LEVEL 3 - UNIT 15 - THE PRACTICE OF LAW FOR THE ELDERLY CLIENT SUGGESTED ANSWERS JANUARY 2011

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1 LEVEL 3 - UNIT 15 - THE PRACTICE OF LAW FOR THE ELDERLY CLIENT SUGGESTED ANSWERS JANUARY 2011 Note to Candidates and Tutors: The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the January 2011 examinations. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners reports which provide feedback on student performance in the examination. Question 1(a)(i) This question requires the candidate to recognise that only the client can give instructions upon the making of a Lasting Power of Attorney (LPA). In this instance the instructions must come from Carole Ellis herself rather than from her son Peter. The candidate should also be able to recognise that if instructions are coming from a third party, then there could be undue influence being exerted upon the client. In the case scenario it is Peter Ellis who has largely been giving instructions on behalf of his mother during both the interview and in his subsequent letter. Question 1(a)(ii) To answer this question the candidate must recognise that the client must be seen alone, ideally when instructions are given and, in any event, when she signs her LPA. It is during that discussion that the client can be advised fully upon the meaning and effect of appointing an attorney to deal with her property and financial affairs. This would include explaining to the client the fact that if she subsequently lost her capacity to make decisions for herself, then decisions would be made on her behalf by her attorney. It would be explained to the client that if she had any concerns about her son Peter, then she could consider appointing her son and daughter jointly as her attorneys, thus ensuring that her daughter was fully involved in making decisions and thus avoiding the possibility of her son alone making such decisions. Question 1(b) This part of the question requires the candidate to consider mental capacity by reference to the Mental Capacity Act 2005 (MCA 2005). Although the MCA 2005 does not include a definition of mental capacity, the Code of Practice defines mental capacity as the ability to make a decision about a particular matter at the time the decision needs to be made. Ideally, the candidate should state that under section 1 of the MCA 2005 a person is assumed to have capacity unless it is established that he does not. The MCA 2005 provides guidance upon how to determine whether a person lacks capacity. Section 2 (1) MCA 2005 states that a Page 1 of 5

2 person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain. This is the first stage in determining whether a person lacks capacity. Section 3 (1) MCA 2005 goes on to define inability to make a decision as being unable: (a) to understand the information relevant to the decision; (b) to retain that information; (c) to use or weighs that information as part of the process of making the decision; or (d) to communicate his decision (whether by talking, using sign language, or any other means). This is the second stage of the test that should be applied and this should be recognised by the candidate. Question 1(c) This question requires the candidate to complete Part A of the LPA form. It is the accuracy of completing the form which is important, and for the candidate to appreciate that inaccuracies could lead to it being rejected by the Court of Protection. The LPA form should be completed in accordance with the completed LPA form attached to the marking scheme. Question 2 This question requires the candidate to consider the consequences to Mr Turner of accepting the gift offered by his son, and the problem which has arisen with regard to his ownership of the property occupied by his mother. Question 2(a)(i) The gift will not affect his income tax position unless the interest earned on that gift is sufficient to cause Mr Turner to become liable to pay income tax on his total income. As it would appear that he would use the gift to pay off his debts and pay for medical treatment and the adaption of his home, it is perhaps unlikely that income tax would become payable. These are comments that can be validly made by a candidate. Question 2(a)(ii) This question requires the candidate to recognise that only means tested benefits would be affected by the receipt of the gift. Mr Turner s eligibility to receive his basic retirement pension and/or attendance allowance would not be affected. Question 2(b)(i) In the event that Mr Turner decides to raise money by using his own home as security, the candidate should explain how an equity release scheme operates. The candidate should be able to explain that here equity means the sale proceeds of a house available after payment of any mortgage on that property. In this instance, Mr Turner has no mortgage on that property. In this instance, Mr Turner has no mortgage and the equity will simply be the value of his house. Under an equity release scheme he would, therefore, retain the ownership and his lender would take a mortgage over his property. The lender will then make either a lump sum payment or provide an income to the owner for the remainder of the owner s life. Whereas in a normal mortgage there are monthly repayments Page 2 of 5

