CHILDREN’S PERSONAL INJURY CLAIMS AT WOODRUFF FINANCIAL PLANNING

Children’s personal injury claims can be daunting if they are not understood properly. This article explores the issues you need to consider when managing children’s personal injury claims, and then investigates the relevant issues for parents when planning for your child’s future once the settlement has been paid. There are particular issues you should be aware of when managing assets on behalf of a child.

Key points

  • About children’s personal injury claims
  • Personal injury trusts for children
  • Deputyship for children
  • Financial planning when managing children’s personal injury claims

About children’s personal injury claims

Children’s personal injury claims have particular issues, which make them slightly different to those made by adults. The obvious issue is that the child is too young to manage their own affairs, and so a suitable adult (usually family members, such as parents) will have to take control over their personal and financial affairs. This is more relevant where your child has a personal injury that limits their mental capacity in some way.

There are 2 main established routes for managing personal injury claims for children, after the settlement has been paid.

  • Personal injury trusts for children
    This is a separate legal entity, designed to hold the assets of the child’s personal injury settlement. The main reason for using a personal injury trust for children is to separate the child’s settlement from means-tested state benefits calculations, and Local Authority assessments for care.
  • Deputyship for children
    This is a strict legal process for the Court of Protection to oversee the management of the personal and financial affairs of a child, particularly where they lack mental capacity. The child’s deputy will be required to regularly report to the Office of the Public Guardian, which oversees their decisions. This process also allows you to separate the child’s settlement from means-tested state benefits calculations, and Local Authority assessments for care.

Personal injury settlements – issues for children

Ongoing needs resulting from the personal injury

If you claim for a personal injury on behalf of a child, they may receive a large amount of compensation. This is usually designed to compensate the child for a range of issues such as:

  • Lost future income
  • Paying for adaptions to your home
  • Paying for practical support to make the child’s life better after the injury

In addition, family members may act as carers to support the child, and this could mean that they have to give up work to fulfill this role.

Lifespan of the child

Given your child’s age, you probably need to think about the very long-term when making decisions about how to manage the personal injury settlement proceeds. If your child is likely to live a normal lifespan, this will mean that you need to ensure that their needs are provided for in the short term, and very long term. This may also mean they you need to consider what happens to your child’s affairs if you die before them.

You should also give some thought as to what happens when the child reaches age 18, as you will need to ensure that whichever method you use continues to be effective after this age.

Financial planning and personal injury settlements

Personal injury settlements for children can be particularly large, given the longer-term nature of the needs of the claimant. If you are responsible for the needs of a child in this situation you are probably particularly aware that you need to take care to do the right thing with this settlement.

Financial planning can help you to visualise how your child’s needs may change over time, and to make financial provision for all likely risks. We can work with you to make sensible provision for your child’s future, so that you can be sure of their security no matter what happens. This may involve investing part of the financial settlement to enable the compensation to last as long as possible, and to help provide for your child’s changing needs in the future.

Personal injury trusts for children

A personal injury trust is a legal mechanism for holding money from a settlement, following a serious injury. This allows you to separate the compensation money received after a claim from your child’s personal assets. The trust is usually managed by 2 trustees (usually family members), who are legally responsible for managing the assets in a fair, and appropriate way. The injured child will usually be the beneficiary of the personal injury trust, and will ultimately be entitled to receive the proceeds of the trust. Beneficiaries of personal injury trusts for children will have particular long-term financial needs.

Your solicitor will advise you on the best legal framework for your trust as there are different options to choose when setting up personal injury trusts for children. Of course, the trust needs to be in place before your child receives their compensation award. They will also advise you on whether you need a personal injury trust, because it may be more practical to hold assets in the child’s name.

Personal injury trusts for children need to be approved by the High Court, since trusts cannot be set up by children without this approval. The Court needs to be satisfied that the personal injury trust is suitable for the child’s needs, at least until they reach age 18, and possibly afterwards. This also involves approving the trustees.

To read more about personal injury trusts, see:

Why use personal injury trusts for children?

Personal injury trusts for children exist to separate the money from the legal settlement from other money due to the child, such as means-tested state benefits. The general principle of personal injury trusts for children is that the compensation money should be used to pay for future care needs, and not to subsidise the state’s obligations. Therefore, used properly, personal injury trusts for children can allow your child to continue to receive means-tested state benefits even after receiving a very large compensation award. These trusts can also mean that your child also continues to receive support from the Local Authority for care in their home.

It is important to note that money paid into personal injury trusts for children is not to be used for general expenses. The award is designed to pay for specific future care needs, and so trustees should be careful how they allow money to be allocated from the trust.

