You can keep your compensation and still claim means-tested benefits if your compensation is protected by a personal injury trust.
Personal injury trust or special needs trust or compensation protection trust and protection of State means-tested benefits. All names used for a trust to protect personal injury compensation.
A trust will mean personal injury compensation is ignored when your finances are assessed for benefits and care. Here we help you understand protection of compensation with a trust.
When you receive compensation for a personal injury it can take you above the financial limits for means–tested State benefits, and affect your entitlement to local authority support for care. So be aware and look at the benefits you are receiving today, and just as important the benefits you may need in the future. Don’t just look at yourself as benefits are claimed by a family unit.
It is worth repeating that you must also look at your care needs, both now and in the future, as a personal injury trust can protect compensation when local authority care is assessed.
A short-term decision may cost you dear.
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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.
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.
Continue reading “I may need a personal injury trust”
Most means tests for benefits look at your capital and income. Working tax credits is not a means-tested benefit. It is an adjustment to your earnings based on your income alone. So what protection is provided by a personal injury trust?
A personal injury trust does not protect you from tax, it only means the compensation should not be taken into account when assessing means-tested benefits.
If you are receiving another means-tested benefit you are automatically entitled to tax credit at the full rate. If you are only receiving tax credits, and no other means-tested benefit then income would normally be taken into account. But if the income is on an asset held in a personal injury trust and the income is paid into the trust, this income should not reduce working tax credits.
The answer lies in the The Tax Credits (Definition and Calculation of Income) Regulations 2002 . Follow the link and see paragraph 16 which excludes income “under a trust derived from a payment made in consequence of a personal injury…”
So that says if you can receive income from a personal injury trust, it will not be taken into account when calculating your entitlement to working tax credits. Good news for those who rely on working tax credit. There is a helpful note on the HMRC website which confirms this.
What you must do is include income received by a personal injury trust in your tax return. This applies if you have a bare trust, most personal injury trusts are bare trusts. You must also declare the income from the trust when applying for working tax credits, as if you do not the difference between your application and your tax return will be obvious. When declaring the income make sure you tell the Revenue about the trust and point to the Regulation above to explain why the income should not be taken into account.
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To create a trust for personal injury compensation you first need a trust deed. This is a legal document which creates the trust and appoints your trustees.
Once your trust document is complete the next step is for the trustees to open a separate bank or building society account to hold your personal injury trust fund. Your trust is created by a deed and the trustees then open a joint current account.
You cannot create a trust just by opening a separate bank account, you need to first create the trust with a deed. People sometimes turn up at a bank with a compensation cheque, but without a deed, and this is why confusion is created. I suggest you waste no time on banks before the trust deed is complete.
I recommend you open an account in a convenient local branch. I will recommend banks to clients on the basis of recent client experience. The trust account should be cheque book only, with at least two signatures required for a financial transaction, so there will be times when you need help at the branch. Continue reading “Which bank account is best for a personal injury trust”