We were recently brought in to assist a solicitor who was acting in a personal injury claim. The cas...
We were recently brought in to assist a solicitor who was acting in a personal injury claim. The case involved an employee of a steel company, let's call him John Smith, a man in his 30s.
While driving his forklift truck, he was involved in an accident in which a considerable amount of steel fell on him from a height. This caused such grave and permanent injury that he will be in constant pain for the rest of his life.
Liability was not difficult to prove; the issue was the amount of damages that would be proportionate to the extent of his injury. These were finally agreed at £300,000.
Our brief was to construct a balanced portfolio designed to meet the very specific circumstances of this particular client.
John Smith is not expected to work again and his lifestyle was severely curtailed by his injuries.
It was vital that his capital was invested wisely with due regard to the acceptable level of risk, his requirement for access to his money and his tax status and eligibility for state benefits. His priorities were:
• To make small gifts to people who had looked after him.
• To have adequate money available on short notice ' an emergency fund. This left £265,000 to invest.
• To maintain his state benefits where possible.
• To invest on a low-risk basis.
• To preserve the value of his capital where possible.
• To fund two trips abroad each year and increase his family's standard of living. Some £10,000-£15,000 per year was deemed appropriate.
We aimed to construct a balanced portfolio including a variety of asset classes that was sufficiently robust to deal with changing economic and investment conditions. As it is unlikely a single provider will have the top-performing funds across all the required sectors, our approach was to diversify across providers.
Once a client's short-term requirements were met by deposit-based arrangements, we created a tailored portfolio. In Mr Smith's case, this involved a range of distribution, with-profit and property bonds that were consistent with his stated realistic attitude to risk ' he is prepared to accept a higher level of risk in pursuit of higher returns than those normally available from deposit-based savings.
Similarly, it was reckoned that, despite the tax advantages, any investment into an Isa would be taken into account when assessing a benefit claim. Moreover, Isas cannot be put into trust and they were consequently not recommended.
From time to time, our client will meet with the trustees to discuss his future requirements and arrange for a capital sum to be withdrawn from one or more of the bonds.
This can be paid into a trustee bank account until such time as it is needed.
As he was at most a basic-rate taxpayer, Mr Smith would not be incurring any additional income tax liabilities and the current value of his estate means he is unlikely to ever face an inheritance tax problem.
Our client can now look forward to enjoying holidays with the security of knowing his capital is sensibly invested with a long-term growth strategy that accommodates his need for access, without prejudicing his tax and state benefit positions.
Gary Suckall and David Holbrook are advisers at Hallmark-ifa
Three years at Wells Fargo
Effective from 9 December 2019
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