Dealing with personal injury or clinical negligence claims can be challenging and the focus is generally on how to secure a compensation award for the injured party. However, securing the award is not the end of the matter, as the selection of the right option for successful claimants following an award also needs to be carefully considered and understood.
This article sets out the relevant options and their pros and cons for the specific circumstances of the injured party.
If you or someone close to you have received a compensation award, the two most commonly recommended routes to manage that award are as follows:
There is also another uncommon option which is a hybrid of the two mentioned above. The hybrid option involves making an application to the COP for authority to set up a personal injury trust on behalf of an incapacitous person.
The option to be pursued will depend on whether or not one has the capacity to manage their finance and property affairs. A fundamental principle of the Mental Capacity Act 2005 is the assumption of a person’s capacity to make decisions unless the contrary is proven. Additionally, a person must not to be treated as unable to make a decision unless all practicable steps to help them to do so have been taken without success.
Specifically, the law provides that someone lacks capacity if they cannot:
If a person is found to lack capacity to make decisions about their property and financial affairs, then the COP will usually appoint a deputy to do so on their behalf.
The COP has the power to make decisions on behalf of those who lack mental capacity to make decisions for themselves. However, the decision-making power in relation to property and financial affairs is usually delegated specifically to a financial deputy by an order (deputyship order) which defines the nature of the authority conferred.
A deputyship order normally give the deputy general authority to manage a person’s property and financial affairs such as taking possession or control of the person’s property or exercising powers of investment. An order may also give specific authority for certain types of decisions such as buying or disposing of property.
The COP can appoint lay deputies such as close relatives or friends or professional deputies such as solicitors or other professionals. Additionally, two or more deputies could be appointed for the same person.
Anyone can apply to be a deputy if they are 18 or over and they have the skills to make financial decisions for someone else.
Generally, if one has received or is due to receive a large compensation award, a professional deputy is preferred - either alone or jointly with a lay deputy - as they tend to be better equipped to deal with the complexities that may arise out of managing large sums of money.
Although a capacitous recipient of a compensation award can simply manage their award themselves, it is usually recommended that they settle the compensation funds within a personal injury trust for the following three reasons.
Personal injury trusts will usually only have one beneficiary who is entitled to the income generated from the trust and the capital held within it. The beneficiary will normally act as one of the trustees and choose at least one more trustee. The other trustee can be a lay person over the age of 18 who is a trusted family member or friend or a professional trustee such as a solicitor. These trusts can also be set up on behalf of a child with court approval.
Although it is possible to ask the COP for a personal injury trust to be set up for someone who lacks capacity to manage their financial affairs, the COP would need to be satisfied that there is good reason to favour the creation of a trust over a deputyship.
It was previously considered that a deputyship would always be preferred over a personal injury trust. However, more recent case law states that we should not proceed on the basis of such a presumption as the COP will carefully consider competing factors to decide what is in the recipient’s best interests.
The key factors to consider in deciding which option to pursue are costs, choice and flexibility, speed, accountability and scope.
Choice and flexibility
If you do not feel confident that you can choose the right option for you or your loved one and need some specialist advice to help you understand the best way forward, please contact us for an initial confidential discussion.