People who are awarded compensation to help meet the needs of their new life after suffering a personal injury are being encouraged to set up a Trust to protect their entitlement to means-tested benefits and care contributions.
At Nelsons, we have seen an increase in clients contacting us after being told they may no longer be entitled to some of the Government benefits they receive following a compensation settlement. This rise in enquiries is mostly likely down to the introduction of Universal Credit, as well as an increase in information sharing between Government agencies.
Personal injury compensation thresholds
The consequences of suffering a personal injury can be devastating – as well as experiencing physical and emotional pain as a result of the trauma, there can be long-term implications. Compensation following an injury is intended to cover special costs as opposed to the regular expenses and living costs that benefits are meant to be used for.
People who are awarded compensation that takes them over the lower threshold of £6,000 may see their means-tested benefit income reduced, with those who receive a settlement that takes them above the higher threshold of £16,000 losing their entitlement altogether. This is because benefits claimants are only allowed a certain amount of savings or income before they would be deemed to have too much to claim full benefits.
This means that a personal injury claimant has to sacrifice an existing income in order to obtain compensation for the injuries they sustained. This is a problem for many people receiving smaller settlements that aren’t life changing amounts, despite being a lot of money. Losing some or all of their benefits would be a real blow.
This is where Personal Injury (PI) Trusts can help. Funds held in this way are exempt from benefit calculations, allowing the settlement money to be used as it was intended – to improve life.
What is a PI Trust?
A PI Trust is a legal arrangement for holding and managing funds received as a consequence of an injury.
Funds held in the Trust are disregarded when assessing entitlement for some means-tested state benefits and contributions towards community care costs. A Trust will also protect entitlement to Local Authority funding for the costs of living in a residential care home and, depending on the Local Authority, care provided in a person’s own home.
When should someone set up a PI Trust?
There is a 52-week temporary disregard for funds received as a result of you suffering a personal injury. This means that the funds will not be taken into account for state benefit purposes. However, it’s important to note that this period starts as soon as you receive a payment as a result of the injury you’ve suffered and, once it expires, any further payments will have an immediate effect on your benefit entitlement. Because of this, it’s best to set up a Trust as soon as you’re aware that a payment is to be made in order to ensure that all of the compensation received is protected.
We’d also recommend setting up a Trust even if you don’t currently claim benefits as circumstances can change and a significant compensation payment could prevent you from being able to claim benefits in the future.
What is involved in setting up a PI Trust?
- The person setting up the Trust will need to decide who the trustees – individuals who are legally responsible for looking after the money – will be. They can choose relatives, close friends or a professional.
- A Trust deed is then prepared, which the Trust holder and their trustees sign.
- The funds are then received by the trustees. They can be held in a client account or invested.
- The Trust holder also needs to consider what should happen to any money left in the funds after they die. We would recommend they make a Will, if they haven’t already done so, or review any Will they already have in place.
What if I spend my compensation in the first year?
If you intend to spend some or all of your settlement, you should be mindful of what you spend it on. The Department for Work and Pensions (DWP) can stop, interrupt or reduce benefits if it believes the claimant deliberately deprived themselves of capital so it didn’t affect their entitlement to means-tested benefits.
Craig Staten-Spencer is an Associate and Trust Manager in our Court of Protection team.
If you have any questions in relation to PI Trusts or any related subjects, please contact Craig or another member of our team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.