3 of interest or interest and capital, under an equity release scheme, no repayments are made and the interest that is accruing simply rolls up, and is added to the amount borrowed at the time the property is sold. Question 2(b)(ii) The candidate should explain how a home reversion plan operates. It should be recognised that under such a plan the ownership of all or part of the property is transferred to the company making a payment to the owner either in the form of a lump sum or as a regular income. Although ownership of the property has been transferred to the lender, it is important for the candidate to note that the former owner remains in occupation of the property for as long as he wishes. As the period of occupation is likely to be unknown, the company making the payment will apply a discount when calculating the payment to be made according to the estimated value of the property. Question 2(c) The candidate is required to consider the position from a capital gains tax point of view, of him either selling or gifting to his son the property which he owns, but which is occupied by his mother. The candidate is not required to consider any other consequences that could arise. Firstly, the candidate should briefly explain the principle of capital gains tax. If an asset is sold by a person for more than was paid for it then capital gains tax is payable on the profit made. In order to determine the profit made, the acquisition value of the asset must be determined, if necessary by obtaining a valuation. Consequently, Mr Turner will need to ascertain the date upon which the property was transferred to him and obtain evidence of the property s value at that date. The disposal value is then determined. If the asset is sold then the sale value is easily determined. If the asset is gifted a valuation will be required. It does not matter from Mr Turner s capital gains tax point of view whether he gifts or sells the property to his son because a disposal takes place. The amount of capital gains tax payable is then determined by applying any exemptions that may apply. Mr Turner would not be entitled to the principal private residence exemption because it has not been occupied as his home during the period of ownership. As it would appear that Mr Turner has not used his capital gains tax allowance for the year in question, then the amount of gain would be reduced by that allowance and the balance of the gain would be subject to capital gains tax at the rate of 18%. Question 3(a)(i) This question requires the candidate to consider and explain in detail the qualifying criteria for Attendance Allowance. The explanation a candidate should give in relation to Attendance Allowance should include reference to the fact that all claimants must be aged 65 years or over. It should be recognised that the purpose of Attendance Allowance is to assist the claimant in covering the cost of extra personal care in the event that the person is no longer fully able to care for himself. In this context, personal care would include, for example, washing, getting dressed, mobility, or needing some supervision. It is important for the candidate to recognise that these forms of help must be needed several times a day, or continually. It is the extent of the help which will determine whether Attendance Allowance is paid at a lower or higher rate. The lower rate applies if help is needed either during the day or during the night, but not at both times. The higher rate is only payable if help is Page 3 of 5

4 needed both during the day and during the night. In all cases, a claimant must have needed help for at least six months before becoming entitled to receive Attendance Allowance. Question 3(a)(ii) When Mr Turner reaches the qualifying age of 65 years and as he is clearly in need of help with his personal care, he will be entitled to receive Attendance Allowance at the lower rate. This is because he only needs help on a daily basis and not during the night as well. However, the candidate should recognise that as Mr Turner has only needed care for less than six months, he does not yet meet the six months threshold and will not therefore qualify for Attendance Allowance yet. He will therefore be advised to make an application for Attendance Allowance as the six month threshold approaches. Question 3(b)(i) This question requires the candidate to consider how a personal pension can be dealt with when pensionable age is reached. Mr Turner has a private pension but he does not know how much income this might produce. The candidate should explain how personal pension schemes operate and how the pension fund may be dealt with. Having been self employed, Mr Turner has paid into a private pension scheme and no doubt will have obtained tax relief upon his contributions while he was working. The scheme is likely to have been operated by an insurance company and they will have invested payments he has made either on a monthly basis or as lump sums, into a fund. The insurance company will have invested those contributions and the fund that will have accumulated during the period of the pension contributions will now be available for investment. Often, this will be in the form of an annuity under which a guaranteed sum of income will be paid to Mr Turner for the remainder of his life. Question 3(b)(ii) The candidate should recognise that if Mr Turner asked for advice upon investment, then he should immediately be referred to either a Pensions Expert or an Independent Financial Adviser. Although it is permissible to explain to a client how personal pension schemes operate and how they can be dealt with upon retirement age being reached, no advice can be given other than by someone authorised to give financial advice, including a Solicitor or Legal Executive. Question 3(c) The candidate should explain that Mr Turner could make an advance decision which is a binding statement that can be made in accordance with the Mental Capacity Act An advance decision enables a person to set out their wishes about the kind of medical treatment they wish to receive if, for some reason they are not able to express their wishes at that time. An advance decision is legally binding upon a medical practitioner. It is important for the candidate to recognise that the advance decision must be made in precise written terms and signed and witnessed. Ideally, it should also be dated. Although advance decisions can exclude artificial life sustaining treatment, the decision cannot refuse basic care or refuse food and drink by mouth or facilitate suicide or euthanasia. It should also be recognised that in addition to making an advance decision, Mr Turner could consider making a Lasting Power of Attorney for his health and welfare. This would enable him to clearly set out his views upon the treatment he Page 4 of 5

5 wishes to receive in the event that he no longer has capacity to make known his views himself. Mr Turner would also have the opportunity, if he wished, of giving his attorney authority to give or refuse consent to life sustaining treatment on his behalf. Page 5 of 5