If you have suffered an accident that has caused major trauma injury or illness it is likely that you will suffer from financial worries of some kind. This is only natural, but it is important to realise that there is help available to you. A specialist independent financial adviser can assist you in finding the correct type of financial assistance and to help you plan for your future at every step of your recovery.
It’s important to get advice to ensure you make the right financial choices now, whether that is to manage your regular bills and mortgage payments, apply for welfare benefits, or to protect your compensation and ensure it provides for you and your family throughout your lifetime.
Early assistance and advice relating to financial planning should include:
- Budget review of your finances;
- Various sources of alternative income;
- The use of personal injury trusts to protect state benefits;
- Loss of earnings and pension loss – how forensic reports can build your claim;
- Considering periodical payments as part of your award;
- Financial planning and investments for individuals, trusts and deputies.
What is a budget review?
If you or a loved one has been injured and can no longer work full time, or at all, what happens if you are losing the main source of household income? At this point it is vital that you carry out a full and thorough review of your household expenses and budget.
Under normal circumstances, a good rule of thumb would be to use the 50/30/20 method –splitting your monthly income so that 50% goes on your needs, 30% on your wants and 20% on savings or paying off debts.
Because your household income may be impacted standard budgeting tools might not be the answer for everyone.
Instead, your priority should be to make sure your monthly income, after tax, covers your needs – the basic things you need to have an acceptable quality of life, such as:
- Your mortgage or rent;
- Utility bills such as energy and water bills, phone contracts and broadband costs;
- Your essential weekly shop, i.e., food, clothing and toiletries;
- Minimum payments on any credit accounts.
If you are concerned about being able to pay your mortgage, credit card bill or any other repayments you should discuss your situation with the relevant bank, building society, local authority or provider as soon as possible.
How can I increase my monthly income?
If you are out of work, or on reduced hours, due to major trauma you could be entitled to various benefits, tax credit and rebates. It’s important to seek out these benefits as early as possible, helping you to get some money coming in at a time when your income is down.
There are some other things that you can consider that could increase your monthly income at a time when money is tight. These options include:
- Rent out a spare room in your home the first £7,500 rental income is tax free each year;
- Sell any unwanted possessions;
- Recycle old mobile phones and other technology that you no longer use;
- If you have received redundancy pay utilise it to replace your income to help with regular household outgoings;
- Possible interim payments from any claims process;
- Use your emergency fund of savings for a short while.
This is also the best time to request a welfare benefits check-up, ensuring you are making the most of any benefits that you are entitled to at this time.
Can I claim under any insurance policies?
There are some insurance policies that are designed to replace a proportion of your income for a fixed period of time if you can no longer work due to injury. You should check if you have such a policy in place.
Examples of such policies are:
- Payment protection insurance;
- Mortgage payment protection insurance;
- Short-term income protection insurance.
You should also check for any critical illness cover, possibly included with your mortgage or maybe from your employer, although these will generally only pay out in the event of a life-threatening condition.
However, do not buy a new policy if you know that you are likely to lose your job as it is unlikely that you will be able to make a claim.
I currently claim tax credits – what should I do?
If you are unable to work due to injury, contact the Tax Credit Helpline on 0345 300 3900 let them know that you can no longer work. They will recalculate the amount of money they currently pay you based on your reduced income and reduced working hours.
Will I be owed a refund of Income Tax paid?
If you cannot work part way through the tax year, which runs from April to April, you might be able to claim a tax refund from HM Revenue & Customs.
I’ve received a settlement – what financial advice do I need now?
If your claim is successful and you receive personal injury compensation making the most of the damages that you are awarded is critical. In many cases, this money is vital to your future wellbeing, as you may not be able to return to your pre-accident employment, which may impact on your future income. An Independent Financial Adviser (“IFA”) will help you invest funds received and adapting investment plans as your circumstances change over your lifetime. An IFA can help with setting up and reviewing bank and term deposit accounts and providing a regular review of your investments.
What is a personal injury trust?
If you have received damages for personal injury compensation a personal injury trust is a good way to protect the compensation award and your continued state benefit entitlements.
There is a chance that if you receive welfare benefits or become entitled to state support over the course of your lifetime that your benefits could be affected when you receive personal injury compensation. This is why it is so important to seek out professional advice as early as possible to make sure that you are covered and do not miss out in the future.
Legal advisers have a duty to inform you of the option to set up a trust in order to protect entitlement to means-tested state benefits.
The benefits of a personal injury trust are:
- Your compensation is ignored for the calculation of means-tested benefits – including income support, housing benefits and council tax benefits;
- Most local authorities will disregard any compensation held in a trust when calculating any funding given to support and care for you in your own home;
- Compensation awards held in trust are exempt when considering non-NHS funded residential care or nursing care either now or in the future;
- You can choose individuals you trust to manage your finances and avoid the stress and complexity of an application to the Court of Protection or Lasting Power of Attorney.
When should I consider a personal injury trust?
If you have received compensation following an injury you should consider a personal injury trust as soon as possible. An IFA can guide you as to the benefits and the right type of trust, with an ideal timescale of within 12 months of receiving the first payment. It is possible to create a trust later than this but that is the automatic disregard time allowed by most government institutions.
Your personal injury trust must only contain compensation which is why a trust created later on is sometimes difficult to achieve, as it is not as easy to identify the money that has come from the compensation once it has mixed with your everyday funds.
Where do I start?
Your financial future is of the utmost importance for you and your family. If you have suffered major trauma it can be a daunting time with uncertainties over what happens next regarding employment, any medical and rehabilitation needs and whether or not you are entitled to benefits.
Our friendly team is here to help, providing access to the best financial and legal advice as well as rehabilitation services that will assist you on your rehabilitation journey.
If you would like our help with making a personal injury compensation claim, financial planning or legal advice please get in touch: