How best to support recipients of a compensation award

In this article we explore how best to support those who have suffered a traumatic injury or illness, ensuring their compensation award is optimally managed to support the injured party and their loved ones over their lifetime. A serious injury or illness is traumatic for the person who suffers the injury or illness as well as their family. It can be devastating emotionally, physically, and financially.  

Where a compensation award has been received, it is important to ensure that this is managed in the optimum way for the person on whose behalf the award is received.

Having worked with many individuals and families where someone has suffered a life changing injury or illness, we understand how difficult it can be, along with the responsibility of ensuring the award meets the financial needs and objectives of the individual and their family. 

Legislative Changes

The Assisted Decision-Making Capacity Act 2015 (as amended in 2023) the “Legislation”), which was commenced on 26 April 2023, is a law that establishes a new legal framework for supported decision making in Ireland.

The Legislation introduces a number of new arrangements in a graduated three-tier system which will be supervised by the Office of Director of Support Services. The arrangements can be utilised by people who need support to make personal welfare and property related decisions and we have set out a summary of same below:

• People who require limited support can appoint a decision-making assistant to help explain complicated issues.  This is the first tier of support within the framework of the Legislation. 
• People who need more support than just a decision-making assistant can appoint a co-decision maker who has the legal authority to make joint decisions with them.  This is the second tier of support.
• Finally, the third tier of support, involves a court appointed decision-making representative who will make certain decisions on behalf of the person who needs support.   

Abolition of Wards of Court system 

Where someone was previously made a Ward of Court, if applicable, the decision around how to invest a compensation award was made by the High Court through the Wards of Court office on their behalf. 

The Legislation has fundamentally impacted this arrangement by ending the Wards of Court system.  No new Wards of Court will be made, and current Wards of Court will exit wardship on a phased basis over the coming three years.  

The third tier of support (court-appointed decision maker) as outlined above, is likely to be of relevance for a lot of families whose loved ones are exiting from the Wards of Court arrangement.

Overall, the effect of the Legislation and the abolition of the Wards of Court arrangement may mean that the responsibility for assisting with and/or making investment decisions on behalf of someone who requires assistance in making decisions or does not have capacity to make decisions may now be with family members. Allowing individuals and their families to have more input in making these decisions is to be commended, however in some cases it could potentially create a further burden by placing  greater responsibility on family members who are already dealing with the impact of the injury or illness of the person directly affected.   

How can we help?

Our approach is to work with you to create a personalised investment strategy, helping you to prepare for retirement to fulfil you or your loved one’s financial needs and/or objectives. This involves creating an investment solution which aims to grow but does not take on excessive risk in the light of the financial needs of the person who has suffered. 

Identifying the correct investment strategy

Identifying the correct investment strategy relies on several factors which are addressed through our comprehensive advice and financial planning process. Part of the process involves dividing investible funds into three categories: needs, wants and aspirations, explained below.  

Managing the proceeds of compensation typically follows this approach, with the overarching purpose of managing an individual’s financial needs and/or objectives which could be a lifetime of care.       

1. First of all, ensuring that there is a liquidity reserve, available to draw down immediately as required (needs). This could be one year’s expenditure.
2. The second pool of capital will fund a sustainable income (taking day to day expenses and future needs into account) (wants).  The correct level of funds which should be deployed in this category will be determined principally by the amount of income which will be required. The intention is obviously to try to ensure that this capital lasts for as long as possible.
3. If there is capital in excess of 1. and 2. that may only be expended where the funds at 1. and 2. are exhausted (aspirations). This gives an extra layer of financial protection.     

The investment manager’s role

The role of the investment manager is to work out, with you, how to invest the funds in each of the above categories.  Income requirements and attitude to risk will all impact here.  At Davy, you will work with a dedicated adviser who will develop a financial plan and an investment strategy that works for you or your loved one.   

Tax

A further complication in this is managing tax. Typically for people who have suffered an injury where they have been made a Ward of Court, they will not pay tax on their investment returns. However, this does not apply in every case where someone receives compensation.  We regularly work with individuals, families, and their tax advisers and/or trustees to ensure that the available tax exemptions are maintained.   

If you would like to have an initial conversation with us, please request a call back.