Personal Injury Trusts: a solicitor’s guide to founding a compensation protection service.

Author: David Coldrick

Lawyers, it has to be said are not good at cross-selling services. Even where there is a clear understanding of need, the nature of advice and which department would take on the work, such as will making, many lawyers fail to initiate or prompt the client to seek the help of another member of their firm. Many partners will recognise this as a familiar issue within their own practice which time and time again they have trouble resolving. For firms who have both an established personal injury and a private client department, help is at hand with David Coldrick’s book on personal injury trusts. Although primarily aimed at private client lawyers it is an essential read to personal injury litigators. Without any knowledge of the importance of such trusts to ring-fence the award, there is a huge risk of a claim of negligence against the adviser for failure to advise on the setting up of a trust.

The book is reasonably priced at £145 as it gives the practitioner everything he needs to set up a compensation protection service. Why reinvent the wheel when someone else has tried and tested the scheme in his own practice? David is a partner in charge of the Sheffield office of Wrigley’s; a successful niche private client practice. He is well known to private client lawyers as the author of Protecting the assets of older people and writes convincingly, practically and with the authority of someone who has learned his subject well.

It is one of those rare books, which will return dividends, provided it does not sit unread on a shelf collecting dust. For those not familiar with the topic it should be read through entirely and thereafter, as with those who regularly handle such cases, it can be used as a source of reference. The book falls into two parts; firstly dealing with the law and considerations for the creation of a personal injury trust and secondly the marketing and precedents of the service.

The main purpose for the creation of a personal injury trust is usually to take the whole value of the compensation outside the benefits means test. So long as the value of the trust fund is retained within the trust it cannot be taken into account in the various forms of means testing, such as those relating to income support and the funding of long-term care. David is meticulous in explaining the rules applicable in making payments out safely so as to prevent the payment from being relevant for means testing purposes. Once applied, the claimant can have his cake and eat it. He may be able to claim state financial assistance and enjoy the benefit of the trust distributions. There are of course other reasons to set up a personal injury trust, which David covers and might come under the heading of ‘ring-fencing’ and peace of mind. Such trusts should be considered in all circumstances even when the client is not in current receipt of means- tested benefits as they may in the future. Taking the long-term view is essential.

Unfortunately for the litigant, many are not advised that a trust could be set up and as such their award may not last them for as long as they had hoped. They may end up eventually relying on state assistance. It is therefore vital that personal injury and private client lawyers work together in the establishment of the service. The lack of knowledge on either side can result in no service being provided at all. As a frequent lecturer on private client issues, I am always taken back by the number of delegates who have little or no knowledge of personal injury trusts and it seems to me that a gap needs to be filled – this book comprehensively achieves this. The book also

highlights the importance of lawyers in different disciplines working closely throughout the settlement/negotiation stage so as to ensure the timely setting up of the trust to take advantage of the available state disregards. We live in a ‘holistic’ age. This book shows a clear understanding of the teamwork approach needed.

Most private client lawyers are not experts in welfare benefits law. However, they should have some knowledge from which they can point potential claimants in the right direction. David covers the subject of welfare benefits at the level most practitioners will need to know and gives helpful sources of further guidance. It is however, a complex area and awareness of when one is out of one’s depth is important so there is a need to work with experienced welfare benefits advisers.

The book covers basic trusts and tax issues. It clearly is not intended as a general guide on everything one needs to know on these areas, particularly as there are already many excellent text books on the subjects. David brings together the general law, highlighting the points that are relevant to personal injury trusts.

It therefore makes it easy to understand for litigators as well as the less experienced private client lawyer. Once established, no trust self-administers and the book provides a useful checklist of the matters that need to be dealt with. It also means that the administration of the trust could be delegated to the most appropriate person who can deal with the tax affairs.

Before an award for personal injury can be agreed for a litigant without mental capacity, an application will need to be made to the Court of Protection. The book covers the role of the Court and that of the official solicitor who will have a major influence in the way any trust is to be set up and run. David provides advice on the relevant forms to make the application, although it would have been useful to have a draft mock affidavit in support as well.

