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Legal case

Deeds of variation and deprivation of assets

The recent case of LMS Re [2020] EWCOP 52

A recent ruling by the Court of Protection has raised some interesting questions as to whether a Deed of Variation which allows a beneficiary to maintain an entitlement to means tested benefits will be viewed as a deliberate deprivation of assets.

What is deliberate deprivation of assets?

Deliberate deprivation of assets is where a person intentionally reduces their assets so they will not form part of a financial assessment to determine their entitlement for care fees or means tested benefits.

If the Local Authority of Department of Work and Pensions conclude that there has been deliberate deprivation of assets they may still include the value of these assets within any financial calculation.

A common example using deeds of variation

A common example of deprivation of capital assets is where a person gives away assets such as a house or savings to family members so as to be or become financially eligible for means tested benefits. Such a gift could be triggered as a result of a person receiving an inheritance from a relative.  Although a Deed of Variation can be used in these circumstances to dispose of an inheritance effectively for Inheritance Tax purposes, it has been commonly thought that a Variation still amounts to deliberate deprivation for benefit assessment purposes.  

However, a recent decision by the Court of Protection came to a different conclusion.

Court of Protection case

In the recent case of LMS Re [2020] EWCOP 52, the Court of Protection authorised a Deed of Variation to redirect a beneficiary’s inheritance into a disabled person trust. This allowed the beneficiary to maintain her eligibility for means tested benefits.

In coming to their decision the Court of Protection concluded that the main purpose for the Deed of Variation was not to ensure the beneficiary kept her means tested benefits but to effect the wishes of the testator (the beneficiary’s grandfather). It was found that the grandfather intended the beneficiary to benefit financially from his estate and if he had been aware that his gift would have removed the beneficiary’s entitlement to benefits he would have changed his Will accordingly.

It is not yet known whether this decision will have a general application for beneficiaries wanting to enter into a Deed of Variation to vary an inheritance for the purposes of maintaining eligibility for care fee assistance. Future beneficiaries could argue that the testator’s wishes have not been realised if a beneficiary’s inheritance is taken into account in a financial assessment for care and that that is the primary motivation for the Variation.

By the act of leaving a legacy in a Will it is clear that the intention for a testator is to ensure a beneficiary will benefit from their estate. It is unlikely that any testator would want their legacy to reduce a beneficiary’s entitlement to financial assistance. Therefore, it is not unreasonable to assume that if a testator was aware that their legacy would adversely affect a beneficiary’s entitlement to care fees they would have amend their Will accordingly as found in LMS Re [2020] EWCOP 52.

Consequently, a beneficiary could argue any Deed of Variation entered into to protect their eligibility for care fees may not be a deprivation of assets but is to effect the testator’s intentions.

Is it in the public interest?

It is worth noting that in LMS Re [2020] EWCOP 52 the Court of Protection did consider the public interest while coming to their conclusion. The Court of Protection confirmed public policy was not offended by the authorising of the Deed of Variation.

It could be argued that a Deed of Variation entered into to preserve a beneficiary’s entitlement to care fee assistance would be against public policy. This is because care fee assistance is available to assist those in the community who would otherwise not be able to or struggle to afford care. There is only a limited amount of assistance that Local Authorities can provide. Therefore, if a family has sufficient assets to fund their own care it would be against public policy to allow them to give this away for the purposes of accessing the limited resources available to the Local Authority at the detriment to others in the community.

Assessment of means tested benefits

It is also worth noting that the Court of Protection does not have any jurisdiction to determine the beneficiary’s entitlement to means tested benefits. However, in LMS Re [2020] EWCOP 52, the Court of Protection did record its intention that the Deed of Variation was not to considered a deprivation of assets. It remains to be seen whether the Local Authority or the Department for Work and Pensions will agree with this view or conclude that there has been deprivation of assets for their purposes.

Reviewing Wills

This case is a reminder of the importance for a testator to ensure they review their Will regularly. Testators need to ensure that their Will is updated to reflect not only their own circumstances but also their beneficiaries’ circumstances.

This will remove the need for beneficiaries to attempt to rely on Deeds of Variation to preserve their financial assistance and uncertainty around a potential challenge from a Local Authority or the Department for Work and Pensions on the basis they deem the variation to be deprivation.

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