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Poor financial advice
Can anyone help with any relevant case law?
Cl has learning difficulties and is carer for mother who was (at the time) recently diagnosed with the onset dementia. Mother has saving, which is in bonds. Due to the onset of dementia both mother and daughter sought advice from a financial adviser at local bank. They were advised to put some of the bonds in Cl’s sole name and the rest in joint names, which they did. However, the Cl was in receipt of means tested benefits and was oblivious to the effect the bonds would have on her benefit entitlement.
DWP have just caught up, three years on, landing the Cl with multiple over-payments and her benefits being stopped.
Although legally the bonds are in Cl’s sole name, the money does not belong to her. I am trying to look for anyway that the over-payments can be challenged….is there little chance of success with this case.
Any suggestions would be greatly appreciated :)
Sorry I should have mentioned that the bonds have not yet matured.
[ Edited: 27 Jun 2017 at 04:11 pm by CAH-Adviser ]I understand that there was an advisement to do a voluntary transfer, but what was the intention? What did both parties understand they were trying to achieve in transferring the capital?
seems to me the mother may not even have had capacity to do what the financial adviser said, that needs to be investigated. also, did the mother have a pre existing power of attorney? one has to think not, because any solicitor asked to draft one would have ensured that the donee of the power had capacity to deal! and given what you have said, one has to doubt that…..
this will be a legal minefield indeed. your client needs advice as to what SHOULD have happened, to include medical evidence as to her mother’s capacity then (never mind now) and it may well be necessary for the CoP to get involved and a proper deputy appointed…..
the DWP cannot say that the MCA and CoP rules are not relevant, they are, and they are the only tings that are
as to your client’s position vis a vis potential overpayments - i would anticipate that a properly appointed deputy can undo/sort out the problems etc…. but it will be a long drawn out process.
certainly beyond the capability of the usual decision makers to deal with, one would have thought….
I understand that there was an advisement to do a voluntary transfer, but what was the intention? What did both parties understand they were trying to achieve in transferring the capital?
I believe that the money was transferred in case Cl’s mother no longer had capacity to deal with her financial affairs. Really power of attorney should have been sought…
Hi Claire,
Thank you for your post.
It appears that at the time Cl’s mother knew what she was doing. I believe they obtained advice in the event that she lost mental capacity in the future (due to diagnosis). Cl and he mother understood what was happening, however, Cl does have a mild learning disability and she didn’t contemplate the implications all this would have on her benefit entitlement.
It’s a minefield and a complete mess. I was thinking that even if Cl signed all money back over to her mother, would this then be deprivation of capital!?
I agree with Brian that the most important question is what the purpose of this transaction was. The financial advice was not receive apropos of nothing, the mother would have gone to the financial adviser with some indication of what her goals were and a solution would have been identified in line with those goals.
I don’t know how credible it is that the reason for these transactions was simply to enable the client to make financial decisions for her mother without a power of attorney. To my mind, this goal is inconsistent with the use of long term savings bonds. Surely if the purpose was to give the client easy access to the money, some sort of instant access account would have been used?
Another possible explanation is that the mother was seeking to dispose of her capital now in order to avoid it being lost to inheritance tax or eaten up by care home fees. I expect that this is a common course of action on receiving a diagnosis like this.
Understanding why all this was done is going to colour the way the whole case plays out so I think it is very important to establish early on. A trust always has a story behind it.
I was thinking that even if Cl signed all money back over to her mother, would this then be deprivation of capital!?
That just leaves you in the same position. If the money was held on trust for mum, there is no deprivation by giving it over to mum. If the money belongs to your client, then she would be depriving herself of it.
[ Edited: 27 Jun 2017 at 08:20 pm by Elliot Kent ]Hi Elliot,
Thanks for your post.
I hadn’t actually thought about mum maybe trying to dispose of the capital. Mum was in a care home for a while and this may be the reason for the transactions. However, if this was the case I believe my Cl was not aware of her intentions and is completely innocent of any wrong doing. Although I doubt this will help her case…
and i did wonder about negligence claim against the financial adviser? but that would need specialist legal advice….
See section 13.6 of our factsheet Getting legal advice which has some information about complaining about financial advisers.
I understand that there was an advisement to do a voluntary transfer, but what was the intention? What did both parties understand they were trying to achieve in transferring the capital?
I believe that the money was transferred in case Cl’s mother no longer had capacity to deal with her financial affairs. Really power of attorney should have been sought…
Attempting to raise a capacity issue in respect of the donor, three years after the act, and based on the fact that the donor had received a ‘recent diagnosis’ of dementia, is in my honest opinion a non-starter.
Having dementia does not necessarily mean you lack the capacity to make your own decisions. The Mental Capacity Act 2005 provides that the starting assumption must always be that a person has the capacity to make a decision, unless it can be established that they lack capacity, and that a person’s capacity must be assessed specifically in terms of their capacity to make that particular decision, and at the time it needs to be made. As it seemed to the financial advisor, and whoever else was involved in the transfer at the time; nobody raised any concerns over whether the donor understood nature of transaction or its implications. Both parties went to seek advice based on their circumstances; so it is going to be very, very difficult to argue that there was a capacity issue at this point
Notwithstanding that, and in order to give a Power of Attorney, the Donor must have capacity to do so. If the argument is that Mother didn’t have capacity at the time she made the voluntary transfer; then she would have needed a court appointed Deputy as there was no Attorney already in place.
