Guardians of the PIT

The article “Personal injury trusts: benefits and pitfalls” (Journal, February, 26) highlighted that difficult legal issues can arise from setting up a personal injury trust (PIT) when a guardian is appointed to an injured adult under the Adults with Incapacity (Scotland) Act 2000 (“the 2000 Act”).

We were recently instructed by Mrs F, who had been appointed welfare and financial guardian to her seriously injured husband. She received compensation and was advised to consider placing it in trust so that her husband would continue to be eligible for means-tested assistance. When originally appointed, Mrs F did not seek powers to set up a trust on her husband’s behalf. Application to the court was therefore necessary to vary the guardianship order.

As in previous cases, we wrote to the Office of the Public Guardian (OPG) with the details and asked it to confirm (as it had done previously) that it had no objections. This time the response was different.

The OPG indicated that sheriffs took differing views as to the competency and appropriateness of conferring powers via the 2000 Act to establish trusts, and as a result it would not be able to provide the letter of confirmation requested. In relation to competency, the OPG pointed to s 64(6) which, it stated, “prohibits a guardian from surrendering or transferring his functions to ‘another person’”. It added: “One must assume that this would include trustees, even if the financial guardian were to be one of them.”

The OPG pointed out that “placing the funds in trust would also move a substantial part of the adult’s estate out of the protections offered by caution and the supervisory provisions falling to the Public Guardian under the 2000 Act”.

If these concerns were reflected by sheriffs generally, this would be a significant obstacle to setting up PITs in many cases. Paradoxically it would leave mentally incapable adults in a worse position – so far as the benefits of PITs are concerned – than injured adults who have capacity, and persons under 16 (whose parent or guardian would have power under s 13 of the Children (Scotland Act) 1995 to create a trust).

In addressing the sheriff in this case, arguments were advanced as to why it was competent to give a guardian powers to set up a trust, including:

• Mrs F would not be “surrendering or transferring” any of her powers. “Surrendering” implies giving up or relinquishing. But a decision by a guardian to place the settlement funds into a trust is an exercise of her powers rather than a giving up of her responsibilities in respect of the adult’s financial affairs. She retains those powers and responsibilities. One important role of a guardian is to “stand in the shoes” of the adult. If capable, the adult/injured party would have been entitled to establish a trust and to transfer assets into it.
• On a plain reading, s 64(6) relates to a guardian surrendering or transferring their responsibilities to “another person”. As with many cases involving PITs, it was proposed that the guardian also be appointed a trustee. It did not, therefore, involve her “surrendering” her functions. It is also not the case that the trustees assume the guardian’s responsibilities: these remain as imposed by the court in respect of the remaining funds.
• The argument that the adult would be deprived of the protections of caution does not sit well with the move away from caution requirements and the changes to the rules allowing for caution to be dispensed with; the trustees would also be subject to fiduciary duties and could be made accountable for any breaches. Professional trustees would be covered by their professional indemnity insurance.

In this case, the sheriff expressed concern that this was a serious issue which should perhaps be considered by the Court of Session. However, the application was unopposed; the OPG made no submissions to the court and did not seek to become a party.

The sheriff took a pragmatic approach: he allowed the minute and granted the powers sought, but subject to his approving the terms of the trust deed and conditional upon the inclusion of a provision requiring there always to be a trustee who was a solicitor or accountant with personal injury cover, although interestingly not a professional trustee company.

The future

Although the power to establish a trust was granted in this case (and, we believe, in others since), this issue remains one which has not been directly opined upon by the courts. It is perhaps unlikely that this will happen until an application is opposed on these grounds or an organisation with an interest becomes involved. In the absence of clarification from the courts or in legislation there remains a risk that an application will be refused on the grounds of incompetency.