Many of my clients make reciprocal wills. Income of residuary estate to surviving spouse
for life with trustees having power to pay, transfer or apply capital for the benefit
of surviving spouse.
A few days ago I was told of a case (not one of mine) where
following the first death the survivor went into residential care. Her own assets were taken into account in determining her financial contribution but in addition the local authority contended
that the discretionary power of the trustees to pay, transfer or apply capital meant
that the capital of the trust fund should also be taken into account as her capital.
This seems odd to me because paragraph 58 of the Care and
Support Statutory Guidance Issued under the Care Act 2014 states that:
“58……Capital should be treated as already belonging to the
person except in the following instances:
(a) Capital in a discretionary trust;…”
I wonder whether anyone has heard of any local authority
taking this position and whether this type of will remains a lawful and
effective approach for couples concerned about the assets of the first to die
being used up in care fees by the survivor?
Local Authorities have to be resisted and in these times of austerity will try any argument to save money. Having said that, i can see why they might consider your type of trust not to be a discretionary trust, although the power is a discretionary fiduciary power, so should be treated in the same way. If this starts to happen more often perhaps a life interest with overriding powers of appointment might be sensible, and for the surviving spouse not to be a trustee.
I do wonder if we will end up going back to the old Supplementary Benefit Rules of the early 1970’s where power to advance Capital in a Will meant the DWP would not pay benefit? Methinks its only a matter of time before some bright spark in authority blows the dust off that legislation and resurrects it.
Many thanks for the feedback. I was not aware of the old supplementary benefit rules. I suspect that we will end up there. Simon’s idea seems best for the moment. Maybe incorporating a classic NRB trust on the first death to make the position clearer for the local authority. I see that Williams on Wills 10th edition C3.5 is a good fit for this situation. The NRB trust introduces extra costs and administration. The possible benefit of protecting the assets of the first to die probably outweighs those costs. I suppose that in the end local authorities will routinely call for an account of capital payments and Letters of Wishes so maybe they need to be carefully worded in anticipation of disclosure.
Whilst paragraph 58 excludes assets in Discretionary Trusts from the capital assessment, the earlier paragraph 10 includes assets where the individual has “…the power to vote or influence a transaction regarding a particular asset”.
Initially these two paragraphs seem contradictory, but they can be reconciled by taking them to mean that being a discretionary beneficiary of a trust does not automatically include the trust assets in the assessment but that if the individual is also a trustee then those assets can fall within the assessment. Furthermore, it could be suggested that even where the individual is not a trustee but the professional trustees were instructed by the individual, or the trustees are the individual’s family members, then the trust assets remain vulnerable.
Is there any other way of properly reconciling those two paragraphs?
Could this analysis be the approach that this local authority is taking?