitor acted as his litigation friend and contended that:

1. (a) The deputy has not considered all of the ways in which AK might contribute to the purchase or adaption of a home in Pakistan other than by gift. For example, he could contribute by way of an investment by purchasing the land or an interest in the land. Only if such investment options are not practicable should a gift be authorised;
2. (b) Before making any gift, the deputy should obtain detailed, costed proposals for the works to decide what sum up to the maximum of £150,000 should be given;
3. (c) If AK’s parents are gifted the money it should be on the condition that the deputy is satisfied that within a particular period of time they will use the money for construction or adaption of the planned home.

Held:

1. 1) Pursuant to s1(5) of the Mental Capacity Act 2005, there is a general principle 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 his best interests.’
2. 2) Whilst s4 of the Act provides a checklist of factors that anyone making the decision must consider when deciding what is in the person’s best interests, the checklist is not always conclusive because of its strong emphasis on supported decision-making and substituted judgment. It may be helpful to apply a ‘balance-sheet approach’, setting out the advantages and disadvantages of the proposal.
3. 3) In the present case, the advantages included the fact that AK currently benefits from travelling to Pakistan each year and seeing family, he enjoyed better health there than in Britain, care can be provided more cost-effectively there and at present his accommodation is not as suitable for his needs whereas he would have specifically adapted accommodation in Pakistan. There were three disadvantages: that AJ would have £150,000 less in capital, there are currently no plans or costings for the construction, nor any guarantee that the gift would actually be used by AK’s parents to build/adapt a property.
4. 4) Caution must also be exercised when applying AK’s funds because it cannot be predicted what may happen over the next few years. For example, the chance of AK’s parents predeceasing him or being unable to care for him or AK outliving his life expectancy, which would cause a significant increase in the costs of his care, or AK’s condition or the political circumstances in Pakistan may deter him from being able to travel to Pakistan.
5. 5) On the other hand, if AK’s life expectancy is only 15, then time is of the essence and there must not be delay by way of an up-to-date assessment of his life expectancy, detailed costings of the adaptions or legal advice on the acquisition of a beneficial interest in land in Pakistan by or on behalf of a minor.
6. 6) It is in AK’s best interests to allow the transaction by way of an interest free loan of £150,000 to AK’s parents to be repaid over ten years at a rate of £15,000 per annum. This is preferable because AK will retain the capital and it is more likely that his parents will comply with the purpose for which the loan is intended. However the deputy has authorisation to make annual gifts of £15,000 to AK’s parents where there is sufficient income surplus to assist in repaying the loan.
7. 7) Re JDS: KGS v JDS [2012] WTLR 475 distinguished. The application in that case was dismissed on the basis that reducing the amount of inheritance tax payable on the person’s death was not a purpose for which the award was intended. Whereas the purpose of present the application was to provide suitably adapted accommodation for AK’s use and enjoyment constituting both a recognised head of damages and proper use of his funds.

8) Although the annual gifts of £15,000 will fall within the normal expenditure out of income exemption for the purposes of s21 of the Inheritance Tax Act 1984, that was not a consideration in the application nor the decision.

JUDGMENT This judgment was delivered in private. The judge has given leave for this version of the judgment to be published on condition that (irrespective of what is contained in the judgment) in any published version of the judgment the anonymity of the incapacitated person and members of their family must be strictly preserved. All …

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