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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8 Responses to Compensation protection trust

  1. Heath Jackson says:

    Hello Mark, Thanks for the information on this website. It’s really helpful. I have a few questions. A friend of mine, 38, was injured in 2016. As a result of the injury, she has been on Universal Credit plus PIP (higher level of daily functioning component) since then. Through court orders, she is expecting to receive a minimum of £30k gross for the injury itself, plus more depending on the employment expert’s assessment of how her earning capacity has been affected. Will my friend need a trust to protect her compensation and benefits? Also, my friend is estranged from her parents. And being on the autistic spectrum, she has no real friends to speak of. Is there such a thing as paid trustees – like employing someone to do the job? If I offer to be one of her trustees, what work is involved? I am willing to help, but I’m terrified of taking on responsibilities that I cannot handle, eg technicalities in accounting, taxation and law. Given her disabilities, should it be a bare trust or a discretionary trust? Is there any real advantage to have disabled persons trust if the tax is going to be as if it’s a personal income tax? She wants to protect the lump sum from inflation, perhaps in bonds or real estate. How would she go about doing it? Who makes the decision, she or the trustees? What happens if she has a trust and the trustees take all the money? What then? Sorry to be bombarding you with questions… I’m just trying to find out as much as I can for this friend. I look forward to hearing from you, Heath.

    • Mark Thompson says:

      The starting point is does your friend have sufficient mental capacity to set up the trust? If she has the mental capacity to pursue her case, she has the mental capacity to set up a trust.
      If she does not have sufficient mental capacity, then her case should be running with the help of a litigation friend. At completion of the case, a Court will be asked to approve the settlement. It is at that point the benefit of a trust must be put to the Court.
      Trusts for compensation are intended to protect eligibility for means tested benefits and care. I always advise the simplest form of trust be used, but your question about the type of trust cannot be firmly answered until you know what the settlement figure will be and how the compensation will be used.
      I do not agree to act as a professional trustee. It tends to be expensive, but such services are available.

  2. Lynn mears says:

    Hello Mark,
    I am about to receive a compensation cheque following a personal injury. I am in receipt of various benefits as I am disabled and cannot work. My husband is my carer. I want to open an account that will protect my benefits.
    The compensation money will need to be used for a deposit on a new car and a couple of other items, therefore I will need to be able to access this account. What sort of account would you recommend?
    I look forward to hearing from you

    • Mark Thompson says:

      The first thing you need is a trust. The trust is created by a legal document, called a deed. Once complete the trustees take the deed to a bank and open the trust account.

  3. 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.

  4. 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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