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PI claims for clients who receive benefits

Posted on 15th March 2016

There are a number of issues which effect clients who are receiving means tested benefits or who may claim means tested benefits in the future. The same issues apply to clients who receive social care paid for by Social Services. It is important to consider the effect of any interim payment or settlement will have on the client’s benefits and / or care so as to ensure that the client’s right to benefits and care is not lost as a result of any damages payment.

Means tested benefits

The most common means tested benefits are:

  • Universal Credit (UC),
  • Employment and Support Allowance (ESA),
  • Income Support (IS),
  • Jobseekers Allowance (JSA),
  • Pension Credit (PC) and
  • Housing Benefit (HB).

There are a number of benefits which are paid regardless of means such as:

  • Disability Living Allowance (DLA)
  • Personal Independence Payment (PIP)
  • Attendance Allowance (AA)
  • Incapacity Benefit (IB).

The general rule is that in order to claim any of these benefits, the claimant must have less than £16,000 in capital. If they hold more than £16,000 then they are not entitled to any means tested benefits.

If they hold more than £6,000 in capital, they will receive a reduced level of benefit depending on the amount of capital they hold.

Any income they receive in addition to benefits is taken into account when calculating entitlement and usually reduces the benefits.

Therefore PI solicitors need to be extremely careful to ensure that any money sent to clients does not reduce their benefits or disentitle them to benefits altogether.

Local authority funding

Local authorities have a duty to provide accommodation and social care support for vulnerable people under the Care Act 2014 (social care). This provision is for people suffering from a physical or mental impairment or illness. Social care includes living in a residential care home and supported living.

Social care is means tested and the capital limit is £23,350. If a claimant has capital in excess of this sum, they are self funding and must pay the care home fees themselves.

If the claimant has more than £14,250 they will have to pay a contribution from their capital on a sliding scale.

Therefore PI solicitors need to ensure that they do not endanger a client’s right to care and accommodation funded by the local authority.

For the purposes of this article, I will refer to entitlement to benefits but practitioners should be aware that the same risks apply to Local Authority funded social care.

The one year disregard

There is a period of 52 weeks from the date of the first payment of any damages to the client (including interim payments) during which the damages are disregarded for the purposes of means testing.

It is very important to advise clients of their options when the first damages cheque is sent to them and to diarise the end of the 52 week period.

If possible it is helpful to establish what the client plans to do with the money. If the payment is a final settlement cheque and the client is certain that they will spend all the damages within a year, then it is not necessary to set up a PI trust. This may arise where the client intends to use the settlement money to reduce their mortgage. In this situation it is still advisable to notify the Benefits Agency of the award and the fact that it will all be spent during the one year disregard period.

If there is any possibility that the clients will still have capital in excess of £6,000 at the end of the year, then it is vital to advise them of the need to set up a PI Trust during the one year disregard period. The PI Trust can take some time to set up, especially if they have difficulty in finding suitable people to act as trustees so this should not be left until the end of the year.

If the client will have spent the whole interim payment within a year but will receive further payments in the future, then a PI Trust must be set up within this year as the one year disregard period only applies to the first payment and will not apply to subsequent payments.

PI Trusts

If the damages are paid into a PI Trust, then the damages award is disregarded for the purposes of means tested benefits and Local Authority funding. This means that the client can continue to claim means tested benefits even after the claim has been settled and they have received their damages cheque.

A PI Trust is a trust which is specifically set up for awards of damages paid as a result of an accident. The definition of PI includes clinical negligence, criminal injury and industrial disease. The injury can be physical or mental.

It is also possible to set up a PI Trust for clients with civil claims with an element of PI such as a claim in false imprisonment, malicious prosecution, race discrimination, assault or trespass.

Damages for professional negligence in the conduct of a PI claim can also be paid into a PI Trust. (KQ v Secretary of State for Work and Pensions (IS) (2011) UKUT 102 (AAC)).

A PI Trust cannot be set up for fatal injury claims. This is because the injured person has died and the damages for bereavement, financial loss and loss of a parent’s care are paid to a non injured client (CP v Secretary of State for Work and Pensions (IS) (2011) UKUT 157 (AAC)).

If a PI trust is not set up and the client holds capital over £6,000 at the end of the one year disregard, the following adverse events can occur:

  • The client will lose their entitlement to benefits and
  • The client could be prosecuted if they continue to claim benefits;
  • If they stop claiming benefits, they will have to use the damages for living expenses and any future claim for benefits will be complicated. The DWP can ask for full records of how the capital was spent in such circumstances.

The existence of the PI Trust must be disclosed to the Benefits Agency.

Funds held by deputies

It is only possible to set up a PI Trust for clients who have capacity or for children who will have capacity when they reach the age of 18.

A deputy will need to be appointed for clients who lack capacity or for children who will lack capacity at the age of 18.

Any funds held by a deputy which derive from a PI settlement are disregarded for means testing in the same way as funds held in a PI Trust. Similar provisions apply to the income from periodic payments. However, any payments from the deputy or PI solicitor to the injured person will not be disregarded.

An application to appoint a deputy can take over 6 months so it is important to start work on the application early on during the one year disregard period in order to ensure that the capital is held by the deputy when the one year period ends.

The rule against deliberate deprivation of capital

The client may plan to give away the damages award, perhaps putting the money into a relative’s account on the understanding that the relative will pay out money to the client when needed.

If such a gift is made with a view to remaining eligible for benefits, the Benefits Agency and Local Authorities will continue to treat the damages award as the client’s capital even if it is no longer invested in his name.

It is important that clients receive advice to the effect that making a gift in this way will not entitle them to continue to claim benefits.

Payments to parents and specific purpose trusts

In cases where the client is a child who will not have capacity at the age of 18, the deputy or PI solicitor will often be making payments to the child’s parents to cover the additional expenses they incur due to the child’s injuries.

The usual practice is to calculate a monthly allowance which is then paid to the parents to cover additional heating bills, travel costs and other expenses.

Such payments will affect the parents’ benefits unless:

  • The payments are irregular and the parents’ capital remains below £6,000, or
  • A regular allowance is treated as a specific purpose trust.

The principle of the specific purpose trust was established in the case of Barclays Bank v Quistclose Investments Ltd (1968) UKHL 4 (1970) AC 567. If this principle applies then it can be argued that the money has been given to the parents for an express purpose and they cannot spend the money as they wish. There are a number of social security cases which have applied the Quistclose principle successfully, for example where money was paid to a parent to pay the mortgage or a payment for a holiday.

Payments of past care to parents

Once a child’s claim has settled, there will usually be a lump sum payable to the parents for past care. Such payments are not subject to the one year disregard as they are not paid to the injured person. Similarly, past care payments cannot be paid into a PI Trust.

If the lump sum is worth more than £6,000, then the parents must report this as a change in circumstances to the Benefits Agency and it is likely that this will result in the parents receiving reduced benefits or losing benefits altogether. This can result in significant financial difficulties for the parents.

One way round this is for the parents to invest their capital in the purchase of the family home. There are various options including:

  • Paying off the mortgage, or
  • Paying for adaptations, or
  • Buying a share in any new property which is to be purchased.

Therefore it is very important for parents to take full advice on these issues before the lump sum is paid to them.

Conclusion

There are a number of risks involved in sending money to clients who are in receipt of means tested benefits or social care and practitioners should take care not to jeopardise such entitlement where this is possible.

This article first appeared in PI Focus.