Compensation settlements and awards from the Criminal Injuries Compensation Authority (as a result of psychiatric or physical injury) will be taken into account by the Department of Work and Pensions when assessing a person’s entitlement to means tested benefits.
However, it is possible to protect entitlement to benefits (present and future) by the setting up of a Personal Injury Trust (“PI Trust”).
Here are 6 things need to know about protecting your benefit entitlement during a compensation claim.
1. Which benefits are affected by compensation settlements?
Means tested benefits including income support, income based JSA, income related ESA, Housing benefit, council tax benefit and pension credit are affected by compensation settlements.
Generally, if a claimant has capital below £6,000 they will be entitled to means tested benefits. If they have capital of between £6,000 and £16,000 this entitlement is reduced. Anyone who has capital over £16,000 is not usually entitled to means tested benefits.
2. How can a claimant protect their entitlement to means tested benefits?
A claimant’s entitlement to benefits can be protected by the setting up of a PI Trust to hold their compensation monies separate from their own finances.
If a claimant decides not to set up a PI Trust, then the Department of Work and Pensions will consider the compensation monies to be capital and the claimant may lose their entitlements to benefits.
Ultimately, this could mean that the compensation monies will not be spent as intended, i.e. for future treatment or care.
3. How is a Personal Injury Trust set up?
The setting up of a PI Trust may seem daunting but it is relatively straightforward and can usually be done in a matter of weeks.
A minimum of two trustees is required. It is usual for one of the trustees to be the person who has received the compensation and who is setting up the trust. They are known as the “beneficiary” of the trust.
The second trustee should be a person chosen by the beneficiary, who is over the age of 18, has mental capacity and usually a family member or close friend.
A trustee with a good credit rating and no criminal record is preferable to avoid any problems with setting up the trust bank account. A solicitor may be able to act as a trustee (known as a professional trustee) but there will be fees involved with this.
Generally professional trustees are only used where there is no suitable co-trustee or where the compensation is substantial, or the claimant is considered to be a vulnerable person.
A lawyer who has expertise in the setting up of personal injury trusts will prepare the trust deed (a legally binding document). Once the trust deed is prepared a trust bank account is opened (this must be separate from the beneficiary’s account holding their personal finances).
This bank account will be known as the trust account and is actually called “The (name of beneficiary) PI Trust Account”. Most banks, although not all are agreeable to the setting up of these trust accounts. Once the bank account is set up the compensation monies can be paid into the trust account.
4. Who pays for the setting up of the personal injury trust account?
It is possible to include the cost of setting up the trust fund in the compensation settlement. However, this cannot be guaranteed, and it is usually the beneficiary who will have to pay for the setting up of the trust. Fees for the setting up of the trust vary but typically start at around £650 plus VAT.
5. How to access monies from the personal injury trust account?
Monies held in a trust account can be accessed by the trustees who manage the account. Both (or if relevant all) trustees must agree to the money being released and its proposed use. This is to protect the beneficiary from being exploited and/or making unwise financial decisions.
Monies can be withdrawn from the trust account either by cheque or bank transfer. If monies are being withdrawn by cheque both trustees must counter sign the cheque. If monies are being transferred directly from the trust account to the beneficiary’s personal bank account, then a mandate must be signed by both trustees.
Whilst there are no restrictions on the amounts withdrawn from the trust account it is preferable for the monies to be varied in amount and intervals at which they are paid. Any regular payments from the trust account may be considered by the Department of Work and Pensions.
6. When should a personal injury trust be set up?
Generally, the Department of Work and Pension allows a claimant 52 weeks from their first payment to deal with their financial affairs and set up a personal injury trust (known as the 52-week rule). This includes interim payments as well as final settlements. This 52-week period is only allowed once. If further payments are received during the 52-week period, they will be considered by the Department of Work and Pensions when assessing means.
If a payment is received after the end of the 52-week period, this can be paid into an existing trust. A trust can be set up after the end of the 52-week period to hold payment, but these monies will be considered as capital (by the Department of Work and Pensions) from the date it is paid (even if held in a solicitor’s client account) to the date it is transferred to the trust bank account. Therefore, it is best practice to set up a personal injury trust as soon as possible.
If you believe that you require or may in the future (it is important to remember that financial circumstances) require a PI Trust you should speak to your legal representative who will be able to advise you further on this.