A matter of trust

Increasingly, I get queries about clients of social services who
have money in a trust fund. I also get queries about clients who
receive substantial arrears of benefits, usually after a battle
with the Department for Work and Pensions. The rules on how social
security treats both these types of payments changed on 28
October.

It is vital that people receiving payments from the Criminal
Injuries Compensation Board or from civil actions get good advice
on establishing a trust fund. If the money is held in a bank
account, for example, even personal injury payments will count as
capital and could disqualify the person from means-tested
benefits.

The capital in a personal injury trust fund is always
disregarded, so a person with, say, £25,000 in such a fund
would still be able to claim income support and housing benefit.
But, bizarrely, a payment of £500 from that fund to buy a
holiday could have been treated as income and disqualified a person
from benefit in the week that the £500 was received.

Under the new rules, all payments from personal injury trusts
will be disregarded as a source of income. They will, however,
still be counted as income if the payment is intended and used for
any of the following:

• Food, ordinary clothing or footwear, household fuel.
• Rent covered by housing benefit or other housing costs covered
  by income support.
• Residential care or nursing home fees met by income support or
  under community care arrangements.
• Council tax or water charges.

If the income from the trust fund is used for any of these items
it is given a £20 “disregard”, but the rest counts as
income.

This change means trustees can safely use the funds to buy items
not covered by benefits without jeopardising the claimant’s
right to benefits.

“Structured settlements” are also becoming more common in
personal injury cases. These often include a “contingency fund” –
to be treated in the same way as any other lump sum award – but the
bulk is often used to provide an annuity. Income from these
annuities will now be treated in the same way as income from trust
funds as described above.

Benefit rules are also being changed where a claimant gets
arrears of benefit – and not before time. For example, someone who
has waited two years or so for an attendance allowance appeal to go
through the system could find themselves £10,000 better off if
they win. But this money would then cause problems if they claimed
means-tested benefits. Benefit rules only allowed for arrears of
certain allowances and benefits to be disregarded for a maximum 52
weeks from the date the payment of arrears were received.

From 14 October, the rules changed. The following disregards
should now be applied to arrears of benefit (and to compensation
payments made by the DWP):

• Fifty-two weeks from the date of issue for payments of less
  than £5,000.
• For payments of £5,000 or more – for as long as the
  claimant continues to receive benefit or 52 weeks, whichever is the
  longer, or until the customer spends that payment if this is less
  than the duration of the claim.

Both these changes are to be welcomed – and are long
overdue.

Gary Vaux is head of money advice, Hertfordshire
Council. He is unable to answer queries by post or telephone. If
you have a question to be answered please write to him c/o
Community Care.