Do I need a personal injury trust to protect my compensation and benefits
A personal injury trust is the only legitimate way to hold and use compensation and still receive means tested benefits. Such a trust is an opportunity to keep and use your compensation and receive means tested benefits.
The personal injury trust means your compensation will be ignored if you or others in your close family either claim, or need to claim, means tested benefits. The same applies if you require local authority care.
It is the benefit regulations themselves which allow a payment in consequence of an injury to be disregarded, or ignored. A sensible and generous law.
I continue to be surprised by the advice given to people receiving accident compensation about personal injury trusts. The advice presents a personal injury trust as an optional extra. A personal injury trust is vital in many cases and advisable in others.
You will usually receive compensation in a lump sum, and, if that lump sum is not ring fenced by a personal injury trust, you could lose your entitlement to means tested benefits for many years. You can’t just blow the money and then claim benefits, as there are strict rules which apply to depletion of capital. This applies even if the compensation is spent within the first 52 weeks after receipt.
One often ignored benefit of a personal injury trust, is the protection it provides in the financial assessment for care provided by local authorities. When a local authority assesses your need for care, it will assess your financial situation. If you have tucked away your compensation money for a rainy day, that money may mean you have to pay for your own care. Worse still, there are rules about depleting capital which mean you cannot just blow the money and then claim financial help. Placing the compensation in trust is the answer.
You should see a personal injury trust as a helpful necessity, not an optional extra. The law allows you to hold and use your compensation in a trust, so why not take advantage?
So why do some people decide not to use a personal injury trust to protect their compensation? The reasons are:
- The advice from your personal injury solicitor is weak.
- The advice comes late in the case and plans have already been made.
- It sounds complicated and expensive.
- Fear you will lose control of the money to trustees.
- The compensation will not be noticed by benefit agencies – please note all compensation is notified to the Department for Work and Pensions and all bank accounts opened are notified to HMRC.
The reasons for needing a personal injury trust are very clear. Do not just look at your personal circumstances today, think ahead.
Ideally you should create a personal injury trust ready to receive the compensation, or within one year of receipt of the first payment of compensation. You can set up a trust later, but do get advice quickly, as the sooner the better.
A trust is created by a deed, a legal document, which identifies the reason for compensation, it appoints at least two trustees (and you can usually be a trustee) and sets out how the money is to be managed. Your trustees must set up a separate bank or building society account for the trust fund. This means it is clear which money falls outside the means testing process.
You can continue to have some control of the compensation, as the usual method is to create a bare trust. You can bring the trust to an end when you wish and add and replace trustees.
The money in a bare trust is treated as yours for tax purposes, so the interest on investments is included in your tax return. This makes management of the trust easy and avoids ongoing expense. HMRC confirmation can be read here.
There are occasions when a more complicated type of trust is necessary, but usually a bare trust is the right way to protect your personal injury compensation.
If you have been advised that a personal injury trust may be a good idea and want to set up a trust, the cost should not put you off. I currently work on a fixed fee of £480, which includes VAT, with no ongoing cost and only limited administration for the trustees.
The cost of not setting up a personal injury trust could be the loss of means tested benefits and local authority financial support for care, for a long time to come.