Paramount Group - Personal Injury Trusts

Newsflash

Protecting Tax Free cash

As you generally advise your clients regarding remuneration strategy and more importantly profits extraction it appears, following research with our existing clients that, for those who hold executive/directors pension policies and even those with small self administered schemes, it is now worth a review. This would examine whether it would be advantageous to transfer the existing benefits to a section 32 or section 32A (Block transfer) and start funding a self invested personal pension. For those who have small self administered schemes it is still possible to transfer to a section 32 and have the section 32 self invested, utilising the commercial property occupied by the sponsoring employers company.

Personal Injury Trusts

Introduction.

Solicitors cannot fulfil their remit to personal injury clients without enabling that client to carefully consider the possibility of founding a personal injury trust.

What exactly is a 'personal injury trust'?

You may have heard of 'trusts for disabled people', 'special needs trusts' or 'compensation protection trusts.' They are generic expressions hiding the true nature of different types of trust which just happen to be funded by an award of compensation. They might be; 'bare trusts' (an administrative device for holding and investing funds belonging to a particular person via trustees) or 'discretionary trusts' (where the trustees decide who gets what and when from the 'trust fund') or 'life interest trusts' (where a beneficiary has a right to income) or a hybrid.

It is the source of the trust fund which determines the trust's nature. Client wants, wishes, insecurities, general needs, special family circumstances and the relevant law dictate the type of trust used. But if it is funded by an award of compensation for a personal injury then it is a 'personal injury trust.'

Should personal injury trust advice to be given to all personal injury clients?

Awards held within personal injury trusts are ‘disregarded’ capital for means-tested benefits purposes but there are also other potential advantages.

Advice on personal injury trusts should be given in cases of:

Accidental injuries
Criminal injuries
Clinical and other medical negligence causing injury
Compensation given for any disease or injury caused as a result of a disease

This is irrespective of whether or not the harm caused was physical or mental. It is irrespective of where in the world the injury occurred. It is also irrespective the size of the payment made.

A person may not be in current need of means-tested benefits but might potentially have access to them in the future if their ‘assessable capital’ for means-testing purposes is low enough. A disregarded personal injury trust will fit the bill in lowering this assessable capital.

Remember that long term care provision, either at home or in a care home, is a means-tested benefit and an injured client is often more likely to need such support as they get older.

There are other client friendly advantages of personal injury trusts:

Can the client handle a large sum of money without the help of trustees?
Can trustees offer protection against grasping relatives?
Unstable mental conditions may make the appointment of trustees helpful.
Will having a trust help the client 'get their life back?'
What of the impact of divorce and separation? The personal injury trust might ‘ring-fence’ the award, at least as to what is still represented by it.
Will the client gain valuable extra peace of mind as a result of having trustees?

It should be noted that:

The award placed in the personal injury trust may be negotiated or mediated and no Court Order is needed to facilitate a personal injury trust unless the compensated person is either a minor or mentally incapable of managing their own affairs.
Cases involving minors involve the High Court agreeing to the personal injury trust. (Civil Procedure Rules 21.11)

Cases involving mentally incapable persons involve the Court of Protection agreeing to the foundation of a personal injury trust. (Mental Health Act 1983)

David Coldrick is partner in charge of Wrigleys Solicitors (Sheffield) which is a non-contentious pure private client specialist firm containing the first 'Compensation Protection Service' for the clients of other law firms. He is author of various textbooks including 'Coldrick on Personal Injury Trusts' (2^nd edition Ark 2005) and 'Coldrick on Care Home Fees' (Ark 2004) This e-mail address is being protected from spam bots, you need JavaScript enabled to view it 0114 2675588]