Compensation protection trust

Compensation protection trust

Compensation protection trust is one of the names given to a trust designed to ensure that personal injury compensation is not taken into account if you claim means-tested benefits or need local authority support for residential care.

The term compensation trust is just a name given to this type of trust, others being personal injury trust and special needs trust. A special needs trust is something quite different but I include it here as it is often thought to be a trust for protecting compensation.

The regulations which contain the rules for benefit payment contain a list of items which are disregarded, or ignored, when working out your entitlement to benefits. There are two disregards for personal injury compensation and they both refer to personal injury compensation held in a “trust.” Only the word “trust” is used, not personal injury trust and not compensation protection trust. These terms are just names given to trusts so you know what they do, but they are names rather than actual types of trust. The regulations use the following phrase : “Where the funds of a trust are derived from a payment made in consequence of any personal injury…” It does not say personal injury trust or compensation protection trust, it just says trust.Compensation protection trust or personal injury trust

Please do not get bogged down in terminology. You need a trust to hold your compensation to protect it should you need to claim benefits or need financial support from a local authority for your care.

To help you decide if you need a trust and see how I can help please click here.

I am happy to chat without obligation on 01392 314086.

 

About Mark Thompson

Personal injury and accident specialist solicitor

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4 Responses to Compensation protection trust

  1. Rocky says:

    Hello, an organisation has admitted to causing psychiatric harm, and I am in the process of negotiating a public liability insurance claim. I’d like to know:
    1. if it is only the injury compensation part that can be put into a trust? What about the loss of earnings part of the compensation? Is that a separate thing when it comes to ring fencing through a trust?
    2. If I set up a trust, can I then get the trust to invest into a share ownership scheme with the housing association, so that it pays for the shares that I’m supposed to buy, and I pay for the rent from my own money?
    3. If the shared ownership thing is allowed, will my trustees or myself have many paperwork to do to report annual finances, or could it be just a simple statement to say there is no cash in the account, because it has all gone into the shared ownership scheme?
    4. I assume if the trust functioned as above, there will be no direct tax implication for me, because if I do move from the property, the resale value will go back into the trust’s account instead of mine. Is that correct?
    Many thanks,
    Rocky

    • Mark Thompson says:

      1. All of the compensation you receive is paid because of the personal injury, so it can all be held in a trust.
      2. depending on how the trust is written, it should be possible for the trust to invest in any way which you can invest personally. The usual exceptions and ISAs and Premium Bonds as they must be held by individuals. The answer to your question depends on the housing association rules. If those rules demand individuals only, the trust could make you a loan.
      3. If you use a bare trust, there is no need for complicated administration or reports to HMRC.
      4. A bare trust is tax neutral, as you are treated as the tax payer for any income or capital gain, so any income or gain is included in your personal tax return. Of course, your personal tax allowances will apply.

  2. Chetna says:

    Hi mark i’m about to receive compensation and I would like to open a trust But the thing is is that my passport has expired and I’m disabled to even go and renew it I don’t drive so I don’t have a license as ID what else can I use and to open a bank account is it myself that has to open it with my ID or The person I’m making to become my trustees.

    • Mark Thompson says:

      The banks must confirm your identification and address to satisfy the money laundering regulations: a bank must know who they are dealing with. There are a number of documents which can be used to prove your identity and address.
      You can find a list provided by the Government by clicking here. Once you have checked that list double check the information on the website of your chosen bank.

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