Personal Injury Trusts
This article is relevant to anyone in receipt of means tested state benefits e.g. income support or council tax support and who has received compensation as a result of an injury you have sustained. Please note that disability benefits are non means tested and therefore not in issue here.
If you have capital of over £10,000 your means tested benefits are reduced until you have capital over £16,000 when you will lose all your benefits. Obviously receiving a compensation award could have an adverse impact in these situations.
The simple answer is to prepare what I term as a Personal Injury Trust. It is one of the only situations where this would not be seen as deliberate deprivation. By setting up the trust you will continue to receive your benefits and at the same time have access to the trust fund. So how does this work?
Try to imagine the trust as similar to a will. The first thing you need to consider are the trustees. Here you appoint usually two trustees. One of them can be you. The other trustee needs to be someone you absolutely trust. The trustees will run the trust and all decisions rest with them.
The trust can take different forms from a discretionary trust to what I term a Life Interest Trust. Assuming you are suffering disability as a result of the injury the trust I would recommend is one termed a Disabled Person’s Trust. This gives various Inheritance tax and Capital Gains Tax advantages which is beyond the remit of this article.
The money is invested by the trustees in their names. Whilst the funds sit with them it will not impact on your benefits. Money can then be drawn from the trust to your own account and as long as the amount in your account does not go above the capital limit referred to above your benefits remain unaffected. I would recommend that the withdrawals are made on an irregular basis so there is no argument that you are receiving a regular income from the trust and therefore entitled to income by right.
On your death the trust would normally come to an end and the assets distributed to your loved ones as specified in the trust deed.
The only down side of a trust of this nature is the income tax payable. Any income would be taxed at a rate of 45%. This would then necessitate the completion of a complicated tax return with additional accountancy costs. The answer here is to look at investments that do not produce an income but instead capital growth not taxable at 45% for example investment bonds. Here you need the advice a good independent financial adviser.
