Managing damages in Scotland
In Scotland, when compensation is awarded to a child, the management of the compensation is subject to the Children (Scotland) Act 1995. In most cases, the child’s parents will be expected to manage the award. It is therefore important that a parent managing an award of damages for their child takes professional advice on how best to manage the damages.
Investment advice
It is important to seek professional investment advice to get the best from your child’s compensation. At the conclusion of the claim, you may need to have funds available to pay, for example, your child’s care regime or to purchase more suitable accommodation. You may wish to invest a proportion of the damages, which will provide future capital and income for your child. Advice can be taken from solicitors who are independent financial advisers (authorised by the Law Society of Scotland). It is important to ask the financial adviser to confirm that he is independent, and whether he charges an annual fee or is paid on a commission basis.
Financial Guardianship or Trust?
In Scotland, a person becomes an adult on their 16th birthday. If, on reaching 16 years of age, a child is considered to have the mental capacity to handle their own financial affairs, the damages should be paid over from the parents to the child. However, very few parents would wish their teenage child to have access to, or to manage, the damages which have been obtained to safeguard their future. It may therefore be possible to place your child’s compensation in a private trust. The Trustees will assume control of the funds. The trust cannot be revoked by the child when they become an adult. The trust can protect your child from exploitation, and it can also protect the child’s rights to means-tested benefits.
If, on reaching 16 years of age, a child is not considered to have the mental capacity to handle their own financial affairs, a Financial Guardian may have to be appointed. The Financial Guardian is appointed by the Court. The Financial Guardian will look after the c day to day finances and make decisions about investments and tax. Any person can be appointed as a Financial Guardian. However, where there is a large sum of money involved, it is advisable that a professional person like a solicitor is appointed. The Financial Guardian is supervised by the Office of the Public Guardian. Annual accounts must be submitted to the Office of Public Guardian. The consent of the Office of Public Guardian must be obtained when making investments and when making substantial purchases, such as buying a house.
If a Trust has been set up there may be no need to appoint a Financial Guardian when the child becomes 16 years of age.
The cost of the Financial Guardianship or administration of the Trust can be included in the damages claim.
Judicial Factors
If concerns are brought to the attention of the Court about the suitability or the ability of a parent to manage the compensation, an order can be made for the appointment of a judicial factor. Alternatively,the Court will approve the settlement of the compensation into a trust fund. Where the compensation is settled into a trust fund, the Court will appoint the Trustees. A judicial factor is appointed by the Accountant of Court, which is an office of the Supreme Court. The judicial factor has to obtain the approval of the Accountant of Court when investing the damages on behalf of the child, or when making decisions about how to spend the damages.
A professional judicial factor’s costs can be included as part of the damages claim.
Author: Robert T Swanney, Partner, Digby Brown LLP