When a personal injury claim concludes it may be advantageous for you to think about how you can protect your compensation for the long term. It is worth considering the use of a Personal Injury Trust.
Benefits of using a Personal Injury Trust
– Means Tested Benefits
A Personal Injury Trust is useful to ring fence your compensation so that the value is not taken into consideration for the assessment of means tested benefits. If you receive a lump sum or substantial payment from an injury claim you may find that you cease to be eligible for means tested benefits.
Means tested benefits are only available if your income and capital are below a certain threshold. Each benefit has its own eligibility criteria. The benefits that are currently means tested are;
- Income based Jobseekers Allowance
- Income related Employment and Support Allowance
- Income Support
- Pension Credit
- Tax Credits (child tax credit and working tax credit)
- Housing Benefit
- Council Tax Support
- Social fund (sure start maternity grant, funeral payment, cold weather payment)
- Universal Credit
If you lose your means tested benefits you may also lose access to other valuable passported benefits which may include help with health care costs (free prescriptions, dental services, eye care and wigs and supports) or free school dinners for your children. You can see which additional benefits are available by looking at the specific benefit that you receive.
It is also worth noting that if your partner is in receipt of means tested benefits their entitlement can also be affected by your receipt of an award for personal injury. By setting up a personal injury trust you can ensure that your personal injury compensation is disregarded from any assessment for means tested benefits.
– Retaining the ability to claim Local Authority Care
Whilst you may not currently need to claim Local Authority Care it is worth keeping your options open to allow you to be able to make a claim at some point in the future. Local Authority Funding is means tested and if you hold assets over £23,250 you would not qualify for subsidised care. If you have assets exceeding £14,250 you would be expected to contribute a proportion of your assets alongside a partial Local Authority subsidy. By setting up a Personal Injury Trust the capital and income that you receive would be disregarded in any assessment for Local Authority care.
What is a personal injury trust?
A personal Injury trust is a legally binding arrangement which is created by the execution of a Trust Deed. The Trust Deed sets out that your compensation is to be held by persons (trustees) on your behalf and used for your benefit and invested on the terms set out in the deed. A Personal Injury Trust is a legal way of having your compensation and keeping your means tested benefits and entitlement to local authority care.
How do personal injury trusts work?
The Trust is created when you sign the Trust Deed. The trustees would set up a trustee account to manage your money and would need to both agree on any financial decision. The way that the trust works is that the Trustees purchase the items directly on your behalf meaning that you will not have at any point allowed the funds to pass through your own personal accounts. This way your account balances remain below the threshold for means tested benefits.
You need to choose at least two Trustees to look after the money in the Trust and make payments from it. You may wish to choose a member of your family and a professional person such as a solicitor or accountant. You can be one of the trustees yourself. Trustees have legal obligations to manage your funds wisely.
The best idea is to set up a Personal Injury trust as soon as you receive compensation. If you are already entitled to claim benefits, for the first 52 weeks after you have received an initial payment or benefit from your claim the DWP offer a period where they disregard the assets that you have received and allow a period of grace for you to set up a trust. After this time, any funds that you are holding will be taken into account for means tested benefit assessment. The 52-week period begins to run as soon as any financial benefit is received as a result of your injury and you should obtain guidance as to what type of payments trigger the commencement of this period.
Most Personal Injury Trusts are set up so that they are tax neutral and upon your death, any money remaining in the Trust will be included in the value of your estate for inheritance tax purposes. There are different types of trusts that can be used if there are tax issues to consider.
Wills, Lasting Powers of Attorney, and Independent Financial Advice.
It is also a good idea to consider wider advice to protect your compensation in the future. It may be time to consider making a will, considering capacity loss, making a power of attorney and taking professional investment advice.
Written by Eve Carter of Hudgell Solicitors
Eve Carter is National Head of Court of Protection Services at Brain Injury Group member firm Hudgell Solicitors and specialises in Mental Capacity and Court of Protection issues.
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