Personal injury trusts and the cost of long term care

A personal injury trust can be a very good idea even if you are not receiving State means-tested benefits or local authority care. You must consider your situation today,  your situation in the future, and do exactly the same for those you claim benefits with.

A local authority must provide accommodation for vulnerable adults who fall outside the responsibility of the National Health Service. But the local authority can charge for the service if a person’s capital is between £14,250 and the upper capital limit which currently is £23,250.

If you need care and have received compensation for a personal injury, that compensation can be ignored in this capital assessment if it is protected by a personal injury trust. Setting up a personal injury trust is an obvious step if you are already receiving care. A trust can be just as necessary if you do not require care today, but may need it in the future.Personal injury trust help 0330 223 1708

Care at home funded by a local authority has less strict rules. The guidance for local authorities suggests they should use similar financial rules to those which apply to residential care. So again compensation sitting in a bank or savings account might be enough to prevent financial support from your local authority.

The temptation is to say the compensation will be spent long before I need worry about care, but the other side of the coin is that a personal injury trust need not be a nuisance, and it might save you a lot of money in the future.

Solicitors who advise a personal injury trust is only necessary for those receiving means-tested benefits are creating a problem for their client, and themselves.

Take your time, think about yourself and your family over the long term, and take the right advice.

About Mark Thompson

Personal injury and accident specialist solicitor

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9 Responses to Personal injury trusts and the cost of long term care

  1. Barry Taylor says:

    Is it not £23,250?

  2. Julie says:

    I’d like some advice please about setting up a personal injury trust. My father was awarded some money and I was placed as deputy for this under the Court of Protection, however, we were told that this money was ring fenced and he would still be entitled to support in terms of care and means tested benefits but he has recently had to go into respite for 3 weeks whilst my mother was ill and after some investigation and discussions with social services, I now believe that unless I put this money in a personal injury trust for him that this may not be the case. I wonder if you are able to give me some advice please as I would like to invest some of this money for him but have the added complication of having to keep things as simple as possible because I need to report his finances to the Court of Protection annually.

    • Mark Thompson says:

      In theory compensation held under order of the Court of Protection ought to have the same protection in terms of means-testing as money held in a personal injury trust.

      There is rarely a problem in relation to the standard means-tested benefits, but issues often arise with care provision by local authorities. The authorities are supposed to follow the same rules as the benefit agencies, but they do have a greater ability to investigate means, and they do have more discretion than the benefit agencies. So when you add these points together with the budget pressure applied to local authorities it is not surprising they do not roll over and agree to every request.

      The practice of most local authorities is to ignore the “capital” element of a personal injury trust or money held under the Court of Protection, but to take into account the income received on the compensation.

      I think you should ask your local authority to set out its position in writing and specifically ask that it identifies the basis upon which it will treat money held under order of the Court of Protection differently from that held in a trust. It may just be that those you have spoken with are more familiar with trusts than the Court of Protection.

      To set up a trust will require the agreement of the Court of Protection. It is becoming popular to ask for permission to set up a trust as an alternative to a Deputyship. The main reason for wanting to use a trust is flexibility and cost saving. However the Court of Protection will usually insist on a professional trustee, as if it is giving up the supervision of the fund it wants to know there is an accountable trustee in place.

  3. Vanessa says:

    So you can get an idea of our situation, my partner had an accident at work over 3 years ago and has been off since. He is not entitled to sick pay as is over the amount of days now, he could not claim job seekers as is still down as employed by the company, and was refused the accident at work benefit. He currently receives low care dla and high mobility, he is due a 3rd operation which will hopefully be next year and has been told this is at least 1 year recovery, so we have been living off my wage which is not that great. At first we did not try to claim any benefits as we thought we would get by however we eventually looked into what we could receive and I get working and child tax credit, we also get council tax and rent benefit. Of course we will not get the council or rent benefit if we want to buy a house. Even if we bought the house we would still need to keep these benefits if it was possible as it will still be a strain for another couple of years until my partner can get back to work.

    We can not get a mortgage as with my partner still waiting on another operation we could not afford it, he will also have to re train after this as he has been advised by professional consultants at the hospital that he will not be able to do the work he used to because of how the accident has affected him. He has seen a 2 week course on bikes that he would be very interested in doing and this would save him having to go to college for a few years.So we would be buying the house outright.

    The injury lawyer we dealt with has the funds available now for us. However we have held off taking the money until we try and sort out what is happening, we have had a company through the injury lawyers contact us re a PI trust but it is all rather complicated for us to be honest .

    We are looking into the house at present and hopefully the lawyers will be putting in an offer over the next 2 weeks. So this is why we are not sure what to do.

    How long does it normally take to set up one of these trusts? Also if we did go ahead with that how easy is it to draw money out i.e. for the house, his re training a van for his new job and also work on the house, is it simple to do this or does the money need to be in the trust for a certain time before you can draw down?

    On the trustees it would probably be myself and my dad however this is another point i am not sure of would this affect my dad being a trustee as he is on pension credit and dla. Sorry for the questions it is all so new to us!

