A Personal Injury Trust is typically set up to protect someone’s entitlement to means tested benefits where acceptance of a accident claim settlement may otherwise deem them to be ineligible. This begs the question of whether a Personal Injury Trust can be used in the same way to protect a person’s settlement, when they are under an Individual Voluntary Agreement (IVA).
What is an IVA?
Generally under an IVA, an individual will be required to pay their creditors a regular payment, often through an insolvency practitioner, and will also need to declare any large capital sums they receive. The creditors will then be entitled to claim a reasonable amount of the capital to offset the balance owed by the individual.
The IVA will remain with the individual until the funds owed to the creditors has been paid off, including all associated costs and any interest which may be applied.
What happens to my personal injury settlement if I am under an IVA?
On the face of it, it would appear that the receipt of a personal injury settlement would be payable to the creditor. If the settlement exceeds the amount due under the IVA, then the excess funds would belong to the individual receiving the settlement.
In this instance, it would be possible to place any excess funds into a Personal Injury Trust in order to protect that individuals’ claim to any means tested benefits they may be entitled to.
Can I protect my personal injury settlement from an IVA?
It is possible to place part of person’s personal injury settlement into a Personal Injury Trust before repaying the creditors. This would essentially protect that part of the settlement being recovered by the creditors.
This is not possible for the whole settlement, as only a portion may be placed into a Personal Injury Trust when someone is under an IVA. When an individual is under an IVA, the law allows such part of the settlement received in respect of the injury itself to be placed into a Personal Injury Trust. This means that compensation received in relation to other losses, such as loss of earnings, cannot always be placed into a Personal Injury Trust when under an IVA. A breakdown of the settlement must therefore be reviewed to ascertain what portion of the settlement can be lawfully placed into a Personal Injury Trust before establishing the Trust.
Some IVAs may, however, defer from the general rule and it would therefore be recommended that the starting point to establishing a Personal Injury Trust under an IVA would be to contact the practitioner dealing with the IVA and advise them of the settlement.
Transparency would prevent the doubt of any fraudulent activity and the practitioner would be under a duty to confirm how funds may be placed into a Personal Injury Trust under the individual’s specific IVA.