CASE STUDY Š Personal Injury clients
As client circumstances can be so varied, we have produced a series of case studies to detail some of the challenges that your clients may face and how we have helped similar individuals to reach their financial goals. This issue, we continue with the theme of Personal Injury clients.
We were approached by Miss Rossi, aged 30, who had unfortunately been involved in an accident a few years earlier and was unlikely to ever return to work. Through working with a Solicitor, she was expecting to receive a substantial settlement to compensate her for loss of earnings and loss of pension savings. She had accrued very little in personal and Pension savings before the accident and therefore, the settlement needed to be able to provide for her for the rest of her lifetime.
Objectives and concerns
Miss Rossi was very daunted as she had never needed to make financial or investment decisions before. Often with Personal Injury clients, because of the length of time it can take for the claim to settle, the client has spent the monies three times over in their mind. Miss Rossi’s Solicitor was aware of this issue and so introduced us to Miss Rossi early on in the process, before a settlement figure had even been agreed.
We ascertained that she was in receipt of means tested State benefits, which were not covering all of her outgoings and as such she had very little left in personal savings. She had recently taken some interim payments and used the money to repay some debts and purchase a new car and a holiday.
At the outset, her Solicitor had explained the key benefit of a Personal Injury Trust in that it takes all of the settlement monies out of any means test for State benefits, so she could continue to receive her benefits unaffected and the Trust could achieve its objective of providing the extras she needed and could no longer afford due to her accident. This is crucial as without a suitable Trust Miss Rossi would likely simply erode her Personal Injury award monies in meeting her usual living costs until she was back in the same position as she was before the claim. Looking to the future, the Trust would also protect the monies from a means test if she ever needed to move into a residential care home.
There are some costs and complexities involved in setting up a Trust (these costs can be prohibitive for someone receiving a small settlement) but on balance, Miss Rossi decided that setting up a Personal Injury Trust was in her best interests as otherwise she would spend a large amount of her settlement replacing lost benefits over her lifetime.
She instructed the Solicitor to set up the Trust immediately (as it ideally should be in place before any settlement monies are received) and she selected her Solicitor and her parents to act as Trustees. We then met with the Trustees to discuss an appropriate investment strategy for the Trust to best meet Miss Rossi’s needs.
We produced a ‘cash flow modelling’ report that showed the effects of capital continuing to be spent at the current rate and it was clear that if the monies were left on deposit and her spending of capital continued at its current rate, the monies could run out within 30 years (by age 60). This was exacerbated by the very low rates of interest available due to the Bank Base Rate being 0.5% and the high levels of inflation that were persisting in the Economy of around 5%.
As the settlement monies need to support her for her lifetime (in her case, potentially 50+ years), it was agreed that no monies (other than that needed for the next 5 years to fund any planned expenditure and a reasonable ‘emergency’ fund) should be kept on deposit within the Trust because obtaining the potential for growth on the income and original capital amount over and above the rate of inflation was going to be crucial over her lifetime.
We also explained it is crucial to ensure she has less than £6,000 in household savings and cash outside of the Trust as this is threshold above which her means tested benefits could start to be affected.
Miss Rossi’s obvious need was for income and the Trustees, having considered her objectives and attitude to risk, implemented an overall investment strategy that was able to produce the level of income she needed to bridge the shortfall in her income, whilst still giving the capital (and the income it can produce) the potential to keep pace with inflation over the long-term. By using several different types of investment vehicles we were able to ensure the maximum income was delivered as tax efficiently as possible, giving the capital the best possible chance of achieving the growth required.
We produced a further ‘cash flow modelling’ report that demonstrated that as a result of the planning implemented, she could now receive the income required and take modest withdrawals of capital over her lifetime and the monies would likely last for her lifetime.
It is a key duty of Trustees to meet and review the Trust investments regularly and we assist with this by meeting with the Trustees and Miss Rossi at least annually. At the review meeting we compare the previous cash flow modelling report against the reality of what has actually happened since it was produced, and alter the strategy accordingly. Taking professional advice and selecting a sensible investment strategy will give the monies the best chance of being able to support Miss Rossi for the rest of her life, which ultimately is what the settlement is intended for.
Who can help put a sensible plan into place?
Professional Financial Centre (East Midlands) Ltd has helped many clients like Miss Rossi to put a sensible financial plan into place for the rest of their lives. When looking at the arrangements available we are able to prove that we have your interests at heart. As changes happen, we review our clients’ plans, adjusting them to meet changing economic circumstances and family needs.
As a result of our qualifications, experience and culture, we qualify to be included on the SIFA Professional Directory of IFA’s, which is endorsed by the Law Society.
As a member of the Derby Law Society, by quoting code LS1 you and / or your clients will receive a 5% reduction in our costs.
Richard Shanks (Managing Director)
Professional Financial Centre (East Midlands) Limited
Chartered Financial Planners
Wesley House, St Michael’s Lane
Authorised and regulated by the Financial Services Authority. This article is not a recommendation and you should obtain appropriate advice before acting on any of the information provided.