Personal Injury Trusts

Anybody who has successfully claimed damages or other benefits for personal injury should be referred to a trust specialist for advice on the benefits of setting up a trust to hold their compensation.

Crucially, when assessing eligibility for means-tested benefits, the State disregards damages held in a trust when calculating how much capital the injured person owns.

This means that with a trust in place the injured person will be able to claim means-tested benefits while still having access to the damages award.

However even if you are not claiming means-tested benefits, a trust may still be a good idea as a way to hold and protect your compensation and to ensure it is always being used for your benefit.

The primary purpose of setting up a personal injury trust is usually to enable the injured person, or a member of their household, to be eligible, or continue to be eligible, for means-tested benefits.

If you own capital between £6,000 and £16,000, you must declare this to the relevant organisation and your means-tested benefits will be restricted on a sliding scale.

Once you have capital of £16,000 or more, you and anyone you live with will not be able to claim means-tested benefits at all until your capital has reduced below this upper threshold.

However when funds from a personal injury award are placed in a Personal Injury Trust they are ignored when assessing how much capital you have. Any income generated from the damages placed in trust is also disregarded even if it is paid out to you.

It is part of our duty of care when acting for injured persons to ensure that you are made aware of the use of Personal Injury Trusts as a means of ensuring that you remain entitled to means-tested benefits even though you may receive compensation above the relevant thresholds.

When assessing eligibility for means-tested benefits, the total income and capital of the household unit is taken into account.

This means that, if an injured person, who is not on means-tested benefits, is living in the same household as a partner who is, receives capital of between £6,000 and £16,000 capital, the change in circumstances requirement is triggered and the person receiving benefits may have them reduced or taken away. 

However if the damages award for personal injury is placed in a Personal Injury Trust, the value of the award is disregarded when assessing their partner’s eligibility to claim means-tested benefits.

Therefore, even if you do not intend to claim means-tested benefits yourself, a Personal Injury Trust may still be necessary to preserve your partner’s eligibility to claim.  

Where Universal Credit has replaced income based benefits, couples living in a household now make a joint claim.

When a substantial personal injury award is paid to someone in receipt of benefits, this is likely to increase their capital assets over the £16,000 threshold. This is likely to lead to a loss of benefits.  However it can happen that you receive your first payment of compensation before you know about the existence of Personal Injury Trusts.

An injured person is given a statutory breathing space of 52 weeks from the date of receipt of the first benefit or compensation payment to allow them time to decide what to do with the funds.  However after that time the funds they have received will be assessable as capital for means-tested benefit purposes.

Any capital that an injured person deliberately deprived themselves of is taken into account as “notional capital” by the relevant benefits organisations.  In other words, you will be assessed on the basis that you still own that money or any assets. 

An example of behaviour that might be regarded as “deliberate deprivation of capital” is making a large gift to a family member or the extravagant purchase of personal possessions that do not fit with your lifestyle, such as a Ferrari purchased by a 70 year old woman who cannot drive or the purchase of a sit-on lawn mower by someone who lives in a flat.

A Personal Injury Trust is a much more measured and less risky way of preserving your entitlement to benefits.

Where someone receives compensation from a solicitor who has been negligent when making a personal injury claim or has failed to make the claim, the sum received as compensation for that negligence will be treated as disregarded capital if it is placed in a personal injury trust in the same way as if the sums received had derived directly from pursuing the personal injury claim itself.

The capital disregard for funds held within a Personal Injury Trust only applies to money which comes directly or indirectly from the personal injury.

If funds that are not connected with your damages award become mixed with compensation funds (sometimes called “intermingling”) then the Trust will be tainted and so it becomes available to be taken into account when assessing the injured person’s capital resources.

For this reason, we always recommend that you pay any compensation into a separate Personal Injury Trust Bank Account and that you and your Trustees keep good records of how the money has been used for your benefit.  We can direct you to a bank who understands these accounts and who will hold your hand through the account opening process. 

There may be more long term reasons why you may want to transfer an award for personal injury damages to a Personal Injury Trust. The decision to use a trust might be prompted by concerns about:

• Funding care home fees in later life
• Fluctuating mental capacity, either as a result of the personal injury or because of a pre-existing or anticipated condition
• Protecting assets from divorce or bankruptcy in the future
• Claiming means-tested benefits in the future as a result of bad health
• Managing large amounts of money
• Ring fencing the damages award from friends and relations

It is very important that you consider setting up a trust as soon you know you will receive compensation from a personal injury.  

You have 52-weeks of breathing space from receiving your first ‘payment’ before it is treated as capital by the relevant benefits organisation, however the law is drafted quite widely and you may have received a payment arising from the personal injury that you might not be aware is caught by the law. 

For example, if your friends the local rugby club do a whip-round and collect money for you, this counts as a payment arising from the personal injury and starts the 52-weeks of breathing space ticking.  You do not want there to be any confusion over when you received the payment.  It is much better to get advice and consider setting up your Trust sooner, rather than later. 

If you are in receipt of means-tested benefits, it is important that you report any changes in your circumstances. This is so you continue to get the right amount of benefits.

You should still report the change in your circumstances to the relevant organisation even if you are setting up a Personal Injury Trust and the funds are going to be ignored.

Who you tell depends on which benefits you get and you may need to report your change to more than one organisation if you receive more than one benefit.

Here is a list of people you may need to tell:-

• If you receive Universal Credit: Report changes using your Universal Credit online account if you have one or contact the Universal Credit helpline.

• If you receive Pension Credit: Call the Pension Service helpline or report changes by post.

• If you receive Disability benefits: Call the Disability Service Centre to report changes if you get Disability Living Allowance (DLA), Attendance Allowance or Personal Independence Payment (PIP).

• If you receive Housing Benefit: Tell your local council about changes if you get Housing Benefit.

• If you receive Child Benefit: Report changes using the Child Benefit online service or call or write to the Child Benefit Office.

• If you receive any other benefits: Call Jobcentre Plus to report changes. You need to have your National Insurance number when you call.

Jowan suffered an accident at work.  His employer has admitted that the accident was its fault. Neither Jowan nor his wife, Demelza, claim means-tested benefits.  

Jowan receives a damages award of £160,000.  He is only out of work for a short period of time while he recuperates and is able to start work again after a period of ten months.

However, Jowan and Demelza are worried that, in the longer term, he may not be able to carry on working.  They think it is possible that they may have to claim means-tested benefits or that Jowan may need long term care in the future.  

Jowan and Demelza are sensible and they want his damages award to last and protect themselves for any unknowns in their future. 

A Personal Injury Trust will assist Jowan and Demelza in these circumstances.  Jowan decides to set up a Trust to hold his damages award in case he needs to claim means-tested benefits or needs care in the future.  Jowan appoints himself, his friend Perran, and Demelza as trustees.

Jowan can make payments out of the Personal Injury Trust for his benefit provided that Perran and Demelza agree.  However if he should have to stop working, even if the Trust bank account has more than £16,000 in it, it will be ignored when the relevant benefits organisation assesses his entitlement to means-tested benefits. 

Similarly, if Jowan should need to go into a residential care setting, even if the Trust bank account has more than £16,000 in it, it will be ignored when considering his entitlement to such care.