Camilla Church explains how Trusts can help the claimant.
What are they?
Personal injury claimants are often on benefits due to disability and incapacity for work. There are various levels of benefit payable. However, under the Income Support (General) Regulations 1987 a person who has a capital of more than £3,000 is not eligible to claim maximum means tested benefits.
Someone who has more than £8,000 of capital cannot claim means tested benefits at all. The consequence of this rule, would therefore seem to be that a claimant who received more than £3,000 in damages would forfeit his eligibility for benefits under the benefit scheme. Such an outcome could quickly mean that the award in damages was eaten up in living costs and/or that a claimant would be tempted either to refuse a reasonable settlement or not make a claim because of its effect on benefits.
A way round the problem
However, such issues are considered in Schedule 10 paragraph 12 of the same Regulations which provides that this rule does not apply in the case of a
'trust derived from a payment made in respect of personal injury'.
In other words, if damages payable to the claimant in settlement of a personal injury claim are held in trust for the claimant then this sum will not be taken into account under the Income Support (General) Regulations 1987 when assessing means tested benefits. The claimant can have their award and their benefits too.
Therefore, in any case where a claimant is in receipt of means tested benefits (or is likely to claim means tested benefits in the future) and the claimant is likely to recover more than £3,000 by way of damages it is necessary to consider the creation of a Personal Injury Trust.
A Personal Injury Trust may not be appropriate for all claimants. Some claimants prefer to have control of their money despite the loss of benefits. In other cases the cost of setting up and maintaining the trust outweighs the likely loss of benefits (especially in cases where the claimant is likely to improve, get back to work etc. in the foreseeable future). But failure to advise a claimant about the option of a Personal Injury Trust could be considered negligent. Whether or not to create the trust will ultimately be a choice for the claimant, but a choice upon which they must be advised.
How to set up a Trust
If the claimant does choose to set up a Personal Injury Trust the trust should be in the form of a 'Bare Trust' with two trustees and the claimant as beneficiary. A trust deed is required which must be supplied to the relevant benefits agency. It is important that the benefit agency regard the trust as genuine and not a sham otherwise they may refuse to recognise it. Therefore, it is advisable to have the trust deed in place before any settlement is made and it would appear rather contrived if the damages were to sit in the solicitor's client account for months whilst waiting for the trust to be set up so speed is of the essence!
Once the trust is in place it is important that any money received by way of damages does not pass through the claimant's hands. Damages should be paid directly into the trust. Similarly, once the trust is in place and the damages have been paid into it, any payments out of the trust for capital amounts for purchases should be paid directly to the third party and not via the claimant (ie. straight to the vendor).
It is possible for sums to be paid out to the claimant from the trust but when doing this it is necessary to avoid the appearance of regular payments, otherwise these sums may be categorised as 'income' by the agency, leading to a loss of benefit. You must avoid monthly payments out to the claimant of a regular sum.
To conclude: a Personal Injury Trust should always be considered where a claimant is, or is likely to be, in receipt of benefits and where damages exceed £3,000 but whether or not it is appropriate will depend on the individual facts of each case.