If you are an accident victim and you rely on means tested state benefits, it is vital that you know the answer to this very important question.

The fact is, compensation payments which increase your total household capital to over £6,000, may affect your entitlement to certain benefits. Your benefits could be reduced or stopped altogether. Even if you do not currently receive any benefits, a compensation payment may prevent you from being able to apply for them in the future.

If you were to deliberately deprive yourself from money or compensation in order to claim for or increase your means tested benefits, the Benefits Agency may still treat you as having received the money. So not only will you have deprived yourself of compensation, you are likely to also lose your entitlement to benefits.

What can be done to protect your benefits?

You can protect your current and your future entitlement to certain benefits, local authority assistance and other sources of state assisted help by placing your compensation award into a Personal Injury Trust (“PI Trust”).

Compensation obtained as a result of personal injury that is held in a PI Trust is disregarded when assessing entitlement to most types of means tested state benefits and support. PI Trusts are only available to recipients of personal injury compensation. This does not include compensation received as a result of a fatal accident.

Benefits Agencies tend to allow a period of up to 52 weeks from when the first interim payment is received or from the final settlement, whichever is the earlier, to set up a PI Trust. If your compensation was paid to your solicitor before being transferred to you, that 52 week period will start from when payment was received by your solicitor, not by you. Even though there is this one year grace period, it will usually be best practice to set up the PI Trust as soon as possible.

Accident victims must be adequately advised by their representatives, so that their entitlement to benefits is protected. Legal representatives may open themselves up to professional negligence claims if proper advice was not provided in writing at the appropriate time.

How does a Personal Injury Trust work?

A PI Trust works in a similar way to any other bank account. The compensation will be transferred into the Trust bank account. Your money will then be held by Trustees on your behalf and they will look after the award in accordance with your wishes. The Trust acts as a form of protection between you and your damages.

Your Trustees should be people that you trust, for example, you could nominate your friends, family or a Professional Trustee. Who you appoint as your Trustees is up to you. It is important that you can trust them, because they will be responsible for providing you with guidance and ensuring that your best interests are protected.

There are no general restrictions as to who you can appoint to be your Trustees. However, they must be over 18 years or age and there must be a minimum of two Trustees, one of which can be you. If for any reason your Trustees are unable or unwilling to continue, you will be able to replace them.

Once your PI Trust is set up your will be provided with a cheque book. In order to access your PI Trust fund, your Trustees will need to sign any cheques that are issued on your behalf. You will need to bear in mind that the payments released from your Trust must not exceed the relevant capital limit, so that your means tested benefits remain unaffected.

It will be best for your Trustees to pay you varying amounts from your Trust at irregular intervals. If you require a large sum of money from your Trust to pay for an expensive item or repay a debt, it will usually be advisable for these to be paid for directly from the Trust, so that no large amounts of capital are held in your personal bank account.

Only your compensation from your personal injury claim can be paid into your PI Trust, and that money will usually be taxed in exactly the same way as money you hold yourself.

How is a Personal Injury Trust set up?

At Bolt Burdon Kemp, we refer our clients to specialist independent financial advisors, Nestor, who are regulated by the Financial Conduct Authority. They will provide you with a free PI Trust viability assessment. Then, if a PI Trust is considered to be viable, Nestor will set up the Trust for a one-off fee that is deferred until the conclusion of the claim. In the event that the compensation claim is unsuccessful the fee will be waived. Once Nestor has set up the Trust, they can also inform your Benefits Agency that a PI Trust has been arranged.

Nestor also offers a welfare benefits health check service. Following a consultation, Nestor will check that you are receiving the correct benefits, calculate any potential eligibility and provide you with a written report with their recommendations. Both the fee charged for this service and the cost of implementing any recommendations will be charged at the conclusion of the claim and, as with PI Trusts, those charges will be waived if the claim is unsuccessful.