House placed in trust

Client is an old lady who lived alone in a house she owned but has just gone into rented sheltered accommodation.  In July 2013 she put the house into trust with a friend and her own daughter as trustees.  I understand the trust deed gave my client the right to occupy the house until her death.  The daughter as trustee has put the house up for sale (not sure she can do this unless my client relinquishes the right to occupy it again) which may take some time given the slow market, and my client wants to claim PC/HB/CTR as she has little other capital.  There appears to be no other reason for the trust arrangement other than to gain a benefits advantage (her estate would be below the threshold for CGT) so I am pretty sure the DWP would cry deprivation of capital.  Am I right in thinking the capital in the house would not be ignored although it is for sale because she did not own it when she left it to go into sheltered accommodation, it having been donated to the trust?  To complicate matters further, 10 years ago she took £120k equity release, lent the money informally to her other daughter, who did not repay it before the daughter died.  There is now about £196k and rising owed to the equity release company and secured on the house.  Again am I right in thinking that the DWP would calculate the capital as the market value at the time the trust was set up (£270k approx), minus 10% cost of sale, minus the debt at the time the trust was set up?

You haven’t said who is/are the beneficiary/ies of the trust: does the claimant retain any beneficial ownership?  If so there might be two separate amounts of capital to look at here: the actual beneficial stake that she still holds plus the notional beneficial stake of which she deprived herself.  In particular if attempts are being made to sell the house, her actual curent capital stake in the equity would be disregarded.

Assuming that all the beneficial interest was given to the trustees, or at least to someone other than the claimant, then yes I think the sums will work out as you suggest.  In particular although the property was, at the time she disposed of legal ownership, the dwelling occupied as her home and so disregarded, a Tribunal will probably say the act of deprivation was the claimant’s decision not to demand a cash premium from the buyer.  In other words she deprived herself of cash and not property.  The amount she deprived herself of is the amount that would/should have changed hands at that time - not the current value of the property.  I think it is still reasonable to make an allowance for disposal costs and the outstanding mortgage at whatever amount it was in July - presumably not much different from what it is now.
 
So there is going to be notional capital of somewhere around £50,000 which means tariff income of about £80 a week.  If this is enough to take her out of GC, there will be no HB or CTR.

think your client was very badly advised (if she was advised at all!) in setting this up.  the clear inference is that it was et up for the purpose of her being able to get benefits ad keep the house.  failed in that.

and it seems to me there is no power in the daughter to sell the house whilst your client lives since she does, after all, have the right to live in it until death.

in fact a family member has something similar - but in her case, it was trust created by a will, so DWP/LA can’t challenge it and house has to sit empty until my family member dies

I struggle with deprivation at times.  If I own a house and transfer that beneficial ownership for either nil consideration or at a substantial undervalue, then I no longer beneficially own the house.  The same is true of any possession.  That’s what triggers the notional capital rules, ie it’s accepted the asset is no longer mine.  Hence, focus switches to the cash value because that is what I have effectively deprived myself of.  So if I continue to live in the home after the transfer of beneficial ownership it surely cannot be the case, as some Commissioners have suggested, that the cash value of the home is subsequently disregarded under Sch10. That’s because I cannot “occupy” the cash whether as my main home or otherwise.  To say otherwise would treat the “dwelling” as beneficially mine again rather than its cash value.  And if the dwelling was mine again there would not be any notional capital.  It would be actual capital.  It follows that even if I continued to occupy the dwelling as my main home after the transfer of ownership in it, I would still have notional capital, ie the cash value of the home which I have deprived myself of.  In the present case that would have the client, as you say Brian, being unable to rely on the capital disregard.

But whilst the value of any deprivation is calculated at the date of deprivation, here July, the question of whether there has been a deprivation is not restricted to that date.  If in my above example, the claimant remains in the dwelling for a few weeks/months after the transfer of her ownership in it and then moves into sheltered accommodation, you then look at that new information to decide whether her intention, which had appeared innocent whilst she remained in the dwelling, was related to benefits all along.  And in Brian’s client’s case I think the view of those posting (including Brian) are that it’s possible to infer that intention here.

