How to appropriately compensate for personal injury has been the subject of recent legislative change in Scotland. The Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 received Royal Assent on 24 April 2019. The law changes how damages are calculated and provides greater discretion to the courts regarding how they are paid. Courts are now able to make periodical payments as well as by way of lump sums. This brings the powers of the Scottish judiciary more into line with those of England, Wales and Northern Ireland.
Where Scottish practice might be a little more prominent, and aligned with the rest of the UK, is in helping the recipients of damages plan for the consequences of the injury and the payment itself. As changes around periodical payments come into focus, professional advisers might consider precisely what this means for injured clients.
Implications will clearly vary from person to person based, for example, on their stage of life, personal wealth, the size of award, extent of injury, or issues of mental capacity. Appropriate legal and financial advice, obtained at the right time, can make a material difference to people learning to adapt to significant life changes. How payments are made is becoming part of a much greater picture.
Personal injury trusts
Social welfare and care legislation allows for personal injury payments to be kept out of consideration for assessment to means-tested benefits and also in relation to the cost of residential care. In most cases this requires the personal injury payment to be held separately from the injured person’s other assets – in trust. A qualifying personal injury trust need only (i) hold funds received in consequence of the injury and (ii) for the benefit of the injured party.
Trust planning does, of course, require specialist advice but the ongoing use of a personal injury trust does not always need to be complicated or costly. In some cases little more than a basic deed of trust and a bank account may be needed. However, care should be taken, Personal injury trusts and attendant planning are specialised area of practice due to the particular client circumstances and overlapping areas of law (trusts, tax, social welfare, care, as well as personal injury law).
For people who have been injured and who are either in receipt of means-tested benefits or might come to be, the law is there to ensure that a large compensatory sum doesn’t skew the picture to their detriment. And it doesn’t take much: the lower thresholds for most means-tested benefits (£10,000) and for care contributions (£17,500) are sufficiently low to ensure that receiving even modest compensation has the potential to cause unwelcome, and unintended, consequences.
The benefits legislation specifically disregards personal injury payments held in trust. There are time limits which relate to what the Department for Work and Pensions (DWP) take into account but there is no time limit on when the trust can be set up and used. In essence, this means that a trust can be used at any point but the sooner it is set up the less likely an interruption to benefits is likely to be. In the context of recent problems with universal credit, for example, the right advice becomes more acutely important.
Care home fees
Perhaps even more so than universal credit, the cost of care homes is something that occupies and concerns many. As with means-tested benefits, there is legislative provision which allows for disregarding of payments received in consequence of injury; payments held in trust should be kept out of account by local authorities in calculating residential care contributions. This is planning in accordance with that law. Some care is needed when looking at other care options as treatment differs.
The language of the legislation most commonly refers to payments in consequence of the injury rather than damages. Accordingly, it is also perhaps worth noting that although agents engaged in planning for personal injury clients will look at damages, in an age of crowd-funding and gifting platforms it can be important to have an eye on the periphery – the time limit of 52 weeks, within which injury payments not held on trust can still be disregarded, runs from the first payment in consequence of the injury.
Of course, injured people, their families and representatives, may have other reasons for looking at planning around a personal injury payment – benefits and care costs being only part of the picture: obtaining help in managing money, for example, or protecting sums from unscrupulous third parties. The context of a person’s circumstances, financial and otherwise, is fundamentally important to providing the right advice. By developing awareness of the consequences of injury and compensation, including how it is calculated and paid, people affected by injury (and their advisers) can navigate those consequences with greater confidence.
This note is intended to be a brief summary. No responsibility can be accepted for any action taken in reliance of this note and specialist legal advice is recommended in every case. Turcan Connell would be happy to provide such advice.