denotes premium content | Jan 9 2009 Feature
posted 1 Nov 1998 in Volume 4 Issue 1
Yule v
South Lanarkshire Council (2): a reasonable decision?
Margaret Richard's earlier article
on the Yule case was published in the last edition of the ECA, Volume 3, Issue
6.
The South
Lanarkshire Council took the decision to treat the value of Mrs Yule's former
home as her notional capital under regulation 25 of the National Assistance
(Assessment of Resources) Regulations 1992. 16 months before entering the
nursing home she had transferred her former home to her granddaughter for "love,
favour and affection", retaining for herself a life rent (life interest). The
Court of Session confirmed that the local authority's decision was lawfully
made. However, the reasonableness (or otherwise) of the decision itself remains
to be determined.
The public law concept of "reasonableness" referred to by the Court of
Session is to be set against the local authority's interpretation and
application of the charging regulations, which prescribe a detailed means test,
closely modelled on that which determines entitlement to social security
benefits such as income support, family credit and housing benefit. Regulation
25 (1) itself states:
"a resident may be treated as possessing actual capital of which he has deprived
himself for the purpose of decreasing the amount that he may be liable to
pay for his accommodation ... " It requires:
(i) that a resident has given away,
settled on trust or otherwise ceased to possess capital which would have been
assessable under the charging regulations and was available to meet residential
care fees, and
(ii) that the resident "deprived" himself of that capital in order to
reduce his accommodation charge1.
It is suggested that the
"reasonableness" or otherwise of the South Lanarkshire Council should be
evaluated, first by reference to its decision to infer that Mrs Yule did have
the significant operative purpose referred to in reg 25 at the time she
transferred her house to her granddaughter, and secondly by reference to the
particular terms of the gift.
"For the purpose of decreasing
the amount that he may be liable to pay for his
accommodation..."
The objective of reg 25 and the
similar anti-avoidance rules in the Income Support (General) Regulations, the
Family Credit (General) Regulations and the Housing Benefit (General)
Regulations (all 1987) is to strike a reasonable balance between the individual
and the state, in order to prevent the tax payer from being left with a
financial burden which an individual, who is seeking a welfare benefit2, could
be expected to discharge from his own resources. Quite apart from the
contentiousness of applying such a rule to arrangements for nursing care, when
the National Health Service Act 1977 appears to guarantee a
"comprehensive" and free national health service, there are in practice enormous
difficulties in determining exactly where this balance is to lie.
Given that the law
generally protects an individual's freedom to do what he wishes with his own
property, through donation, testation or dissipation, the power to take account
of assets which are no longer within his legal ownership ought to be transparent
and unequivocal.
Avoiding inheritance tax, for example, depends on timely action carried
out by reference to rules laid down statute and case law. Assets splitting
within families is often the key to avoiding what is perceived as an optional
tax. Many elderly people, like Mrs Yule, would never be inheritance tax payers.
The stakes are particularly high for them because their only substantial assets
may be under threat. Yet regulation 25 lays down a balancing test which depends,
not on the timing of a transaction, not on its value, but on the establishment
of a subjective intention to diminish possible care fees. In addition, a local
authority has discretion whether or not the apply the regulation at all.
In this context, the
fact that the onus of proving the "purpose" of a deprivation of capital rests
firmly on the local authority is the only real constraint against wholly
inappropriate interventions by a public body seeking to limit a possible drain
on its scarce resources. A "reasonable" local authority which decided to assess
notional capital would be expected to explain, in detail, its conclusions as to
purpose and the evidence on which they were based.
It all too easy to draw inferences of
fact without establishing the primary evidence which would justify such
inferences. The transcript of the Yule case gives no insight into the decision
of the South Lanarkshire Council, or what its stated reasons may have been.
Anecdotal evidence suggests, however, that structured, evidence-based decision
making by local authorities on this issue is by no means the norm.
