When you are making a personal injury claim, it is important to consider and plan for the future. The length of time it takes to successfully recover damages depends on a number of factors, many of which are out with our control.
These include the defender's or their insurer's approach, whether it is necessary to raise a court action and the nature of the injuries, and whether further time is required to provide a more certain prognosis. These variables differ on a case-by-case basis and no two claims are ever the same. Generally, it can take anything between six months and several years to resolve a case.
Regardless of the length of time you have been pursuing your claim, receiving your compensation is an important, and often emotional, milestone. To both protect and maximise the benefit of your compensation, it is crucial to consider what you are going to do with it before it reaches your bank account. Any sum you receive will be the product of a complex calculation which assumes you will make a return on investing it. Therefore, it will likely need to be invested to realise the compensation you are entitled to.
Whilst your compensation may be a significant sum, you must take into regard that it is intended to provide for your future. It may include a payment to cover future costs, such as nursing care, therapies or special equipment which may be required for ease of day-to-day life. In addition, the sum may include payment to cover future loss of earnings or loss of pension income. It will be important to consider whether this money should be invested until you require it at a later date, or used to provide you with a regular income.
Norman Dalgleish, a Wealth and Pension Planner in our Wealth Management team, provides insight on what you should consider when thinking about the best way to protect your compensation.
Ten questions to ask when you receive your Personal Injury award
1. Do you have any immediate plans for a portion of the money?
It can be natural to consider treating yourself, and potentially others who have helped you reach this point. Just remember to be prudent, and don't forget about your longer term needs.
2. Have you accumulated any debts due to the injury?
Often debts have been accrued due to time off work when injured, or for other reasons related to the injury, and it will be important to clear these with the money received.
3. Have you fully returned/continued to work?
Even if your injury has not altered your ability to work and continue to earn an income, the award still represents a one-off windfall that can have a positive impact on your future if managed carefully. The funds received can be used to add significant security to your, and your wider family's, future financial position. Careful management and investment of the money can put in place a nest egg that can provide a valuable safety net, be a source of money for future enjoyable expenditure, or perhaps even have a major impact on how early you may be able to retire, or the financial support you will be able to provide to other family members in the future.
4. Do you need the award to provide you with a regular income?
Like many people, you may need your award to replace the earnings that you will no longer receive as you are unable to return to your previous job. In these situations what can seem like a large award, akin to a lottery win, can quickly disappear if spent at an unsustainable rate. It is important to understand how long you will need an income for, and to estimate what level of income can safely be taken without you running out of money too early. How you invest the money will have an important bearing on this. You should also consider whether you have the time, and expertise, to manage the funds yourself.
5. Will the award have an impact on any state benefits you currently receive?
If you currently receive means tested benefits then the award can mean that you will lose some or all of these. However, it is possible to avoid this by use of a Trust. A Trust is simply a way of holding money on your behalf. If a Trust is to be used it should be established within 12 months of the award and this can then mean that the whole award is ignored as part of the means testing procedure.
6. What will you do when others ask you for money?
Many recipients of awards find themselves approached by friends and family asking for money. You may well want to help some or all of them, but your financial security must be the focus. What can you do to protect yourself? A Trust can help with this.
7. Where should you keep the award, and how should it be managed?
If the award is going to be spent in a short period of time, then holding the funds in cash is generally the sensible option. However, if you anticipate keeping it for the future, and particularly if you plan to use it to supplement your income, then it will be important that the money is invested sensibly, without taking too much (or too little) investment risk. Keeping your tax liability to a minimum will also help preserve your award.
8. Do you need protected from yourself?
Some people will feel nervous about the responsibility of looking after this sum of money, and unsure if they trust themselves and their skills to do this sensibly and prudently. Would you like some assistance with this?
9. What would you like to happen to any of the award that is left when you die?
You should always have a Will as this is the only way to ensure that your estate passes to the people to whom you want it to pass. A Power of Attorney is also a useful document which allows a trusted family member or friend, if required, to deal with your financial affairs on your behalf.
10. What do I do now?
Having helped you to secure your award, Morton Fraser can also provide advice and assistance on the management and protection of your award.
Many of our clients who settle personal injury claims benefit from the advice of our Trust (Asset Protection) and Wealth Management teams. They are able to provide you with advice before you receive compensation to allow time to consider and plan for the future. They can also advise you on what you need to do to protect and manage your funds. The teams specialise in providing guidance on investment, creating an income and setting up a Trust to protect any means tested benefits you currently receive.
The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers. Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.