Accident and clinical negligence victims often receive large sums in compensation to pay for their long-term care – but what happens if money remains in the pot when they die? The High Court considered that issue in a guideline case.
The case concerned a boy who was born gravely disabled following complications during his delivery. He was aged seven when solicitors on his behalf negotiated a settlement of his damages claim against the NHS, comprising a lump sum of more than £800,000 and annual payments to cover the costs of his care for life.
He was expected to live until the age of 19, but that assessment sadly proved over-optimistic. He was aged 13 when it became clear that he only had days to live. In those circumstances, his lawyers made an emergency application to the Court under the Mental Capacity Act 2005 with a view to settling his financial affairs.
Without the Court’s intervention, the boy’s estate – which was entirely derived from his compensation and worth about £650,000 – would have passed equally to his mother and father. The health of the mother, who was 18 when he was born, had been permanently damaged by the boy’s complicated birth but she had cared for him in his early years. The father, however, had played no part in his life.
The position was further complicated by the fact that the boy had latterly been cared for by foster parents. A home adapted for the boy’s needs had been purchased for the family with part of his compensation. The foster parents had two daughters who viewed the boy as their brother. Intestacy rules meant that, in the absence of a court order, the family would have lost their home on the boy’s death and the property would have been inherited by his mother and father.
In ruling on the matter, the Court found that, had he enjoyed the capacity to make decisions for himself, the boy would have wished his foster family to remain securely in their home. Given his mother’s health problems and the care that she had given him, he would have wanted her to inherit. However, he would not have wanted his father to benefit from his death, in that the latter had been absent from his life since birth, having denied his paternity.
In the circumstances, the Court gave effect to the boy’s likely wishes by putting in place a disabled persons trust, under Section 89 of the Inheritance Tax Act 1984. The effect of the trust was that the foster parents would inherit their home, free from Inheritance Tax. The balance of the boy’s estate would pass to his mother.
Although the boy was alive during the hearing of the case, he has since sadly passed away.