Trust bank account use
This webpage is for clients of Mark Thompson Law who have already received advice by email and telephone.
You will be familiar with some of the text below, but this page will answer most questions and help you and your trustees to operate your trust.
Benefit regulations allow you to keep your benefits and hold and use your compensation. The compensation must be held separately from your personal funds and the device used to achieve this is a trust. Once you understand and accept this need for separation of funds, you will be well on the way to understanding how the trust should operate.
When the trust is finalised, the trustees set up a separate bank account to hold the funds. That account must hold only compensation from the personal injury action and any income received on that money.
The first account for the trust should be a current account. You can then set up other accounts and investments, but these must be held by the trust, not by you.
The trust bank account ought to have the same name as the trust. It will be “The (YOUR FULL NAME) Personal Injury Trust 2020.” Benefit agencies sometimes ask if trust money is held separately, so what better answer than a bank statement showing the name of the trust.
Trustees should agree to a financial transaction, so the starting point is all should sign for each financial transaction. If this makes management of the account inconvenient, the trustees can agree to reduce the requirement to two trustees. Do note the point below marked * before deciding how to operate the bank account.
Do not be tempted to allow transactions based on your signature alone. If you have direct access to the trust fund, which includes the use of debit cards and internet banking, the trust will not be accepted by benefit agencies.
The two most consistently helpful banks are Barclays and Metro Bank (£25,000 minimum initial deposit). Other banks can open an account for a trust, but I cannot say any are consistently helpful.
Use of trust fund
The trust is a device which holds your compensation and the golden rules are:
1. Use your benefits to pay for the basics of life.
2. Do not use the trust on items for which benefits are intended.
3. Buy direct from the trust.
3. Do not transfer money from the trust to your personal account.
4. Do not withdraw cash from the trust.
Money in the trust can be used pretty much as you wish, provided expenditure is made direct from the trust.
The trust should avoid expenditure on items for which benefits are intended, such as food, ordinary clothing or footwear, household fuel and rent. I recommend you keep a record of all transactions under the trust. This may appear artificial, as you may not currently be in receipt of benefits, but as it could prove necessary in the future keep your records from the start.
When you use funds from the trust DO NOT transfer money to your personal bank account or withdraw cash. By doing this, you lose the protection of the trust and the transferred money or cash will become subject to benefits means-testing. This is the case even if the money is only held briefly. The trust bank account should be used to directly purchase items.
Must the trust account only have a cheque book?
If you are one of the trustees, the account must be operated on a minimum of two signatures. You must not have personal access to the trust fund.
*If you are not a trustee, the account can operate on single trustee signatures. The potential advantages are the trustees may have internet banking and a debit card. I cannot guarantee a bank will allow these extra facilities, as banks believe trustee accounts require at least two signatures. You must also be very confident in your trustees, as each trustee will have individual access to your compensation.
One recent development has been offered by Barclays on accounts requiring two signatures. Internet banking has been provided, with a facility for the approval of the second signatory. The first trustee sets up the transaction using online banking, the second trustee is sent a message and approves the transaction. If you use Barclays for the trust account, make sure you ask about Dual Authorisation – https://www.barclays.co.uk/help/business/services/what-is-dual-auth/
NatWest offer a Bankline facility to business customers, which is explained at https://www.business.natwest.com/business/ways-to-bank/bankline.html No harm asking.
Metro Bank have an approval process for online banking – https://www.metrobankonline.co.uk/globalassets/documents/customer_documents/business-and-commercial/user-guide-transaction-approval.pdf
I think these facilities are designed for companies, which often require approval of two people for a transaction. Hopefully, these facilities will be offered to trustees.
If I cannot use a cheque, is there an option?
If a cheque is not acceptable, or the trustees cannot achieve the best price with a cheque, there are three options.
- The signatories of a bank account can go to the bank branch and arrange a bank transfer (check for bank charges).
- The signatories of a bank account can go to the bank branch and arrange a bankers’ draft (check for bank charges).
- The trustees may authorise the use of a credit card. That can be your credit card, or one belonging to someone else.
You must not use a credit card knowing the bill will be paid by the trustees. That is the same as having personal access to the trust. Each transaction should be agreed by the trustees.
A credit card works, as the funds do not pass through your hands or personal bank account.
Can I keep some of the compensation in my personal account?
The answer is, possibly.
The answer depends upon whether you have already received compensation and how much money you, plus those claiming benefits with you, hold in personal accounts.
Means tested benefits allow you to have up to £6,000 and no more than £16,000. Once funds go over £6,000, your benefits are reduced.
It is not enough to look only at the balance of accounts, you must include money already spent. Expenditure from your personal account is assessed against a test of reasonableness for someone receiving benefits. It is not a generous test, so even though you have spent money, you can be treated as still having it. This is called notional capital.
This means, if you have already received an interim payment, you should not pay further compensation to yourself. Depending on how you spent the compensation money, you may well be treated as still having that money.
For someone who has not already received compensation and with personal funds well below £6,000, a once only transfer from the compensation to your current account can be made.
Once only, because regular transfers will provoke a benefit agency to object to the validity of the trust.
How much of the compensation can you transfer to yourself? Including the compensation you plan to transfer, you should stay as far below the £6,000 limit as possible. If you transferred £6,000 to yourself, even once spent, that money is very likely to be treated as notional capital. That would mean you would always be treated as having £6,000 and your total funds would often be over £6,000, which would reduce your benefit entitlement. If you must make such a transfer, take your existing funds into account and stay well below that £6,000 limit.
Think carefully about how you plan to use your compensation. I know it feels good to have money in your account, but do think hard about planned expenditure and buy direct from the trust account.
It is a matter of getting used to your money being held in a separate device. The rules take a little getting used to, but the benefits are obvious. You can keep and use your compensation and still receive means tested benefits.
Feel free to ask questions below.