02.03.16

Question:

My brother has recently received around £60,000 compensation for injuries he suffered in an accident five years ago. We aren’t sure how to manage this and are also worried it will affect his means-tested benefits as he has not been able to work since the accident?

Answer:

Thank you for your question, this is one that has come up quite a few times. The first point we need to clarify is whether your brother has the mental capacity to manage his financial affairs and make any necessary arrangements. If the answer is no then he would require someone to act on his behalf, such as an Attorney or a Deputy.

Personal Injury (PI) Trusts

To answer this particular question, we are going to assume your brother does have the mental capacity to manage his finances. It is therefore possible for him to set up a Personal Injury (PI) Trust. This is a Trust that will hold the compensation your brother has received for injuries suffered in the accident and the monies are held for the benefit of your brother.

The main benefit of a PI Trust is that it enables an injured person to be eligible or continue to receive means-tested benefits as their compensation is disregarded.

Currently if a person has capital of £16,000 or over they wouldn’t be entitled to means-tested benefits, and if a person has capital of between £6,000 and £16,000 then the means-tested entitlement is reduced on a sliding scale. In your brother’s case the amount he has received would affect his means-tested benefits. However, if your brother was to place the compensation he has received in a PI Trust, the amount in the Trust isn’t taken into consideration when your brother’s entitlement to means-tested benefits is assessed.

Timeframe

You mentioned that the compensation was received recently.

If it was received within the last 52 weeks, then your brother can still place the funds in a PI Trust. There is a 52-week period that starts on the date your brother received the first compensation payment, and during this period the compensation will not be included in a financial assessment for benefits.

This is extremely important as compensation or damages are often received in instalments so your brother needs to act quickly if the first payment was made some time ago.

Considerations

When setting up a PI Trust you need to carefully consider who would act as Trustees, what the terms of the Trust will be, how easy it is for the Trust to be managed and the costs associated with setting up the Trust. Your brother may have some idea of what he wants to do with the money he has received and this is an important consideration when looking to set up any type of Trust.

Other advantages

There are other advantages to setting up a PI Trust which may or may not be relevant to your brother but are worth noting:

• Fluctuating mental capacity, a person may not always be able to manage their financial affairs in the right way so the Trustees can take on this function;
• A person who is vulnerable may need to protect their assets from any misuse, this is achieved when a Trust is set up;
• The chosen Trustees of the PI Trust will help to manage the money and act in the best interests of your brother.

What next?

If your brother considers that a PI Trust might be right for him, he needs to take legal advice on how to set up and structure the Trust to ensure it meets his circumstances.

For more information about any of the information covered in this answer please do not hesitate to contact us.