Financial capacity meets the real world
30th Aug 2018
The personal injury settlement that you achieve for your client goes only part of the way to determining their financial future. Arguably far more important is the determination on your client’s financial capacity and the guidance you provide about the relevant options in this regard.
Your role in guiding your clients in relation to their financial management options is vital. It is illustrated in the examples below, which are based on real client scenarios (with clients’ names and some details changed to protect their privacy).
Child with no capacity
Amelia is only six years old. Her parents are devoted to her care and welfare. Prior to settlement, you introduced them to a couple of trustee companies and they selected one. That trustee company’s fees are reasonable, and its service is consistently good. There is regular telephone communication. In annual in-home meetings, Amelia’s parents are consulted and kept informed about the financial strategy and investments. They don’t need to worry about the money and can focus on looking after Amelia.
- Give your clients choice.
- Help them to identify a good trustee company with reasonable fees and good service.
Sam’s parents have never had any money. They were unhappy to hear that they would have to deal with a trustee company. They regularly come up with new ideas for spending Sam’s money and put them to Sam’s trustee. Attempting to extract money from the trustee has become a bit of a playful game but, overall, they are glad to know that Sam’s money is in good hands.
- Understand that a trustee company’s role is not easy.
- Trustee companies walk a fine line, saying no when appropriate, yet ensuring that clients and family are heard and treated with respect.
Erin’s mother found the whole settlement and sanction process a blur. She was introduced to a trustee company representative, then suddenly, the whirlwind was over. No one would return her calls and she felt lost. Investment statements posted to her in the mail made no sense. She eventually made enquiries with her lawyer about changing trustee company. She was surprised that instead of receiving an apology and better service, her existing trustee company hired a lawyer and barrister to resist the proposed change. Her efforts to change trustee were ultimately successful, but extremely expensive and disheartening.
- Arm your clients with some good questions to help them to select a trustee company.
- Families should ask what information they will be entitled to receive, and what happens if the relationship with the trustee company breaks down.
Adult with no capacity
Annie is in a wheelchair with a mild brain injury. She lives with her husband and their daughter. Her relationship with her husband is strained, as he is an alcoholic. Annie has arranged with the trustee company that they will pay all bills and that no cash reimbursements will be made to her husband. She knows that her settlement funds are safe and carefully managed.
- Clients sometimes value having their funds protected from other family members.
Simi’s sister is his primary carer. She grumbles about not having been appointed to look after his money. She thinks that building a holiday resort would be a much better use of his funds than his current conventional investments. Every year, Simi’s trustee and financial adviser visits and explains, again, as clearly and as kindly as possible, the nature and benefits of the current investments and how they serve Simi’s best interests.
- Trustee companies will do their best, if appropriate, to accommodate client or family investment preferences.
- But prudent well-diversified investments are a must.
Jake has had a tough life and his brain injury makes him especially volatile. He has been unable to keep down a job, and unfortunately relations have broken down with all of his family members. He currently has a girlfriend and she is pregnant, but the relationship is unstable.
- Private trustee companies are not well placed to take on all clients.
- The Public Trustee can sometimes be the right option.
Before his bicycle accident, Ben used to be in marketing. He was a highly paid professional. Ben recognises that his short-term memory problems and impulsiveness could land him in trouble. He was enthusiastic about the appointment of a trustee company. Although the medical evidence regarding the extent to which he could manage his own money was borderline, the orders were made. Ben enjoys annual meetings with the trustee company and financial adviser. It’s a load off his mind. He has no intention of ever seeking to remove the orders.
- Many clients really enjoy the benefits of having professionals look after their financial affairs.
- Even if they feel they have regained financial capacity, many clients would continue the arrangement.
Ruby’s accident and physical disabilities severely affected her social confidence. Aged 19, she is very shy and naïve. The medical evidence on capacity was not clear. One doctor said she did not have capacity, due to her vulnerability to being exploited. Another said she had capacity. A third said that she would have capacity if she completed a course to learn financial skills. In the end, the evidence went to the judge who put a short-term protective order in place, to be reviewed within five years. Her mother was appointed financial manager and she engaged a financial adviser. Ruby’s adviser is keen to educate Ruby as part of the advice process.
- The evidence on financial capacity from doctors is not always clear, consistent or practical.
- Short-term orders can enable financial skills to be learned.
Arun’s settlement approval was badly mishandled. The barrister on the day thought he was a minor, but in fact he had turned 18. Orders mistakenly directed his funds to the Public Trustee. Months passed before Arun’s mother realised something was wrong. She tried to engage with the Public Trustee but made no progress, perhaps as her English was not fluent. After repeated requests for assistance, she was sent long and complicated forms that were not relevant to her son’s situation. She was told that no funds would be made available for legal advice to rectify the problem.
- Don’t underestimate the difficulties and hostility encountered in the public system.
- There is a world of difference between private and public trustees.
Joe was injured in a car accident and received compensation. His lawyer sent him a cheque but provided no advice as to how to manage it. Joe put the money in the bank, where it is slowly being depleted by inflation and tax. He now wishes his lawyer had pointed him in the right direction.
- Your clients rely on you to guide them.
- They would value and benefit from the opportunity to see an expert to hear about their options.
Mary’s compensation was substantial. She thought that her boyfriend’s plan to open a gym was a great opportunity and that her investment would deliver work for them both. But the gym failed and so did the relationship. Mary’s long preclusion period meant she was left with no money, feeling bitter and resentful.
- Your clients may not take up your suggestion of professional financial advice.
- But documenting your communication and discussions may protect you down the track if things go awry.
Sam took his lawyer’s advice to meet with an accountant before settlement. His accountant suggested an agricultural scheme to minimise tax. Only later did Sam hear from a friend that he had missed the time-limited opportunity to invest tax-free using super. He was deeply disappointed to have been advised to go down the wrong path.
- There are some very specific investment opportunities involving super for personal injury compensation recipients.
- Do some due diligence so that you can recommend someone appropriate.
Managing a lump sum of money is not an easy task. Our financial systems are complex and community levels of financial literacy are low. We often cannot trust ourselves, or our families, or indeed our large financial institutions.
Our protective systems of administration and financial management are not perfect, but they try to get the balance right between delivering protection and respecting people’s autonomy. Accordingly, not everyone who needs protection gets it. Also, not everyone within the protective system gets the service they deserve.
But, overall, you have a range of good options available to deliver good financial outcomes for your clients. Your role is vital in making the system work. Your proactive help and guidance will go a long way to ensuring that your client’s settlement delivers long-term financial security and peace of mind.
This article was first published in the Mar/Apr 2018 edition of Precedent focusing on legal capacity.
Jane Campbell is the Principal of Aeran Pty Ltd, an independent financial advice business that specialises in financial advice to plaintiffs. Jane has more than 25 years’ experience in injury compensation, starting out in workers compensation, then insurance litigation, then lobbying to improve tax outcomes for plaintiffs. For the past 14 years Jane has been providing financial advice to seriously injured plaintiffs. Jane is a Certified Financial Planner and maintains her qualifications as a lawyer. She partners with Australian Executor Trustees Limited in cases where a trustee company is required. Jane has been a member of the ALA since 1999 and is a current NSW Committee member. She is actively involved in seeking to protect the rights of injured people. Jane lives in Sydney with her husband and two sons.
The views and opinions expressed in these articles are the authors' and do not necessarily represent the views and opinions of the Australian Lawyers Alliance (ALA).