If you receive means-tested state benefits, such as Universal Credit, a change in your financial position could potentially impact your entitlement to certain benefits or the amount of the payments you receive.
Our clients often ask about the potential impact of a claim on their benefits, as they are worried about a compensation award causing them to lose the benefits on which they rely.
Fortunately, it is possible that compensation received in personal injury and clinical negligence claims can be legitimately ring-fenced so that it doesn’t impact entitlement to means-tested benefits.
The impact of compensation on means-tested benefits
There are several means-tested benefits in England & Wales, including:
- Universal Credit
- Housing Benefit
- Income Support
- Council Tax Support
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
Currently, the thresholds for means-tested benefits are:
- If you have over £6,000 in savings, it may affect the amount of benefits you receive
- If your savings exceed £16,000, you may lose entitlement to means-tested benefits altogether
These are relatively low thresholds in the context of the sums of compensation you may recover for a serious injury resulting from negligence and, on the face of it, the compensation would potentially result in benefits being reduced or even stopped altogether unless steps are taken to protect the position.
Fortunately, there is a way of protecting your means-tested benefits, but this involves certain steps being taken on your behalf to ensure it’s done properly.
Personal Injury Trusts
A Personal Injury Trust (PI Trust) is a legal document known as a trust deed which names two or more people or a Trust Corporation, known as Trustees, to look after your compensation for you. When the money is placed into a PI Trust, it becomes known as a Trust fund.
With a PI Trust, the money is still yours and can be spent on the things as you wish, but because it is held in the Trust, it is regarded separately from your own funds. This is why your means-tested benefits will not be affected by funds held in a PI Trust.
Before you make any purchases using the Trust fund, your trustees will need to agree to them, and for this reason, it is crucial to choose the right trustees to help you manage your funds.
The main reason to create a PI Trust is that the compensation funds held in trust are disregarded when assessing eligibility for means-tested state benefits, services, and local authority funding. This applies regardless of whether you received these at the time the Trust was created.
Costs
There is a cost to setting up and managing a PI Trust. The cost will depend on the type of Trust required and the complexities involved, but PI Trusts are generally a very cost-effective way to protect your right to means-tested benefits.
In many cases, the cost of setting up the Trust will be explored as part of the claim, and the costs will be recovered from the Defendant. If not, you will be responsible for paying the costs from the Trust funds. In most cases, the cost of setting up and managing the PI Trust is very small compared to the benefits you would otherwise lose out on.
Timescales
To avoid compensation being considered for means-tested benefits and services, a PI Trust should be set up as soon as possible, and certainly within a year of receiving your first compensation payment.
After you receive your first payment of compensation (whether an interim payment during your claim or once it has settled), there is a grace period of 52 weeks during which time your damages will not be counted against your benefits entitlement. This allows you time to prepare a PI Trust after receiving compensation, during which time you can still achieve the full protection of having a PI Trust.
The 52-week period is not a deadline. It is still possible to set up a PI Trust after the 52 weeks have lapsed, but you will not achieve the full advantages of the Trust, and your entitlement to state benefits would likely have been adversely impacted in the meantime.
Get specialist advice
An important first step is to seek specialist legal advice. The technicalities of setting up a PI Trust are complex, and so it is advisable to seek the support of a specialist solicitor to ensure it is set up properly to achieve its intended effect.
You can find out more about the benefits of a PI Trust and what’s involved on our website.
Ali Batchelor, Partner
RWK Goodman
