Lawyers, Financial Advisers and TPD claims. A Case Study

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We have an interesting story to tell you. A TPD claim story that may help you understand the importance of personal insurance.

It involves mental health, lawyers, money, TPD claims and some heroes.

Let’s start at the beginning.

Our client, Tristan*, had been hospitalised with a mental health condition. He was given a diagnosis which was great for him, it meant he would now receive the right treatment, the right support and be able to go back to living his life and being a good father.

While Tristan was still in hospital working on his recovery, he was approached by a lawyer who said he could help him with a Total and Permanent Disability (TPD) claim. This was great news for Tristan, a payout meant he could focus full time on staying well and raising his children. His only income was the Disability Support Pension (DSP) from Centrelink.

Tristan had been paying for TPD insurance through his super. With the help of the lawyer, he made a successful claim and he was paid around $315,000.

Here’s where it starts to get murky.

As per the normal process, the claim was paid directly into Tristan’s super account. The lawyer suggested that Tristan withdraw the money from super, that it be paid directly to the lawyer who would take their fee then distribute the money to Tristan. There was even a suggestion that the lawyer hold and control the money on Tristan’s behalf.

And now we meet Hero Number 1, Tristan’s sister. She suggested he seek financial advice before the money was moved anywhere.

Tristan found us on the internet and booked an appointment with one of our Financial Advisers, Courtney, and our Claims Manager, Christine.

Tristan and his sister came to our office and told us their story. Immediately horrified at the suggestion of withdrawing the TPD claim funds from super, Courtney and Christine explained that Tristan would:

•    Pay 22% tax on the funds, a total of almost $70,000 (as he has not reached Preservation Age)
•    Lose or receive reduced DSP payments
•    Lose or have reduced support from Legal Aid for a separate legal dispute

And finally, they stated that with Tristan being unable to return to work for some time, this money needed to be safeguarded. Tristan is a young man with children to support.

With Tristan’s permission, Christine wrote to the lawyer refusing their request to have all the money withdrawn from super. Christine and Courtney calculated that Tristan needed around $60,000 to pay the lawyer, buy a car and a few other items he required to maintain his quality of life. 

The rest of the money from the TPD claim would be left in super where Tristan can access the money when required. If the money were in his bank account, this would affect the DSP payment Tristan currently receives. However, as it’s in super it is not counted as an asset by Centrelink.

Before submitting the request for $60,000 from the super fund, Christine realised that not everything had been done correctly. To receive the full tax benefit when a TPD claim is withdrawn, two medical certifications of the diagnosis are required. The lawyer had only submitted one. Christine arranged for the second medical certificate and instead of paying $16,000 in tax on a $60,000 payment, Tristan paid only $3,000.

Holding the rest of the money in super allows Tristan to make plans, perhaps one day he can buy a house. Courtney is working with Tristan and together they will plan for the financial future of Tristan and his children.

We think this is a great outcome. If this was a fairy tale perhaps Tristan would magically be better and able to return work straight away, but that is not how the real world works. And its why personal insurances such as TPD and Trauma are so important. A successful TPD claim is just the beginning, long term financial advice can help to make the most of the payment received.

CONCLUSION

As most of us would do in this situation, Tristan trusted the ‘expert’. Like any of us faced with this situation, he didn’t understand the intricacies, what was involved and what he could have lost.

Lawyers are not able to give financial or investment advice. This lawyer, while helping Tristan with his claim, would have put him in a worse financial position. Their goal is the successful claim, but our goal is the best outcome for the client and setting them up for success when a claim has been paid to them.

Working with us, Tristan is now in a better financial position and we will support him moving forward. We only wish he had come to us sooner.

*We’ve withheld Tristan’s real name to protect his privacy.

It is very important that you understand that the information above is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. It is also worth noting that the Australian financial and taxation system is ever changing, and the information above may no longer be relevant. Again, we suggest seeking professional advice from a financial adviser before proceeding.

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The information contained on this website is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where necessary, seek professional advice from a financial adviser.

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