However, whilst the principle of using the benefit of hindsight to decide deprivation is correct, when it’s applied here it doesn’t explain why the client retained what appears to be a beneficial life interest (it’s been years since I studied trusts I’m afraid so it may be that you can have a right to occupy without acquiring a beneficial life interest).  In any event, there are other factors which might rebut the inference that her significant operative purpose was to obtain PC etc.  The fact she’d given her late daughter a substantial gift, indirectly provided by the value of the dwelling, would not make it inconceivable that she was doing the same for the other daughter when she transferred the remaining value in the property to her.  Equally, the equity release arrangement is such that the incumbrance on the property keeps increasing.  Is it too incredible to suggest that she may actually have transferred value to the daughter in a misconceived attempt to defeat the mortgagee?

I’m assuming Brian you’re presuming that the intention was to obtain PC, HC/CTR because a convincing answer hasn’t been provided by the client.  But I find that sometimes the truth never comes out.  And there may be a hundred reasons for that.  Eg, the client might feel ashamed if she did intend to defeat the mortgagee, or she might have been under pressure from the daughter to complete the transfer and doesn’t want to reveal that to anyone.  The Kerr principle that lack of co-operation is to be held against the unco-operative party almost certainly only applies to primary facts (eg, in Kerr it was a national insurance number of a relative which neither Kerr nor the DWP had discovered).  It would be absurd if a tribunal could use Kerr as authority for dismissing a person’s appeal because it didn’t believe her evidence re her intention in depriving herself (a fact in issue).  The tribunal is free not to believe her explanation but the legal burden would still be on the DWP to show that it was still more probable than not that a significant operative purpose was to obtain PC.  It that was not the case it would be analogous to a criminal court expecting a defendant to disprove the mens rea (intention to commit the offence) in order to avoid conviction.

And I think that here, irrespective of the quality of the client’s evidence, the DWP may struggle.  That’s because of the nature of PC and its lack of an upper capital limit.  It is settled caselaw that it needs to be shown that a person knows the capital rules.  The take-up publicity for PC emphasises the absence of a capital limit.  DWP would need to show that she was aware of the tariff income applying to capital over 10k.  Perhaps not as precisely as knowing that it’s £1 per £500 but certainly an awareness, I think, of the incremental relationship between increased capital and reduced entitlement.  The test of knowledge is subjective so the clarity of any notes sent with the PC application or the script of a call centre worker who takes a telephone claim is not critical here as it is, say, in overpayment cases where such notes create a strict liability in accordance with B v SOS. 

Continued….

continued from last post…

In addition, can she be shown to have been aware of the equity in the property in July?  If it was all tied up in equity release that might not have been easy.  Also, the case may not be dissimilar to CIS/109/1994 where the claimant who was in a nursing home had largely followed her son’s advice about what was best for her when it came to decisions about her capital.  Can we rule out the daughter being the driving force in the present case (she is, after all, apparently going against the wishes of the client by attempting to sell the property whilst client is still alive which as well as possibly being a breach of trust might imply daughter’s involvement was not bona fides)?

If she’s the beneficial owner for life then that title does have some value though given her age it might not be much.  If she’s not then is it more probable that she disposed of the asset to obtain PC?  The fact the PC is a natural consequence of her action is relevant but not conclusive.

Having read the above comments, I would hold off making judgement too early, especially whilst the fact finding and evidence gathering is incomplete.

Benefit claimant’s have a tendency to do strange things, often quite innocently and unintentional.

As Tom states, to prove Notional Capital several factors must be satisfied;

(i) that the person has deprived himself of actual capital, and
(ii) that his/her purpose was to secure entitlement to or increase the amount of benefit.

In this case, it does not specify that the client had ever claimed PC. If the client never had, the likelihood that she was aware of limits cannot automatically be presumed.

Furthermore, if the client had never claimed HB or CTB/CTR previously, the resonable conclusion would be that she is unaware of the capital limits.

In CIS/124/1990 it was held that it must be proved that a person actually knew of the capital limit rule, otherwise the necessary deliberate intention to obtain benefit could not have been present. It is not enough that the person ought to have known of the rule.

If a Solicitor drafted the trust deed, may be worthwhile doing further investigation, to establish (i) what exact advice was given and (ii) were the consequences clearly explained - this should be in a client care letter/advice letter. Also what are the exact provisions of the trust, were any charges registered with land registry, was mortgagee notified and was consent obtained, what were the intentions at death and finally is there a will.

I have tackled cases, whereby significant amounts of capital are gifted/donated by individuals upon retirement, prior to any pension credit claims. And when the DWP challenged the disposal - they failed to prove intention to secure benefit.  These cases did involve persons who have never in their life claimed benefits. All depends of the facts and as I mentioned earlier it is advisable to gather the facts and evidence.