Case Study 1

Managing a personal injury award

The situation

W e were instructed post settlement to advise on the investment of a personal injury award received by “A”, a 15 year-old boy, as the result of a medical accident. Given the serious nature of his injuries, and in particular the cost of his future care, a settlement of over £3.5 million was agreed – a large amount, but only around half of what was deemed to be the required “quantum” amount to provide for his future care.

It is not clear whether A will have the ability to manage his own money when he achieves age 18, so it was not possible for a Deputy to be appointed to manage the award on A’s behalf. In such circumstances the award would normally be paid into the Court Funds Office, until A reached age 18 at which point his capacity to manage his own money would have been re-assessed.

This would have greatly have restricted the investment choices available and meant a very low interest rate being earned for at least the next three years.

The solution

We successfully persuaded the Court to settle A’s award into a personal injury trust under the trusteeship of a Solicitor and his parents. This has enabled a property to be purchased and appropriately adapted - greatly improving A’s quality of life in the short-term and enabling a long-term strategy for the investment of A’s funds to be implemented immediately.

If A does have capacity at age 18 he will be able to make his own decisions and the strategy implemented will enable him to assume control and influence from that point if he wishes to do so.

Given the shortfall between the award and A’s likely future costs it was very important to preserve A’s rights to claim state benefits and financial support in order to bridge the gap between his funds and his likely future costs, particularly future care costs. We introduced a third party expert to review A’s eligibility for state benefits and as a result, all eligible benefits have been claimed and local authority funding is assisting with the cost of A’s care.

We used cashflow modelling to forecast A’s likely future financial position. Because his award was reduced and has been partly spent on property, and because state funding does not fully bridge the shortfall, it is necessary for investments to assume some risk in order to generate the returns required.

We have worked with two third party investment managers to construct and manage two different investment portfolios. The overall approach is designed to reduce tax on returns as far as possible, to ensure that sufficient liquid funds are available at all times and to ensure that the required returns are achieved over time whilst taking as little risk with investments as possible.

The outcome

A's eligibility for state benefits and local authority funding are kept under regular review, as is the investment strategy, and we re-forecast A’s future financial position every year. All parties meet regularly with A’s parents and the trustees to ensure as far as possible the strategy remains on track to maintain A’s future financial security.