There is a great deal of
case law on the application of the notional capital rule in claims to income
support and the other income related benefits. A "reasonable" local authority
would take its lead from the experience of the Social Security Commissioners in
considering the meaning of "purpose" in reg 25. The Commissioners' conclusions
may be summarised as follows:
(i) Where there is no direct evidence
as to the purpose of a deprivation all the primary facts must be weighed one
against the other before an inference as to purpose may properly be drawn. Hence
the fullest possible information should be obtained on how the deprivation
occurred.
(ii)
The local authority must show that the resident actually knew of the capital
limits at the time of the deprivation. It should, for example, consider the
background of the resident, previous experience of residential care, and the
resident's level of understanding.
(iii) The local authority must show
that reducing care fees was a "significant operative purpose" of the
deprivation. There have been cases, for example, where it has been accepted that
gifts were made in acknowledgement of the long term care or support provided by
family members for the resident, and not in order to reduce care fees3. Mrs
Yule's gift to her granddaughter was made for "love, favour and affection";
South Lanarkshire Council should reasonably have investigated the relationship
which gave rise to these words.
(iv) All the personal circumstances of
the resident must be considered - his state of health, needs and obligations.
All may affect the conclusion reached as to his reasons for disposing of
resources. What were his requirements at the time? Was a gift made in return for
a service? Was there a debt which had to be repaid? Even where debts are owed to
family members, and may not be legally enforceable, when the resident feels an
obligation to make repayment, reg 25 should not be applied4.
(v) Although reg 25 contains no time
limits, the length of time after capital has been disposed of and before
entering residential care will be relevant.
A foreseeability
test
A
reasonable local authority will not conclude that the purpose of a deprivation5
must have been to decrease residential care fees solely because that outcome
appears to be a natural consequence of the deprivation. The test is subjective,
and the local authority should not employ the wisdom of hindsight in making a
judgement about intention. The Charging for Residential Accommodation Guide
(CRAG)6 makes this quite clear: para 6.064 states that it would be:
"unreasonable to
decide that a resident had disposed of an asset in order to reduce his charge
for accommodation when the disposal took place at a time when he was fit and
healthy and could not have foreseen the need for a move to residential
accommodation."
Para 6.064 shows that a reasonable local authority will draw a
distinction between:
 |
a situation where a resident has disposed of property directly foreseeing his own probable admission to residential care (perhaps because his health is failing), and intending primarily to avoid or reduce care fees. |
| |
a situation where the resident, being in good health, has weighed the possible risks of residential care alongside his perceived obligations to his family, his own needs, and his long term security - and has then decided to make a disposition. |
In the first case it will be reasonable to infer a significant operative purpose of avoiding care fees, especially where the disposition is made shortly before the resident enters the home. The inference may be displaced, however, by evidence of another paramount purpose in making the disposition - such as the repayment of a debt - or by evidence that the resident was unaware of the notional capital rule.
In the second case reg 25 should not apply. It is not intended to cover every act of pure benevolence or every cautious rearrangements of assets undertaken partly in order to minimise risks which may or may not materialise. It is not reasonable effectively to reverse the burden of proof by inferring that, because older people do sometimes have to go into residential care, any disposition must carry an intention to avoid care fees.
The CRAG also makes clear that, where circumstances change dramatically and wholly unexpectedly after a disposition has been made - for example, when a previously fit person has a stroke, or is injured in a fall - it is not reasonable for a LA to adopt the benefit of hindsight and draw an inference as to purpose without fully investigating the circumstances which prevailed at the time of the disposition.
A reasonable LA will be aware of the actuarial risks of residential care. There is a prevalent assumption that these are higher than is actually the case. Recent information published by Age Concern in September 1998 puts the "general risk" of residential care, by age, as follows:
Under 65: 0.05%;
65 to 74: 1%
75 to 84: 5.4%
85 or more: 24.7%
At the age of 81 Mrs Yule would have had a 5.4% chance of living in a residential care home or nursing home. When she transferred her house to her granddaughter she was in good health and lived independently of her family. Eleven months later, she fell and broke her arm, and her health subsequently deteriorated. Given those facts, a "reasonable" local authority
would surely not have decided that Mrs Yule transferred her house in order to reduce her accommodation charge. The actuarial risk of residential care for a women of her age was not significant, and unless she in fact knew of, or foresaw circumstances which would greatly have increased that risk it could not be said, on the balance of probabilities, that the reg 25 test was satisfied.
