I am acting for the executors/trustees of the will of X which left his half of the home in trust for Y during her lifetime with provision to allow her to move. Z is the remainderman. The family home was sold and a replacement property was purchased for Y to live in.
Y is now in full time care and the trustees understand that her care is funded by the local authority. Z has always been a financial dependent of X and Y and lived with them rent free at their home and subsequently lived with Y when the new property was purchased.
The trustees have taken the view that Y would wish Z to continue living at the property rent free and to that end, the trustees have not charged Z a rent on an understanding that he took on the expenses associated with running the property and maintaining it to a reasonable standard etc.
This in turn means that Y is not obtaining a financial benefit from the trust in a traditional sense although it does allow Y to continue supporting Z in the way that she had always done.
The trustees now wonder whether they have an obligation to report to the local authority that there is a life interest trust for Y’s benefit of which she is not obtaining a monetary benefit. Y does not have sufficient capacity to enable the trustees to take instructions from her about the matter.
The trustees also have concerns about whether they may be held liable for any contribution to care that Y should have been making if she were to receive a monetary benefit from the trust assets in line with a traditional life interest trust.
Does anyone have an opinion about whether the trustees have a duty to disclose to the local authority that the trust is in place but the trustees have made the decision to benefit Y in a non-traditional way. Also, should the trustees consider charging Z rent at a market rate rather than take the view that they are benefiting Y indirectly by allowing Z to remain in rent free occupation of the property?
I don’t even know where to start with researching this so any guidance or opinions would be very much appreciated.
Masefield Solicitors LLP
Tentatively, I would expect that any disclosure obligation lies with Y (or her attorneys) rather than the trustees. However, I have never checked the point.
There is a body of case law on the question of benefiting third parties where the trustees consider this to be an indirect way of benefiting the named beneficiary. However, I have only seen this in the context of appointments of capital rather than allowing third parties to enjoy assets held on life interest. E.g. Pilkington v IRC  AC 612, Re Pauling’s Settlement Trusts  Ch. 303, Re Clore 's Settlement Trusts  1 WLR 955, Re Hampden’s Settlement Trusts  TR 177 and X v A  1 All ER 952.
I would usually take counsel’s opinion in this scenario but, generally speaking, the question is usually whether this exercise of the power, viewed objectively, will be for the benefit of Y, and do the trustees subjectively believe it to be for Y’s benefit?
If Z is the sole beneficiary of Y’s estate under her Will, that would help reduce the possibility of challenge.
My understanding is that the trustees owe a a duty to Y and not to the local authority so they would not have any duty to disclose anything. Does Y have LPAs? Her attorneys were presumably involved in the financial assessment
The duty to Y, however, would be to ensure her interests are taken into account as life tenant of the trust.
To my mind, the only issue would be if the local authority took action against the trustees on Y’s behalf on the basis that the trustees are not ensuring the trust achieves an income for Y (which could then be used in Y’s care).
Ellen Fay Solicitors
I wonder if this is a situation where the solicitors advising the executors/trustees should seek guidance from the SRA.
I agree it is for Y/her deputy or attorney to ensure the facts are correctly disclosed in relation to local authority funding.
There is sufficient case law around to indicate that it may be in Y’s best interests to allow Z to continue occupying the property on the same basis as they have done to date (as a licensee at will of Y?).
However, the “best interests” test under the MCA 2005 is not a binding factor in the local authority’s assessment of contributions to care fees, although occupation by a dependent can be in certain circumstances.
We are seeing an increasing body of law making advisers liable where they are aware that third parties have obtained a benefit by not providing full disclosure.
If the solicitors are concerned that the local authority is not properly informed if the circumstances and has, therefore, assessed care fees on the wrong basis, might they be deemed complicit in then arrangement and attract liability for any over-allowance of benefit to Y.
It seems increasingly, that advisers need to keep looking over their shoulder in case even indirect knowledge of something like this situation could result in potential liability.
Tobias, thank you for pointing me in the direction of the case law. I recalled that benefiting third parties had been considered before but I had no idea where to start. The trustees are not too worried about a claim from Z as the remainder beneficiaries were asked to sign a letter consenting to the rent free occupation of Z which explained the relevant issues but at the time they were not mindful of the Local Authority angle.
Samantha, there are no LPAs in place for Y unfortunately. The trustees are concerned that they’ve put themselves in a vulnerable position with respect to a claim from the Local Authority.
Paul, we have approached the SRA already and they recommended we seek counsel’s opinion as it is not something they can provide guidance on. Your comments about the MCA 2005 have given me another avenue to explore.
Thank you all for your very helpful responses. This is one that we’ll need to seek counsel’s opinion on and hopefully there will be a lot learned from the outcome.
Masefield Solicitors LLP