Personal Injury Trusts and Means Tested Benefits
A Personal Injury Trust can ensure that a person who receives a large personal injury compensation settlement remains eligible for any state benefits they’re claiming.
Many people make personal injury claims for injuries that they have suffered; from falls on an uneven pavement to serious brain injuries following road traffic accidents. But in some cases, the amount of compensation received can be life-changing and if necessary, steps should be taken to safeguard it.
As matters stand, if a claimant were to be paid their compensation straight into their bank account, this could adversely affect their continued receipt of any means-tested state benefits they might receive.
For example, if the recipient of the compensation were to receive Housing Benefit, Employment and Support Allowance, Job Seekers Allowance, Pension Credits or any of other means-tested benefit, their receipt of them would be at risk when receiving the lump sum of compensation.
The recipient must therefore tell the Department for Work and Pensions (DWP) that they have had this money. A failure to do so could lead to an “under caution” interview by the DWP and the possibility of criminal prosecution with benefits, sanctions and possibly even imprisonment to follow.
However, it’s also important to realise that a claimant has a period of 12 months from the receipt of any compensation to the date of that reassessment. From the DWP’s perspective, the claimant is in receipt of the compensation as soon as the money arrives in their Solicitor’s client account.
If, over that 12-month period, it’s possible to use the compensation for a reasonable purpose (most typically discharging debts or paying off a mortgage), the DWP may not see that as a deliberate misuse of funds and therefore allow payment of benefits to continue. If, however, the money is frittered away (for example, on expensive holidays or a sports car), the DWP might take a different view.
The purpose of a Personal Injury Trust, therefore, is to remove this degree of uncertainty. Once the money has been paid into a properly constituted Personal Injury Trust, it’s essentially “invisible” as far as the DWP is concerned for the assessment of eligibility for benefits.
The DWP should still be told about the establishment of the Personal Injury Trust, simply to keep them informed.
There are a number of factors that need to be in place a Personal Injury Trust to be accepted by the DWP:
- There should be two Trustees. Although one of these can be the beneficiary themselves, one must be independent.
- The money itself must be kept in a separate clearly identifiable bank account, named as such.
- There must also be regular minutes at meetings of the Trustees, detailing any decisions made concerning the release of funds to the beneficiary.
The beneficiaries are also responsible for the filing of tax returns for the Personal Injury Trust and the assistance of an accountant or financial adviser should be sought to ensure this is done regularly and on time.
It’s usually the case that any significant amount of compensation awarded for a child is held in a Personal Injury Trust as well. This provides a safeguarding mechanism to ensure that the money is held and managed properly on behalf of the child until they reach the age of 18.
Even at 18, it’s often the case that it’s better for the Personal Injury Trust to remain in place rather than for a young person to be given direct access to what can often be a very large amount of money.
The other defining characteristic of a so-called “bare Trust” is that it can be broken at any time by the beneficiary, who can simply ask for the money to be paid to him or her. Equally, upon death, the Personal Injury Trust fund will be paid into their Estate and it’s therefore vitally important that any beneficiaries should make a Will, immediately upon receipt of the compensation, or if a minor turns 18.
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