"Retaining for herself a liferent& "
The National Assistance (Assessment of Resources) Regulations cause certain capital assets to be disregarded on assessment. The policy reasons for ignoring some assets whilst taking account of others are uncertain, but the rules date back to the income maintenance provisions in the National Assistance Act 1948.
Regulation 21 states:
"(1) the capital of a resident to be taken into account shall, subject to paragraph (2), be the whole of his capital& ; (2) There shall be disregarded in the calculation of a resident's capital under paragraph (1) any capital, where applicable, specified in schedule 4."
Para 11 of schedule 4 disregards "the value of the right to receive any income under a life interest or from a liferent"7. The right referred to is the saleable capital resource owned by a beneficiary under a life interest trust8 which, in the case of a trust of personalty gives the right to income and, in the case of a trust of land, amounts to the right to occupy and take the fruits (if any) of the property, pending a possible sale.
Para 4 of schedule 4 disregards "any future interest in property", other than land or premises in respect of which the resident has granted a subsisting lease or tenancy9.
Mrs Yule is said to have retained for herself a liferent in her former home. Does this mean that she created a simple trust under which she was entitled to a life interest and her granddaughter to the reversionary or "future" interest? If so, it may be argued that reg 25 was irrelevant. Whatever Mrs Yule's purpose may have been, it is clear from the drafting of reg 21 (above) that all capital is to be disregarded if one of the paragraphs of schedule 4 applies. Consequently an asset which might otherwise have its value taken into account as notional capital under reg 25 has to be ignored if it falls within schedule 4. This principle is now expressly acknowledged in several decisions of the Social Security Commissioners, and also in para 6.058 of the CRAG:
"the LA should only consider questions of deprivation of capital when the resident ceases to possess capital which would otherwise have been taken into account. E.g. a resident gives a diamond ring worth £2,000 to her daughter the week before she enters residential accommodation. The LA should not consider deprivation as, had the ring still been possessed, it would not be taken into account as capital"10.
Therefore the analysis would be that both Mrs Yule and her granddaughter have proprietary interests which are disregarded under paras 11 and 4. There was nothing for the South Lanarkshire Council to assess. The fact that Mrs Yule may have retained an interest in possession which would have affected her inheritance tax position is irrelevant to a discussion of the charging regulations, which provide the only basis for capital assessment by the local authority.
The application of the relevant regulations appears to create a loophole, which was available to Mrs Yule and which, arguably, could have protected her disposition against an application of reg 25. A reasonable local authority would have requisitioned the relevant documentation in this case, and would certainly have referred the file to its legal department for detailed advice. Because there is no case law under the charging regulations, a reasonable decision would be supported by a detailed opinion based on the practice of the Benefits Agency in analogous situations and on the received wisdom of the Social Security Commissioners.
Margaret Richards, The author is a Solicitor and Community Care Adviser. She offers a consultancy service on community and residential care, finance, benefits and related issues for firms and other organisations. And can be contacted on 0113 278 1810.
Footnotes
1. CRAG para 6.057
2. In Yule v South Lanarkshire Council the Court of Session acknowledged that an "income related benefit" was being provided for Mrs Yule, and so expressly linked the provision of state funded residential care with cash benefits available to those whose income resources are otherwise inadequate. This association goes back at least as far as the National Assistance Act 1948.
3. CIS 242/1993
4. R (SB) 12/91; CIS 2627/1995
5. R (SB) 40/85
6. This is "mandatory" guidance, issued by the DoH under section 7 of the Local Authority Social Services Act 1970.
7. Para 13 of schedule 10 of the Income Support (General) Regulations 1987 is in identical terms.
8. R (SB) 43/84
9. Para 5 of schedule 10 of the ISG Regs is in identical terms.
10. This example is referring to the disregard on personal assets in para 8 of schedule 4.
