Personal Injury Trusts Everything you need to know
A Personal Injury Trust is created by an individual who has been awarded compensation, usually as a result of an injury or an accident, it can play a vital role in protecting a Claimant s right to access means tested state benefits or even state funded care.
When to set up a Personal Injury Trust As soon as your compensation has been awarded you should really begin to consider getting a Personal Injury Trust set up. It is always advisable to have the Trust set up before the payment is made so that the award can be transferred directly into the Trustee Bank Account and can be ring fenced from the outset. Why set up a Personal Injury Trust? If compensation is received, even if it is an interim payment, it will have an effect on any means tested benefits that you are in receipt of or that you may receive in the future. This may reduce or, in some cases, eliminate the whole of the compensation payment as you will have to utilise the funds for your day to day living expenses if your benefits are removed. The main reason for setting up a Trust is to protect any current or future means tested benefits, the following are means tested benefits:- Income Support Housing Benefit Council Tax Benefit Working Families Tax Credit Disabled persons Tax Credit Job Seekers Allowance (income based) Employment and Support Allowance (income based) Pension Credit Child Tax Credit Currently, as a general rule if you have over 6,000.00 in savings you are at risk of having your benefits reduced. If you have over 16,000.00 in savings you could lose your benefits entirely. The Trust may also serve to protect your assets/savings should you go into care in the future.
What do you need to do? You will need to consider who is to be appointed as your trustees. This will normally be you and either a family member, friend. You should have a minimum of 2 and a maximum of 4. Anyone who you consider to be appointed as your Trustee should be over the age of 18 years old and someone that you trust completely to act in your best interests. What is a trustee and their role? The Trust Document states that the compensation is to be looked after by your appointed Trustees (including you). The Trustees are appointed by you because you trust them and because they accept the terms of the Trust document and carry them out within the law for your benefit. What your solicitor will do Your solicitor will arrange an appointment with you either by telephone or in person (please note that we do offer home visits if preferred although there is a small charge for this). Following taking your instructions your solicitor will draw up the Trust document for you and arrange for it to be signed by you and your selected trustees. The signed document should then be passed to financial advisors. You can use or choose your own financial advisor to assist you in setting up the Trustee bank Account or alternatively if you require it, your solicitor will be able to recommend an experienced financial advisor to assist you. This means that both the capital and any interest made on this amount belongs to you. The Trust itself is not taxed as a separate entity, therefore it does not have to be formally registered with HM Revenue & Customs. However, you should declare any income from the Trust on your own tax return (if necessary). We suggest you contact HMRC at the end of each tax year following the creation of the trust to see if you are required to submit a personal assessment.
What happens to the money after the Trust is set up? The money is under your control. If you do not spend the money it will stay in the Trustee Bank Account. If you receive a substantial compensation award we also recommend that you ask your financial advisor about potential investments that you are able to make which will still be protected within the trust and get the best out of your award and to invest it in a tax efficient way. How easy is it to access my money? The money is to be used for your benefit and, provided your Trustees agree to sign the withdrawal form or cheque, you are able to access your money. However, there are rules about how you are able to spend your money once it is placed in trust and this is explained in more detail below. What can I spend my money on? Can I receive a regular income from my Trust money? No. However, if you do need some spare cash from your trust money you just have to try and make sure that you do not make regular payments to yourself. (ie weekly/monthly) Do NOT, for example, transfer 500 on the 1st of every month from your trust account to your everyday current account which you use for daily expenditure. If you must make payments, then they should be irregular, such as 100 one week and 400 six weeks later etc. Ideally, you would only really hope to make payments from the trustee account to purchase specific items. At all times you will have to be careful about paying too much money into your everyday current account. You always have to be aware that if you have more than 6000 in your personal bank account you will put yourself at risk of having your benefits reduced. You can spend the money on anything you like, provided your Trustees agree.
When and who informs the benefits agency of the Trust? We are able to do this for you. To do this we will need your national insurance number and the address of your benefit agency. What if I change my mind about who I would like as my Trustees? Do my Trustees have to complete an Income Tax Return? The Trust we normally set up is what is called a bare trust. If the Trust is not a bare trust you will be advised of this so that you are aware of the tax implications. Your Trustees are under a duty to utilise the money for your benefit and at all times act in your best interests. If at any time you feel that they are not doing this, you do have the power to remove them and appoint another Trustee. One of the most common reasons for a disagreement may be because they will not let you have money at a particular time. However, they may have a good reason for this. Where possible we would suggest that in all circumstances, before making this decision you sit down with the Trustees and discuss the problem and see whether this can be resolved before removing them.
Can I put other money or savings into the Trust? NO. The only money that can be put into the Trust is compensation money. However, this does include any interim payments you may have received, prior to the final award. Can I break the Trust? Yes, if for any reason your circumstances change and you believe that the Trust is no longer necessary you are able to unwind it. Does the Trust protect against divorce and/or bankruptcy? There is always the fear that you may become divorced or become bankrupt. Therefore, a question that is often asked is whether the award can be ring fenced against these things happening. Unfortunately, in these circumstances, we/a Trust cannot guarantee protection. Currently a Court could set aside an established Trust. However, the Court would probably put some emphasis on the fact that the Trust had been made for a particular purpose, such as future care needs and therefore this may offer protection to you against the award being taken into account in future disputes. How much does it cost to set up the Trust? The Trust will cost in the region of 500-750 (excl VAT) depending on the complexity and also whether you require a home visit. Please note: The scope of this booklet only extends to bare trusts - you will be advised if a more complex trust is required by your solicitor if necessary.
Your Notes
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Useful Contact Information For any questions please contact Amy Clague in our Wills & Probate department using the following; amy.clague@eadsolicitors.co.uk 0151 291 2569
If you have any questions about anything in this leaflet please call us on 0151 735 1000 Alternatively please email amy.clague@eadsolicitors.co.uk EAD Solicitors LLP is a Limited Liability Partnership registered in England (registered number OC334289) and is authorised and regulated by the Solicitors Regulation Authority (487037). A list of members of the LLP is available for inspection at our registered office Prospect House, Columbus Quay, Liverpool, L3 4DB, together with a list of those non-members who are designated as partners. Any reference to a partner in relation to the LLP means a member or employee of, or consultant to, the LLP. www.eadsolicitors.co.uk