    • Mark Thompson says:

      As the rules currently stand a local authority assessing your financial position for care can take into account the value of your property. If the property is purchased through a trust, and the trust owns the house rather than you, then the value of the property is ignored. I appreciate the benefit of this is some time away, but you have a chance now to protect yourselves in the future.

      Any compensation remaining should also be held in the trust, and could be used for whatever purchase or investment you require.

      The trust assets, that is anything held in the trust and income on those assets, would be ignored should you need to claim benefits both now and in the future.

      So the position seems very clear to me; you should set up a trust to receive the compensation and then spend as and when you wish from the trust. In reality your husband is placing the money into a trust, and the trust can be used as it would be if the money was in a personal account, the difference being the compensation and its income will not prevent you claiming benefits now and in the future.

      The trust money and its income is treated as the money and income of the compensated person for tax purposes.

      The trustees are not treated as holding the money for the purposes of their own tax and benefits situations.

      I think a trust is the right thing to do here, even if the benefits are long term only.

  4. Vanessa says:

    Dear Mark
    My partner is in the process of receiving a personal injury compensation from his work, it is in the region of £160000, we have seen a house we would like to buy at £135000 so most of the money will go towards the house. My question is if the money gets put into his normal bank account instead of a Personal Injury Trust would the money be then taxed? I don’t feel there is any need of a trust account when the money would basically be put into it and then taken back out to purchase the house. Look forward to hearing from you, and thank you in advance.

    • Mark Thompson says:

      Dear Vanessa,

      Compensation is not taxable when you receive it. You will of course be liable to income tax on any income you earn on the compensation.

      On the other points I need to know more to give you a clear answer.

      Are you or a family member currently receiving means-tested benefits? If that is the case a trust may be worthwhile.

      If you set up a trust, and the trust then owned the property it would be protected from the means test of a local authority assessing your financial circumstances for care. Another benefit is that if the house were sold the price received could be paid back into the trust account and remain protected from means-testing. From what you say you are not buying with the help of a mortgage. If you were buying the property with a mortgage you may find the mortgage provider may not wish the trust to own a portion of the property.

      I tend to the view that a personal injury trust is an important tool, and by not setting one at the outset you may be giving away flexibility in the future. In your case the obvious benefit is the ability to protect the house from a local authority means-assessment, and depending on the law in place at that time a trust could be the difference between keeping the house or having to sell it to pay for care.

      If it helps your thinking I charge a fixed fee to prepare the trust document so you will know the cost in advance. The considerations involved are set out at http://www.markthompsonlaw.com/how-to-set-up-a-personal-injury-trust/personal-injury-trust-to-protect-personal-injury-compensation/

      I am happy to talk this through with you if that helps.

  5. JS says:

    Dear JS,

    Thank you for contacting me. I will set out your questions and answer them in turn.

    1) My time period of 52 weeks is expiring in december so can I open the trust after this time ?

    You can open a trust beyond 52 weeks but you will lose the benefit. The purpose of a personal injury trust is to identify the money paid as compensation, and once identified in this way the money and interest earned on it cannot be taken into account when your entitlement to means-tested benefits is assessed. To take account of the timing of the trust being set up, and to deal with a change in people’s circumstances, the law allows a 12 month period when the compensation money is ignored. If you go beyond the 12 month period the compensation money will form part of your capital for benefit purposes, and depending on the amount may reduce or prevent benefits being claimed for a long time. My firm advice is not to even think about going beyond the 52 week period and to set up a trust now.

    2) Can my trustee loose his benefits like housing or tax credits if he or she becomes my trustee or do they have to pay any tax or ets ?

    The type of trust I recommend for most cases is a bare trust. The money in the trust remains yours, any interest is yours and forms part of your tax liability. You can end the trust when you wish, and if you want money paid out the trustees cannot refuse. The trustees do not therefore “own” the money so their own benefit position is not affected.

    3) can i draw money when ever i want to buy a property, house or flat?

    Yes, you can use the money as you wish. There used to be limitations on what trust money could be used for but there are none now. If you are buying property with the money from a trust you might want to consider whether the property should be in your name, or in the name of the trustees. This could help you if you ever need local authority care as the property could be kept outside their financial assessment. This is an area for a different level of advice, so let me know if you want to think about it and I will recommend solicitors with an expertise on this property point.

    4 ) are there any charges after the trust is opened or any monthly or yearly management fee on regular basis etc?

    For setting up a bare trust I charge a one off fee. The trustees must set up a joint bank account to hold the money. This is important as the money protected by the trust can be identified as it is held separately. I would have no further involvement, so there are no further fees.

    5) Can I decide not to use money for any kind of investment or business and just want the money to sit in trust without touching as long as i want without any cost?

    Yes, you can put the money in a deposit account and leave it there. The only “cost” would be the income tax you pay on the interest. When you ask about ongoing cost you may be thinking about a situation where you use a bank or financial adviser to run your trust. In such a situation there would be fees, and you will have to check that separately. The arrangement I am offering to set up means there are two trustees, one being yourself; you set up a joint bank account to hold the money; and you deal with it yourselves. It is always sensible to take financial advice, but if time is short then the answer is to set up the trust and bank account now, and then plan for investment later.

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