denotes premium content | Jan 8 2009 Feature
posted 1 Jul 1998 in Volume 3 Issue 5
YULE v South Lanarkshire Council
(OH)
In February
of this year, Scotland's highest Civil Court (the Court of Session in Edinburgh)
in a case the first of its kind to be heard in Scotland (to the writers
knowledge)decided that the home of an 81 year old woman gifted to her
granddaughter 18 months before entering care remained an asset which should be
included as notional capital for assessment purposes.
This article considers the
implications of the case for those advising elderly clients in disposing of
assets prior to entering residential or nursing care.
The facts of the case are as
follows:
In March
of 1995, Mrs Yule aged 81 gifted to her granddaughter for "love favour and
affection" her house retaining for herself a liferent(life interest) in the
property. At the time of the gift of the house Mrs Yule also executed a Power of
Attorney in favour of her son. At the time of the gift Mrs Yule was in good
health and was not dependent on her family. In January of 1996 Mrs Yule fell and
sustained a broken arm, her health thereafter deteriorated to the extent that
she was no longer able to look after herself. Her son looked after her following
her discharge from hospital. However her condition continued to deteriorate an
application was then made to have Mrs Yule admitted to a local nursing
home.
The
application form from the local Social Work department was completed by Mrs
Yule's son to assess her financial contribution to the cost of the nursing home
fees. The form requested details of any land property or capital disposed of in
the previous six months. If assets have been transferred within that period for
no, or inadequate, consideration, knowingly done, the intention of which is to
avoid residential charges, the local authority has powers under Section 21 of
the Health and Social Services and Social Security Adjudication
(HASSASSA) Act 1983 to recover from the transferee any money owed to
them. As the date of Mrs Yule's gift of her house to her granddaughter was
outwith the six month period no details of the gift were disclosed in the
application.
The
local authority subsequently became aware of the earlier disposal of her house
by Mrs Yule. The local authority decided that the value of the house should be
treated as notional capital. This would have the effect that the balance of Mrs
Yule's nursing home fees not already being met from her pension would become her
financial responsibility
and not the local authority.
An application for Judicial Review of
the Council decision assessing Mrs Yule as ineligible for public funding for
residential care costs on the ground of possession of notional capital beyond
the prescribed maximum was made by Mrs Yule's son acting under the power of
attorney. The application was heard in the Outer House of the Court of Session
in the presence of Lord Ordinary (Philip).
Counsel for Mrs Yule (the petitioner)
argued that in relation to the present case, the 1983 Act was the primary
legislation . Section 21 of the Act provided a remedy for the local authority
(the respondents) as providers of accommodation where an asset has been disposed
of by a person prior to his being received into accommodation. Sub section (1)
of s21 makes the transferee of such an asset liable to pay the local authority
the difference between the amount assessed as due to be paid for accommodation
by the individual availing himself of it and the amount received by the local
authority. Counsel for the petitioner argued that the 1983 Act made no provision
for recovery where an individual had disposed of property outwith the period of
six months before residence in the home was taken up. Accordingly the six month
period was the only period in which the individuals intention was relevant. In
seeking to assert that the intention to avoid charges could arise outwith the
six month period the local authority was acting ultra vires. Sections 21 and 23
of the 1983 Act were determinative of the authority's powers. The powers did not
entitle the local authority to find the transferor (Mrs Yule) liable for payment
where there was a disposal outwith the six month period. Counsel for the
respondent relied on Sections 22(1) and subsection (2) of s.22 and subsections
(3) and (5) of the National Assistance Act 1948, in conjunction with Section
87(2) of the Social Work (Scotland)Act 1968 and The National Assistance
(Assessment of Resources) Regulations 1992 (SI1992/2977) regulations
20,21 and25 to support the position of the local authority.
It was argued that the above acts and
regulations when taken as a whole constituted a self contained scheme for
payment of accommodation charges and for the assessment of ability to pay. The
1983 Act on the other hand provided additional anti-avoidance provision directed
against the recipient of any capital transferred by a resident with the
intention of avoiding charges, and against heritable property retained by the
resident.
It was
held that the governing statutory background was to be found in s22 of the 1948
Act, s87 of the 1968 Act, and the 1992 Regulations, the 1983 Act providing
additional anti-avoidance provisions to some transfers within the six month
period, and accordingly any transfer made at any time, so long as it was for the
purpose of decreasing the amount that the petitioner might have to pay for her
care, could be taken into account in assessing her liability. The plea to the
vires of the respondents decision was repelled.
Conclusion
It is the opinion of the
writer that the petitioners case was always unlikely to succeed. It is not the
case( as was argued by Mrs Yule's Counsel) that by applying the provisions of
the 1983 Act that this thereby prevented the use of the notional capital rules
set out in the 1992 Regulations. The provisions of the 1983 Act and 1992
regulations are not mutually exclusive. The rules for notional capital can be
invoked at any time. The rules will not normally be applied where the six month
period applies. This is due to the fact that the provisions of the 1983 Act
offer greater flexibility in such circumstances, if for example a resident has
not disposed of his home then a legal charge can be created under section 22 or
23 of the Act, so allowing the authority to recover the cost of care either when
the property is sold or on the death of the resident .
Mrs Yule's petition was heard at a
first hearing at which the Court restricted itself to considering only the vires
of the local authority decision. A further hearing is to held later this year to
will consider the reasonableness of the local authority in claiming that because
of the method of transfer the authority is entitled to treat the asset as
notional capital. For the present, the timely disposal of assets remains a valid
and practical means of ensuring that the family inheritance maybe passed down to
the next generation rather than be eroded by care costs.
The method of transfer should however
be carefully considered. A straight forward gift has many potential pitfalls,
and should be strongly counselled against. The use of Trusts is worthy of close
consideration. In respect to Interest in Possession trusts, reserving only a
right of residence in the property gifted (as in the Yule case) is open to
challenge as it may appear to a local authority as an obvious attempt to
"deliberately deprive" a further challenge could arise by a local authority
invoking tax legislation i.e. Interest in possession to argue for the inclusion
of notional capital when carrying out an assessment
A solution may lie in the use of
Discretionary Trusts in which the transferor could be a Trustee as well as a
beneficiary(subject to IHT considerations). The transferor only remaining in the
house at the Trustees discretion with no interest being retained in the property
by the transferor. It is perhaps the hearing in the latter part of this year
that will be of more significance to hard pressed local authorities. For those
of you now worried by the plight of Mrs Yule, let me put your minds at rest. Mrs
Yule remains in the home, the local authority have indicated that they will let
Mrs Yule remain in the home for the foreseeable future.
John A. Campbell, Solicitor in
Private Practice in Edinburgh, specialising in Wills, Trusts, Tax Planning, Care
Of the Elderly.
