Case Study 3

Acting as a Deputy and managing a future inheritance

The situation

M rs C is a widowed lady in her 80s who lives in London, while her son lives in the South West. She had not arranged any Powers of Attorney so that, in the event she lost mental capacity, someone she trusted could step in and look after her affairs.

Sadly, Mrs C did lose capacity. Social Services determined that she was unable to remain living in her home and she was admitted to a specialist residential care home. Her son was appointed as her Deputy and then consulted us.

We arranged for a third party expert to assess Mrs C’s state of health. She was found not to be entitled to NHS Continuing Healthcare - but she did qualify for a Funded Nursing Contribution.

The local authority undertook a financial assessment and determined the amount that Mrs C was required to pay towards the cost of her care. We reviewed that calculation and agreed it was correct. The contribution, however, was comfortably in excess of Mrs C’s relatively small pension income.

Mrs C did not have any significant assets other than her home. It was clear she would not return home and her son had no desire to retain the property, so selling the house was the sensible option. The property was in a desirable area of London and sold for over £1.5 million.

This sum ensured Mrs C’s financial security for life, regardless of any future deterioration in her health or increase in care costs. We then assessed the potential inheritance tax liability of her estate with a view to reducing it.

The solution

A Deputy has a clearly defined duty to act in the best interest of the person they represent and we recommended the purchase of an Immediate Care Plan to cover the amount Mrs C was required to contribute to her care fees. After taking into account the inheritance tax that would have been paid on the money spent to purchase the plan, if Mrs C survives for just over three years, or just over half her life expectancy, her estate will receive a net financial benefit.

We also established a very cautious investment portfolio with £600,000 of her funds and set up an interest bearing account with £50,000 to ensure funds were available to provide a degree of flexibility and ensure unforeseen expenses could be met. Broadly speaking we expect the cash and investments to be covered by Mrs C’s inheritance tax allowance at the date of her death.

We also arranged a Business Property Relief qualifying investment of £200,000 which we expect to grow steadily in value over the next few years. This investment will become exempt from inheritance tax once it has been held for two years. It is very likely Mrs C will survive this period and we expect this investment to reduce the inheritance tax liability of her estate by over £80,000. It was perfectly permissible for the Deputy to take all these actions without obtaining agreement from the Court of Protection.

We then discussed with the Deputy various options for dealing with the remaining £500,000, which was effectively surplus to her requirements and would have attracted a inheritance tax liability of approximately £200,000. Mrs C had not written a Will, she no longer had the ability to write a Will and the beneficiary of her estate under the Rules of Intestacy was her son.

Mrs C’s life expectancy was thought to be around six to seven years. A further Business Property Relief qualifying investment could potentially have removed the inheritance tax liability after two years but would have meant that the son could not have received any funds until his mother’s death.

The son had a relatively expensive mortgage, a desire to help his own children out financially and an immediate and sensible use for the money. Even if inheritance tax was paid on the £500,000, because of the action we had taken his inheritance would still be very considerable. If she does survive for seven years from the date of the gift to her son, it will have been almost entirely eliminated.

We therefore assisted the Deputy apply to the Court of Protection for approval to make an immediate gift of the £500,000 to himself, rather than waiting until his mother’s death. The application was backed by a detailed report from ourselves setting out Mrs C’s financial position and cashflow analysis showing her security was assured under any possible worst case scenario.

The Court was persuaded that the £500,000 could be gifted without compromising Mrs C’s security and approval was granted.

The outcome

Our work therefore ensured not only Mrs C’s financial security for life but also enabled funds to be immediately applied for the benefit of her son and his family. In addition, the inheritance tax liability of her estate has been significantly reduced.