Downsides of personal injury trusts for children

The personal injury trust can only hold money from the child’s settlement. Therefore, the trustees only have the power to manage these assets, and not other money, such as income from state benefits. Therefore, separate arrangements will need to be made to manage the child’s general finances, if appropriate. Separate records and accounts will need to be kept for these areas.

Trustees have strict legal responsibilities, although not a strict as deputies (see below).

What money can be placed in personal injury trusts for children?

Personal injury trusts for children can be used to protect any of the following awards:

  • Compensation from a personal injury award
  • Criminal Injuries Compensation awards
  • Compensation paid as a result of uninsured motor accidents
  • Charitable or other donations
  • Insurance payments
  • Professional negligence claims

Who can be trustees?

It is usual to appoint at least 2 capable trustees, who are prepared to look after the interests of the child for the long term. Typically, this will include family members such as the child’s parents.

You should ensure that you keep appropriate records of the trust’s affairs, and this usually means setting up a separate bank account. You can also use a suitable professional person to fulfill this role, such as a solicitor. Of course, this will mean that the trust incurs additional expenses.

Deputyship for children

Deputyship for children is a legal process, which aims to look after the interests of a child who lacks the ability to make their own decisions. An application is made to the Court of Protection, after which a deputy is appointed (often a family member, such as a parent). This person is then responsible for managing the personal and financial affairs of the child. It is much more involved than managing a personal injury trust, because stricter rules apply to the deputy. In particular, the deputy must report at least annually to the Office of the Public Guardian, which appoints a solicitor to oversee the deputy’s decisions on behalf of the child. It is because of this stringent process that deputyship for children is often preferred to personal injury trusts for children.

Click here to read more about Deputyship and investment management.

Why use deputyship for children?

The main reason to use deputyship for children is because of the legal oversight that exists, to ensure that the child’s needs are taken care of. Unfortunately, this creates a significant burden on the person responsible for the child’s needs.

Deputyship for children allows your child to continue to receive means-tested state benefits even after receiving a very large compensation award. Your child also continues to receive support from the Local Authority for care in their home.

As with personal injury trusts, it is important to note that money overseen by the deputy is not to be used for general expenses. The award is designed to pay for specific future care needs, and so deputies should be careful how they allow money to be allocated from the child’s funds.

Issues to consider when using deputyship for children

Deputies have strict responsibilities, since your role has an impact on every part of the child’s life.  In general, you are expected to take control over a number of areas, with proper care:

  • Paying expenses of the child
  • Accessing state benefits
  • Making decisions regarding healthcare
  • Making decisions regarding accommodation
  • Submitting your annual report to the Office of the Public Guardian

Financial planning when managing children’s personal injury claims

Once the personal injury claim has been settled, and your legal formalities are set up, you are then responsible for managing your child’s assets either in the personal injury trust, or via deputyship. This can be a very daunting process, particularly if you are not familiar with managing large sums of money.

We are specialists in managing personal injury claims for children, and have set up our Prosper service for the needs of people like you who are managing another person’s assets.

Issues to consider when managing children’s personal injury claims

Understanding your duties

These duties will be different depending on whether you are a trustee or a deputy.

Trustee duties

  • To act in the best interests of the child
  • To diversify investments
  • To ensure that investments are suitable
  • To review investments
  • To obtain and consider advice
  • To keep records

Deputy duties

  • To help make decisions for the child (where authorised)
  • To act in the child’s best interests
  • To apply a high standard of care, involving relatives and professional advisers
  • To help the child understand your decisions, where possible
  • To keep proper records

Tax issues

If you are managing children’s personal injury claims, the child is likely to need to submit tax returns to declare income tax, capital gains tax, and other taxes depending on the trust chosen.

Getting financial advice when managing children’s personal injury claims

Financial advice is not a requirement, but can make sense, particularly when dealing with large sums of money, or complex needs of the child. You may wish to consider involving a financial adviser in the following situations:

Managing investments or pensions
If you are responsible for managing significant sums of money you may need to involve a professional adviser to help you to ensure that you look after the person’s interests in the best way.

This may involve:

  • Proper diversification of the investments
  • Generating appropriate levels of income and capital growth, which may need to change as the child gets older
  • Understanding how long the assets should last, given the circumstances and needs of the child
  • Managing tax

Making the assets last
A financial plan can help you to understand how long the child’s assets will last given cautious assumptions about the future. You can look at how the child’s needs may change over time, and visualise how their money will have an impact on their future security. Working with a financial planner can help you to establish and justify the right decisions.

Next steps

If you are managing a child’s personal injury claim, please contact us to discuss your situation, and feel free to take a look at our page dedicated to managing another person’s assets.

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Dan Woodruff

Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.