A message for solicitors on personal injury trusts

Mark Thompson explains how to properly protect a claimant’s compensation

Your client is currently in receipt of means-tested benefits and is to receive an interim payment of £5,000. What should you advise?

Some might say that £5,000 is below the £6,000 allowed by most means-tested benefit tests, so protecting benefit receipt with a trust is not necessary. If this was your answer, please read on.

The majority of benefit entitlement is governed by the Income Support (General) Regulations 1987. The capital to be disregarded is set out in Schedule 10, which has been changed on a regular basis. Paragraph 12A was introduced by Statutory Instrument 2006/2378 (at 5(11)(a) and (b)) which came into effect in October 2006. You do know this regulation, as it introduced what we know as the ’52-week disregard’.

So one reason why capital will be disregarded is:

‘12A – (1) Any payment made to the claimant or the claimant’s partner in consequence of any personal injury to the claimant or, as the case may be, the claimant’s partner.

(2) But sub-paragraph (1):

(a) applies only for the period of 52 weeks beginning with the day on which the claimant first receives any payment in consequence of that personal injury;

(b) does not apply to any subsequent payment made to him in consequence of that injury (whether it is made by the same person or another);

(c) ceases to apply to the payment or any part of the payment from the day on which the claimant no longer possesses it;

(d) does not apply to any payment from a trust where the funds of the trust are derived from a payment made in consequence of any personal injury to the claimant.

(3) For the purposes of sub-paragraph (2)(c), the circumstances in which a claimant no longer possesses a payment or a part of it include where the claimant has used a payment or part of it to purchase an asset.

(4) References in sub-paragraphs (2) and (3) to the claimant are to be construed as including references to his partner (where applicable).’

 

Having digested this, readers may like to take another look at the question posed at the outset. Let’s say the £5,000 interim payment was received in January 2013, no trust was set up, and final settlement was in June 2014. Will a trust established in June 2014 protect the personal injury compensation from the means test? The answer is no, because the 52-week disregard will start running from the first compensation payment.

I write trusts for compensation protection, and once notice is given to a benefit paying agency, it is now common to receive a list of questions. They ask when compensation was first received for this injury. They might as well just ask, have you let the 52-week disregard slip, so your client’s compensation can no longer be protected by a trust?

You could say the 52-week disregard is generous, as it allows time for your client to sort themselves out. They can receive the compensation, spend what they must, and set up a trust later. It can also allow us as advisers to relax. But on my reading of the rules, the 52-week disregard is a trap.

There are a great many trusts out there that are protecting benefits, but I doubt all would stand up to scrutiny with paragraph 12A in mind. The benefit agencies are coming under increasing pressure to check entitlement. They are now asking the right questions, so we need to be able to provide the right answers.

 

Receipt of benefits

I hope you feel satisfied you are not creating problems in respect of the 52 week disregard. It is also worth mentioning a few other issues that I have come across recently.

Spending compensation within the 52 weeks where no trust is established will not guarantee compensation is ignored. The agencies can look back and say the money was dissipated to allow a benefits claim. The agencies only disregard the compensation for 52 weeks, but it does not become invisible permanently. Simply advising your client to “blow” the money within one year of receipt is not safe advice for you or the client.

A payment made ‘in consequence of any personal injury’ will be disregarded if held in trust. There is no limitation on where and how the payment arrives. I suggest the disregard can include a payment from compensation recovered in a jurisdiction beyond our own, a travel policy, personal accident insurance or maybe medical or ill health retirement cover. Keep an open mind please.

Last but not least is the question you often ask at the end of a case, as you proudly present the compensation cheque to your grateful client. You might ask if your client is receiving benefits at the moment. If the answer is no, do you breathe a sigh of relief and put away your personal injury trust script? What about benefits they or family members might need to claim in the future, and what about the care they may need through a local authority? Quite small amounts of compensation tucked away for a rainy day can mean benefits and care may not be paid or subsidised until the compensation has been spent first.

Protecting your client’s compensation is just as important as claiming it in the first place.

Published in the Association of Personal Injury Lawyers PI Focus December 2014 Volume 24/Issue No. 10

About Mark Thompson

Personal injury and accident specialist solicitor
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