The claimant had learning disabilities and received employment and support allowance pursuant to section 1 of the Welfare Reform Act 2007. On the death of her mother, and under the terms of the mother’s will, she became a beneficiary under a trust of half of the residual estate amounting to approximately £250,000 which was placed in financial investments. The claimant held a “liferent” interest under the trust and the trustees were empowered at their discretion to make distributions out of the trust funds to any beneficiary including the claimant. After the mother’s estate was administered, the trustees made regular fortnightly and then weekly payments plus other payments on an ad hoc basis when needed for the claimant’s car running costs, rent and other matters. The payments made by the trustees exceeded the income from the trust fund which meant that, in legal terms, the trustees were not only paying the liferent income from the trust fund to the claimant but were also exercising their powers to advance additional capital to her. The Secretary of State decided that the entitlement of the claimant to employment and support allowance should be reduced to take account of payments from the trust. Although the First-tier Tribunal partially allowed the claimant’s appeal against that decision, to the extent of changing the dates for the period of income to be taken into account, it found that all the payments from the trust for that period fell to be taken into account when considering employment and support allowance. On the claimant’s further appeal, the central issue was whether the payments from the trust were to be taken into account when calculating her income and capital, in accordance with section 17 of the 1007 Act and Schedule 8 to the Employment and Support Allowance Regulations 2008, in determining whether she satisfied the financial conditions set out in Part 2 of Schedule 1 to the Act for entitlement to that benefit. In particular, issues arose whether the payments from the trust were to be treated as income in the form of a “voluntary payment” made or due to be made at regular intervals, and thus disregarded pursuant to regulation 104(2) and paragraph 16 of Schedule 8, or whether they were capital in the form of a “voluntary payment which is not made or not due to be made at regular intervals” within regulation 112(7), so as to attract the capital exemption provided by paragraph 18 of Schedule 9 in respect of rights to receive any income from a liferent.
On the appeal—
Held, appeal allowed. On a consultation of the terms of the trust deed, the type of trust set up was expressly a liferent trust conferring the right to receive for life the benefits of property or assets, without the right to dispose of the property or assets, and it thus conferred on the claimant an interest in possession under which she was entitled to the use of and/or income from assets held by the trust during her lifetime. Since the claimant had a right under the trust to receive any income from the trust funds, the trust was not purely discretionary, and the fact that the trustees could decide the timing and frequency of payments of liferent income did not make the liferent discretionary. However, since the claimant had no enforceable right to any other payments notwithstanding that the trustees could advance additional capital to her if they so chose, the trustees had a discretion to that extent. Since the Employment and Support Allowance Regulations 2008 made no general exemption for payments from liferent or discretionary trusts, payments from such trusts would only be disregarded if they fell within a specific disregard in Schedule 8 or elsewhere in the legislation. In the context of income-related benefits, whether a payment was “voluntary” depended on whether anything was obtained in return for it, in which regard legal obligation was not the focus of the inquiry although it might be one relevant factor. The payments made by the trust which equated to liferent income were not voluntary, and thus were neither disregarded under paragraph 16 of Schedule 8 nor treated as capital under regulation 112(7), since the trustees received something in return for the payments namely a discharge of their legal obligation arising under the trust to pay liferent income to the claimant, it being irrelevant that the trustees had a degree of choice as to the timing of the payments. However, payments made to the claimant which represented discretionary advances of capital over and above the liferent income on the trust funds were voluntary. Such payments if made at regular intervals fell within the exemption in paragraph 16 of Schedule 8 and were to be disregarded. Those not made at regular intervals, including payments made on an ad hoc basis to cover expenditure associated with the claimant’s car, rent and other matters, fell to be treated as capital within regulation 112(7) and, because they were not payments representing the liferent interest but were instead capital advances, did not benefit from the exemption in paragraph 18 of Schedule 9. It followed that the First-tier Tribunal had failed properly to apply the provisions of the 2008 Regulations when considering which payments from the trust fell to be taken into account and which did not, and its decision would be set aside accordingly (paras 17–20, 22, 25, 27, 29, 30, 32, 33).
Deborah Sinclair, senior welfare rights officer, Perth and Kinross Council, for the claimant.
Julius Komorowski (of the Scots Bar) (instructed by Office of the Advocate General for Scotland, Edinburgh) for the Secretary of State.