All trust funds must be invested, usually to provide either capital growth or income yield, especially in the context of the considerable market turbulence of recent months. The importance of good quality and appropriate financial advice cannot be overstated. The book provides up-to-date information on the financial services provision requirement particular to personal injury trusts and where applicable, the role of the Court of Protection. It also covers the administrative powers of the Trustee Act 2000 relating to investment.

The real advantage of having this book on your book-shelf is the useful precedents, sample letters and guidance notes, which also come on a computer disc. Anyone starting from scratch in setting up such a service would be foolish not to buy this book first. Even if the style is not what you are use to or what you would prefer, at the very least it will provide a template to get things started cost effectively. If you like the clear ‘Kessler style’, then you will not need to make many changes. Either way it could save you many man-hours of unchargeable time.

A guide for clients together with a covering letter with how and when it should be approached is detailed. David gives some ideas on how to raise the profile of this type of work that have been successful with his firm and why his style has worked for him. For example, sometimes the simplest of things are the most successful, such as enclosing a stamped addressed envelope. The possibility of selling wills and enduring powers of attorney has not been overlooked and depending where you are in the country you may or may not agree with his assertion that offering a discount on these services often secures the client.

In numerous recent cases on the drafting of wills the importance of obtaining good instructions has been highlighted. The information gathering stage is as important as the drafting stage. It is at this point that the adviser can do his job and guide the client to the right decision for him. The use of the litigation instructions and will pro-formas are becoming more common-place and it follows that the trust pro-forma should also be used as often. The book contains a specialised personal injury trust pro-forma, which could be completed by the client or the person, if incapacitated, acting on his behalf and will assist greatly with the drafting.

Once instructed further guidance for the beneficiaries and trustees is detailed including useful ‘rules of thumb’ in making any distribution. This should ensure that in particular, trustees are fully aware of the responsibilities involved for what can at times be onerous and to ensure that they do not make a mistake in how to make a payment out.

What happens in practice and what should happen are often different things especially when one is dealing with the local authority and/or the Benefits Agency. This has been recognised and there is a precedent or rather a ‘mock up’ as it may have to be adapted to fit the client’s situation, of a guide for such organisations. As it is set out in paragraphs with headings it could, for example be an easy document to transfer onto the precedent bank. At the touch of a button the letter could be written with very little time expended.

When distributions are made this should be recorded and there is a clear precedent for resolutions. It means that these can be processed efficiently and cost effectively.

It is the actual drafting of the trust that can cause concern to those who feel they are novices in drafting the personal injury trust, despite the fact there is more in common with usual trust drafting than is different. The book contains a draftsman’s guide to trust drafting, which includes a reminder that it is still a criminal offence for a non-solicitor to, “draw or prepare an instrument relating to real or personal estate”, with the exceptions of certain persons working for solicitors and will drafting. This is followed by a number of precedents namely a discretionary trust, a flexible interest in

possession trust and bare trusts including one made under Rule 21.11 of the Civil Procedure Rules 1998 for a mentally competent minor. This was particularly useful as it explained the rule in detail in a way that as a non-litigator even I could understand.

Trusts arising through the Court of Protection deserve special mention as they cover bare trusts, life interest trust, and the “Disabled Person’s Trust” created by virtue of section 89 of the Inheritance Tax Act 1984.

Each precedent has drafting notes, which help highlight important drafting points and are always reassuring no matter how competent the solicitor. The administrative clauses used are the Standard provisions of the Society of Trust and Estate Practitioners and knowledge of these is important, as with all documents it is not a case of one size fits all. The person drafting will need to be mindful of the type of trust, the needs of the beneficiary and the Trustees.

Personal injury trusts is a potential growth area for any firm wanting to develop this area. The rewards should be high, given the extra start up costs are simply buying and reading this book. It will need a commitment from the relevant partners and employees to provide a compensation protection service. I certainly will be referring to it when I lecture as a solid and well-written book.

Review was by Caroline Bielanska, Solicitor, TEP, Lecturer and independent consultant on older client issues. She is joint vice-chair of Solicitors for the Elderly and writes extensively on older client issues. Personal Injury Trusts will be published by Arkgroup and will be priced at £145. Further information will be posted to subscribers in due course.