An important first step
Abstract
- The landscape of private wealth disputes is evolving, driven by several key trends. Mental capacity is emerging as a central theme, with increasing recognition of its seismic consequences in trust decisions. Age-related neurological conditions contribute to capacity challenges, compounded by the unprecedented transfer of wealth between generations. Legal frameworks, like the Capacity and Self-Determination (Jersey) Law 2016 in Jersey, offer guidance on assessing capacity and planning for incapacity risks.
- Trust insolvency poses challenges, emphasising the need for proactive trustee action to address funding problems and prioritise creditor interests. The role of protectors adds complexity, with debates over their powers and necessity in trust structures.
- The mistake jurisdiction allows for court intervention to rectify errors, particularly in tax-related matters, highlighting the importance of prompt action and considerations of justice. Trustee investment disputes are on the rise, underscoring the need for prudent investment decisions balancing risk and benefiting all beneficiaries. These trends emphasise the need for adaptive approaches to navigate the evolving legal and financial landscape, ensuring the integrity of private wealth structures amid complex interactions between legal, financial and moral considerations.
Mental capacity is an increasingly central theme in the landscape of private wealth disputes. To explain this, we begin with the fact that there is, more so than at any point previously, a wider recognition of the seismic consequences of establishing mental incapacity on the part of the relevant decision maker.
The mechanisms by which the establishment of a trust or an apportionment of trust assets can be invalidated are limited, absent demonstrating the existence of sham. Mental incapacity, however, is one such mechanism. If it is established that the relevant decision maker lacked mental capacity at the relevant time of the decision, it can result in that decision and the consequences that flow from it being invalidated. In practical terms, this can mean a return to the position prior to the decision being made. The weight of this consequence has undoubtedly led to a greater interest in capacity by those seeking to challenge trust decisions, particularly where the financial values are significant. So, why is it becoming more prevalent now?
First, age. People living longer has meant an increase in age-related neurological conditions.[1] According to recent statistics from the World Health Organization (WHO), more than 55 million people worldwide have dementia,[2] with the WHO describing the disease as ‘one of the major causes of disability and dependency among older people globally’. One feature of many of these neurological conditions is that the loss of mental capacity is incremental. What a settlor may have been able to do very capably a week ago could have changed by the following week. Unless mental capacity is assessed regularly, it can be difficult, when faced with a capacity challenge at a particular point in time, to assess the strength of that challenge.
The second reason for the greater prevalence of capacity disputes is the vast transfer of wealth happening now, which will only intensify over the coming decades. It has been reported that somewhere between USD60–100 trillion in generational wealth will change hands by 2045, primarily from Baby Boomers to Generation X and Millennials.[3] The unprecedented passing of wealth on this scale has heightened the focus on how decisions around the transfers are made. These two factors, combined with the powerful effect of a decision of incapacity, have brought the issue of capacity firmly to the forefront of private wealth disputes.
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