7 simple steps to add value to your clients with Personal Injury Trusts
Sometimes in the rush to make sure that a client’s benefits are protected, getting a personal injury trust in place can feel like a box ticked. It is of course, but here is a short list of tips to pass on to your clients that should make a helpful difference to them and their trustees and also earn you some brownie points along the way:
- Formally notify the benefits authorities – Once a personal injury trust has been set up, the beneficiary still needs to let the benefits authorities know of the change in circumstances, even if that change does not affect their benefits. We have seen cases where the beneficiary was not told that they ought to do this and years have passed without the benefits position being correct. Not only should the beneficiary inform the benefits authorities but often, if the beneficiary is seen to be spending more money than somebody on benefits would normally have, there is a risk that they are reported to the benefits authorities as a potential benefit fraudster. An interview under caution does not brighten anybody’s day!
- Open a ‘trustee bank account’ – This can be more difficult than you would think. Quite often trustees and beneficiaries will settle for something that is not in fact a trustee bank account, because the counter-staff they speak to do not have the appropriate training to point them in the right direction. Sometimes that can lead to explanations needing to be given to the benefits authorities and in some cases the beneficiary can be left as the sole signatory to their trust bank account. That gives rise to serious arguments as to whether there is a trust at all and could put their benefits and means tested care position in jeopardy.
- Empower and coach the trustees to make decisions confidently – Trustees and beneficiaries need help around the decisions that need to be made. Most trustees have to act unanimously. The beneficiary needs to come through the trustees in order to get payments from the trust. Of course, many trustees manage perfectly well but again, we have seen situations where trustees have not been sure about who makes what decision and if the beneficiary is too much of a driving force, there is a concern that the benefits authorities might challenge the trust.
- Beware of financial advisers who are not fully independent – Trustees have an obligation to take financial advice from advisers who are independent of any ties. It is sometimes easier said than done, particularly as some financial institutions are not independent at all but do not advertise that very loudly. Trustees might not be sure about what their obligations are and may find it difficult to know who to approach for this advice. That could lead to them being in breach of their duties as trustees or being taken for a ride.
- Buying property – We often see properties purchased in the names of a beneficiary rather than the names of the trustees. If a property is bought using trust money then it should be in the names of the trustees. That is important if a property is sold but also to make sure it is recorded that the trust contributed part, or all, of the purchase price. Several years down the line people may have forgotten that the property is a trust asset at all. That can lead to the proceeds of the property being means tested if somebody has to go into care, for example. It is also good practice to record who paid what towards the property. Perhaps a husband and wife may have owned the property and the trust may have paid off the mortgage. The shares of the husband, wife and trust need to be set out. It is also particularly important that in the event of, say a divorce, to show which money came from the injury and is therefore intended to meet the injured person’s needs, and which money came from other sources.
- Disclose the existence of the trust when applying for social care fees -If a client has not received enough compensation to pay for all of their care needs, they may need to seek funding from the local authority or NHS. NHS funding is not means tested but local authority funding is. The decision making on the front-line of local authorities can be poor with little training given about how to deal with funds in a trust. If the trustees are not sure of their ground, this can lead to the funds in the trust being used for things that legally they should not be.
- Tax Returns – Consider whether a tax return needs to be filed annually. Dependant upon the type of trust, the duty will either fall to the beneficiary (bare trust) or the trustees (discretionary trust or Section 89 trust) to file the tax return. It is often that we find years later, clients do not think that they need to file tax returns due to a trust being in place. This inevitably leads to fines given by HMRC and interest being charged on any overdue liabilities.
We hope this has been a useful run-through of a few tricky areas that a lay trustee could come unstuck with. This is only a summary and we would encourage specific advice to be taken in each case. Do get in touch with us if you or your colleagues would benefit from a refresher on PI Trusts.
Lynne Bradey and Charlotte Dyson – Wrigleys Solicitors LLP