Our recent trusts symposium looked at issues in relation to mental capacity and undue influence, discussing some of the problems which might face a trustee in the event that a settlor began to show what might be signs of deterioration in his mental health, while appearing to rely too heavily on an individual who did not seem to have the best interests of the settlor at heart. Morven McMillan attorney with Mourant Ozannes reports in this first of a two part series.
We tried to demonstrate by reference to examples in case law and in a case study drafted by us how difficult it often is for psychiatric experts, doctors and trust professionals alike to agree when a person has lost mental capacity. Given that the situation is often exacerbated by the understandable sensitivities involved, a trustee can be put in the unenviable position of trying to ensure that the administration of the trust continues smoothly while the family struggle to come to terms with the potentially devastating consequences of mental illness.
We considered the authorities on voluntary dispositions and mental capacity, specifically the test for mental capacity and the degree of understanding required. We looked at the Cayman Islands Mental Health Law (2007 Revision) (the Mental Health Law) and the Grand Court’s wide jurisdiction “to do or secure the doing of all such things as appear desirable for the maintenance or benefit” of a person who can no longer look after their financial affairs, but also for the benefit of his family and those for whom he might be expected to provide (sections 13 and 14).
We discussed the test, which would be applied by the Grand Court when considering what steps to take “for the maintenance or benefit” of the patient or his immediate family, looking specifically at the recent case of Re Mrs D  CILR 432. In Re Mrs D however the Grand Court moved away from the old “lucid intervals” test to embrace the more modern “best interests” approach, as set out in the English Mental Capacity Act 2005 which fundamentally reformed English mental health legislation. Cayman does not have an equivalent to the English MCA, its Mental Health Law being largely based on England’s Mental Health Acts from 1958 and 1983, but the Chief Justice in Re Mrs. D, found that the scope of the court’s jurisdiction under the Cayman Mental Health Law was sufficiently wide that the court was not constrained from adopting the “best interests” test.
The scenario we looked at in our trusts symposium was this. Stanley, our settlor, had made various gifts into a family trust over a period of years, the largest some four weeks before the symposium. The trustee had never met him as all instructions had come through a longstanding lawyer contact of the trust company. The trustee would however be contacted annually by Stanley when he would send the trustee his updated letter of wishes.
Based on the series of letters of wishes and a letter from Stanley’s wife (which had also been signed by their three daughters) advising the trustee of her concerns about Stanley’s recent behaviour, the teams of delegates at our symposium were asked to decide whether they thought Stanley had lost capacity and the particular aspects of the scenario that troubled them and why.
We could not agree. However, what we did agree upon was that we were not qualified to decide and so the trustee in our scenario had to do its best in an extremely difficult and worsening situation. We looked at what trustees should do next.
Read more next month