Financial Settlements, Trusts & Benefits
If you receive a damages award (financial settlement) for a personal injury, then that compensation may reduce or even stop entitlement to “means-tested” benefits such as Income Support, Family Credit, Housing Benefit and Council Tax Benefit, although not immediately.
The good news is that there is a way for claimants (the individual who suffered injury) to retain their means-tested benefits and still take advantage of their compensation payment. This can be achieved by setting up a special needs trust to hold the award monies.
What is a Trust?
A trust is a legal relationship which is created when a person transfers assets (e.g. a compensation award from a personal injury claim) to one or more other people (the trustees), with instructions that they hold the assets for the benefit of the compensated person, known as “the beneficiary”.
The monies in the trust cannot be used to pay for any of the claimant’s basic needs, for which means-tested benefits are intended to cover – these include food, ordinary clothing/footwear, household fuel and rent.
A trust can be used to pay for special needs such as carers, medical aids, furniture, transport, household repairs, holidays or to top up care home fees. As long as payments are made directly to third parties they will be disregarded for means-tested benefit purposes.
Trustees can make payments directly to the claimant provided that they are not made on a regular basis and the claimant never owns a total of more than £6,000 at any one time. The claimant is free to decide how to spend this money.
Means-Tested Benefits
The size of the damages award is not relevant. Claimants should consider setting up a special needs trust whenever the level of means-tested benefits being received outweighs the costs of setting up and running a trust.
Eligibility for means-tested benefits is based on a number of factors. We can advise you on how these may affect your position, but the main factors to consider are:
- Ideally, a special needs trust should be set up at the point that a personal injury claim is settled or when an interim payment is made as it is important not to forget to do it.
- However, it is only after the expiry of 52 weeks from the date when the compensated person first receives any compensation payment, that the means-tested benefits are reduced or withdrawn because of the reward monies.
- The amount of money or ‘capital’ a person can have before losing income support is £16,000. If you have less than this but over £6,000 then you will lose benefits on a sliding scale. You will get full state benefits if you have under £6,000.
In comparison to investing award monies in other ways, setting up a special needs trust enables you to benefit from the capital and income generated by the trust, to help provide an income for life and cover the costs of ongoing care, whilst minimising the affect on your tax position and eligibility for means-tested benefits.
If you would like to find out more about how we could help you, please complete our online enquiry form.
