Personal injury trusts

I recently acted for a deputy under the care of the Court of Protection who had received a lump sum settlement from a personal injury claim. This money was used to purchase a house in which she lived and was cared for until she moved into a residential care home. The local authority reviewed her resources and concluded that, due to her capital reserves, it did not need to contribute to the cost of her care. But wasn't the trust out of reach of the local authority?

This financial assessment was based on the National Assistance (Assessment of Resources) Regulations and the Charging for Residential Accommodation Guidelines. The regulations and guidelines suggest that where the capital held in trust derives from personal injury compensation, its value is fully disregarded from the financial assessment. For this reason personal injury claimants are advised to place their compensation into a personal injury trust at an early stage. Ideally the defendant should be instructed to make payment to the trustees and not the claimant at the time of settlement.

This claim was settled a long time before the NA (AR) regulations came into force and a personal injury trust was not considered at the time. Can we now set up a trust to take advantage of the disregard?

At first instance it appears not because NA (AR) regulation 25 (1) prevents deprivation of capital. However, the regulations provide an exception where the capital is derived from a compensation for personal injury and is placed on trust for the benefit of the care home resident. It seems that the trust can be created now and the property transferred, subject to the approval of the court.

However, to protect the capital do we need the trust at all? The NA (AR) and Income Support (General) Regulations make it clear that capital administered by the Court of Protection is not taken into account for the purpose of financial assessment. What does 'administered by the Court of Protection' mean? In his 2005 report on care home fees, published by Solicitors Journal sister publication Private Client Adviser, David Coldrick suggested that actual administration by the court over the award is required, usually by using an account with the Court Funds Office or through a court appointed investment broker. The local authority is unlikely to accept that a house, or money held in the resident's deputyship account, will qualify for the disregard.

Could it be argued that the house and bank account are administered by the court through the appointment of the deputy? A case currently pending appeal may shed some light on this issue. The deputy applied to transfer compensation into a personal injury trust, but the application was dismissed at first instance as the judge held that, among other reasons, the trust would oust the jurisdiction of the Court of Protection, and the function of the court is to safeguard the incapacitated person by managing and administering their financial affairs.

If this is upheld, logically, it adds weight to the argument that the deputyship appointment alone is enough to bring the house within the disregard, on the basis that the compensation can only be administered by the deputy through a court order.

If not then it is necessary to look at the trust as the only option and it should be borne in mind that, first, the trust must be in the best interests of the incapacitated person. Setting up the trust purely to ensure the state funds their care may not initially seem to be in their best interests, but it would free up funds to pay for holidays, better disability aids or increased care.

Second, the Official Solicitor is unlikely to approve a trust which does not protect the incapacitated person and their property.

Accordingly, the best way to ensure the success of a personal injury trust is:

1) set it up early;

2) ask the defendant to pay the compensation directly to the trustees; and;

3) include in the terms of the trust that it should:

a. be revocable;

b. be a bare trust excluding section 31 Trustee Act;

c. provide for the capital to revert to the patient's estate on death; and

d. have a professional trustee at all times.