The issue over placing capital in joint names is effectively making them tenant in common which generally makes a 50-50 split. However, that could possibly be argued away as a resulting trust - mother transfers capital to daughter, but daughter gives no consideration. Presumption is that mother intended daughter to hold on resulting trust for mother.
There are a number of issues over mother transferring capital wholly into the name of daughter, the bulk of which are addressed by Elliot. The issue will be adducing evidence that mother did not intend that the transfer was meant to be an outright gift.
[ Edited: 28 Jun 2017 at 10:02 am by Brian Fletcher ]If it turns out that the transfer was a gift and there is no resulting trust, I am not sure that any kind of negligence claim is appropriate. How is the daughter worse off exactly? Before, she had no savings and was dependant on means-tested benefits. After: she has plenty of savings. Which would you choose?
Even if the transferred capital is a relatively modest amount (we don’t know what the numbers are), once it drops down below the capital limit she’ll be back on means tested benefits but with close to £16,000 in the bank, which is better than before.
If someone gives you a large amount of money with no strings, what’s not to like?
[ Edited: 28 Jun 2017 at 11:04 am by HB Anorak ]If it turns out that the transfer was a gift and there is no resulting trust, I am not sure that any kind of negligence claim is appropriate. How is the daughter worse off exactly? Before, she had no savings and was dependant on means-tested benefits. After: she has plenty of savings. Which would you choose?
Even if the transferred capital is a relatively modest amount (we don’t know what the numbers are), once it drops down below the capital limit she’ll be back on means tested benefits but with close to £16,000 in the bank, which is better than before.
If someone gives you a large amount of money with no strings, what’s not to like?
There is a possible fly in the ointment if mother at some point requires social care, and in the financial assessment, the local authority decide that mother has intentionally deprived herself of the capital to avoid care home fees. They will of course, treat her as though she still has the capital and bill her accordingly. If the bills remain unpaid, they will eventually seek to recover the money from mother, or from whoever she gifted the capital to.
Ultimately this could end up with daughter being penalised for income related benefits because she has undeclared capital, and thereafter, she is hit with a demand to refund mother’s care home fees from the very same capital that mother should not have gifted to her.
All very much an hypothetical argument without greater detail of course
If it turns out that the transfer was a gift and there is no resulting trust, I am not sure that any kind of negligence claim is appropriate. How is the daughter worse off exactly? Before, she had no savings and was dependant on means-tested benefits. After: she has plenty of savings.
She is worse off becaause:
DWP have just caught up, three years on, landing the Cl with multiple over-payments and her benefits being stopped.
As Gareth often raises on here, financial advisers knowledge of the effect of people’s decisions in relation to their assets and the knock-on impacts on social security entitlement appears sketchy in many cases.
Still not convinced. She’s better off than if it hadn’t happened at all isn’t she? After paying off overpayments (subject to any diminishing capital), she will still be in a better financial position than she was before. And the reason for the overpayments is not so much the fact that she acquired capital, it is that she didn’t disclose it (a separate issue). It could be millions for all we know - no figure has been mentioned yet. Give me the choice between three years of means tested benefits, or millions minus the repayment of three years of means tested benefits, I’ll take the millions every time!
Although I agree with Brian that if the same capital is double counted for care home fees under the equivalent of the deprivation rule, that would be a problem.
See section 13.6 of our factsheet Getting legal advice which has some information about complaining about financial advisers.
Thanks Paul, I’ll have a look.
I understand that there was an advisement to do a voluntary transfer, but what was the intention? What did both parties understand they were trying to achieve in transferring the capital?
I believe that the money was transferred in case Cl’s mother no longer had capacity to deal with her financial affairs. Really power of attorney should have been sought…
Attempting to raise a capacity issue in respect of the donor, three years after the act, and based on the fact that the donor had received a ‘recent diagnosis’ of dementia, is in my honest opinion a non-starter.
Having dementia does not necessarily mean you lack the capacity to make your own decisions. The Mental Capacity Act 2005 provides that the starting assumption must always be that a person has the capacity to make a decision, unless it can be established that they lack capacity, and that a person’s capacity must be assessed specifically in terms of their capacity to make that particular decision, and at the time it needs to be made. As it seemed to the financial advisor, and whoever else was involved in the transfer at the time; nobody raised any concerns over whether the donor understood nature of transaction or its implications. Both parties went to seek advice based on their circumstances; so it is going to be very, very difficult to argue that there was a capacity issue at this point
Notwithstanding that, and in order to give a Power of Attorney, the Donor must have capacity to do so. If the argument is that Mother didn’t have capacity at the time she made the voluntary transfer; then she would have needed a court appointed Deputy as there was no Attorney already in place.
The issue over placing capital in joint names is effectively making them tenant in common which generally makes a 50-50 split. However, that could possibly be argued away as a resulting trust - mother transfers capital to daughter, but daughter gives no consideration. Presumption is that mother intended daughter to hold on resulting trust for mother.
There are a number of issues over mother transferring capital wholly into the name of daughter, the bulk of which are addressed by Elliot. The issue will be adducing evidence that mother did not intend that the transfer was meant to be an outright gift.
Thanks Brian,
The DWP are not taking into consideration any capital which is owned jointly, just the money in the Cl’s sole name. I am not sure there is a negligence claim here, as I believe the mother knew what she was doing at the time. As mentioned above just because someone has been diagnosed with onset dementia this does not mean she doesn’t have capacity. My main problem is showing that the money in the Cl’s sole name doesn’t actually belong to her, although legally it does!
I am just reading down all comments now, there are so many different views….thanks to everyone for their input :)