All firms applying for a franchise are required at least to have systems for recognising welfare benefits problems.

More and more solicitors are realising the impact that the welfare benefits system can have on their clients, both in general terms and in relation to the matter upon which the client first sought advice.

This is particularly important in legally aided cases, since it is very common for such clients to be in receipt of means-tested benefits.Personal injury law is an area where welfare benefits are particularly important, since the client may well be entitled to disability benefits.

In addition, if the injuries are such as to force the victim to stop work, means-tested benefits such as income support are likely to be payable.

Many solicitors fail to appreciate that, whilst the client may be on income support or some other benefit during the conduct of the case, the settlement money itself may cause the client to lose entitlement to benefit as a result of the capital limits on means-tested benefits.Although it is tempting to treat the case as concluded once the settlement has been finalised, it is important to consider and advise the client whether there may be a way of avoiding the problem, since in many cases it will be possible to set up a trust fund which is exempted from the usual capital rules.The benefits I shall be dealing with are income support, family credit and housing benefit.

For income support and family credit, a person with over £8000 in savings will not be entitled to any benefits payments.

For housing benefit, the savings limit is £16,000.

Below these figures, a claimant will be eligible for benefit, although savings between £3000 and£8000 will reduce the amount of benefit received.

Advice should therefore be given to the client about the impact of any settlement over £3000 upon benefit entitlement, and upon the requirement to declare a change in circumstances to the DSS or local authority.However, there is an important exception contained in the regulations governing calculation of capital for these benefits.

Reg 46(2) and para 12 of sched 10 to the Income Support (General) Regulations 1987 provide that: 'Where the funds of a trust are derived from a payment made in consequence of any personal injury to the claimant, the value of the trust fund and the value of the right to receive any payment under that trust' shall be disregarded as capital in calculating a claimant's entitlement to income support.

Similar provisions can be found in the family credit and housing benefit regulations.

As can be seen, the provision allows for money received as a result of personal injuries to be placed on trust and thus ignored in the calculation of capital.

It would seem that the provision is quite wide, and will cover, for example, CICB claims and other claims arising out of a deliberate assault (although this is not entirely certain in the light of the House of Lords decision in Stubbings v Webb [1993] 1 All ER 322 relating to the appropriate limitation period to be applied in cases of deliberate assault).There are some difficulties with the rule.

It gives no guidance as to the terms of the trust fund, nor as to how interest on the money is dealt with or how to effect payments out of the trust.

In fact, all the rule allows is that money on trust will be exempt for the period that it is on trust.

The phrase 'value of the right to receive' money from the trust is a curious one, and relates to certain other provisions in the regulations.Put simply, if you have, for example, a right to receive an annuity or a contingent interest in a fund, then technically that right has a value on the open market and could be sold.

Under normal circumstances, the DSS would assign a figure to that right, and it would count as capital.

This too is exempted in a personal injury trust fund.The benefits of the trust fund are easy to see.

So how should the solicitor go about setting one up? First, one should take care to ensure that arrangements are in place for the trust before the solicitor receives the settlement money, since technically as soon as the solicitor receives it, the client has a duty to advise the DSS of the change in circumstances.

This is probably not the case where the legal aid statutory charge applies, since the money is not in the control of the client until the question of the charge has been resolved.

On the face of it, a bare trust would be sufficient to comply with the regulations, and it is possible that the client could hold the money on trust for him or herself.

Also, there is no strict requirement for the trust to be in deed form, or even in writing.

However, it would seem prudent to draw up a deed of trust which can then be shown to the DSS as proof of the trust.

Similarly, it would seem sensible to have a separate trustee.

Professional trustees ought to be considered if the sums of money are significant.

A very helpful precedent is contained in the Encyclopaedia of Forms and Precedents (fifth edition), vol 40 at para 1424.

When setting up the trust deed, remember that it will have to be given a 50p stamp by the stamp office.It is very important to investigate and have the trust fund set up before the money is received, since there is only one bite at the cherry.

If the client receives the money in such a way which, for whatever reason, does not comply with sched 10(12), then the client will lose entitlement to benefit.

More importantly, any attempt to retrieve the situation afterwards may fall foul of the disposal of capital rules.

Put simply, where a claimant disposes of capital in order to gain entitlement to benefit, the DSS will treat him or her as continuing to have that capital.

It is not entirely clear, and the DSS has given no guidance, whether the transfer of money to a trust fund will count as a disposal, but it is sensible to avoid the problem in the first place.Setting up the trust fund is not, however, the end of the problem.

The exemption only covers the money whilst it is held in trust.

The question is, what can then be done with the money? The good news is that, whilst the money is invested, any interest earned on it can be added to the trust fund without counting as the claimant's income.

The bad news is that any payment out of the trust fund to the claimant will i mmediately be treated by the DSS as capital.

Although a payment of under £3000 could be made without difficulty, a series of such payments made, with the claimant spending each payment before the next one arrives, could fall foul of the disposal of capital rules, since any capital will be considered by the DSS once the claimant has direct control over it.Similarly, one should not make arrangements for interest accruing on the trust money to be paid to the claimant, since this will count in full as income, and will be deducted from benefit.

There is, however, one way of the claimant getting the benefit of the trust money.

Although the claimant must not be given the money directly, there is nothing to stop the trustee buying the claimant, for example, a new car or house or clothing.Provided it is the item which is given to the claimant and not the money, this will be allowed.

However, the trustee cannot use the money for paying ordinary living expenses of the claimant, such as food or electricity, since there are specific rules which allow the DSS to take such payments into account (reg 42(4)(a)(ii) of the Income Support (General) Regulations 1987).There are of course certain disadvantages to a trust.

It should be explained to the client that they will lose control over the money, since although the money will have to be used for the client's benefit, there is no way of the client forcing the trustee to use the money for a particular purpose.

If such a clause were to be included in the trust deed, it might well raise a question as to whether a true trust exists at all.

Also, if professional trustees are to be appointed, this will of course be quite expensive, and there would need to be a fairly large sum to make this worthwhile.The cost of professional trustees should be compared with the amount of benefit at stake.

If non-professional trustees are to be used, careful consideration needs to be given by the client to their identity, so as to minimise the risk of future problems and the dangers of the trustees breaching the trust.

It would certainly seem sensible to have at least two trustees.In spite of these problems, it is clear that personal injury trust funds can be of great importance, and are currently under-used.

In practice, it is likely that many clients on benefit who are not given any advice about the change to their welfare benefits position simply fail to advise the DSS of their change in circumstances, and consequently risk, if discovered, a reduction in benefit at best and possible prosecution at worst.A trust fund, if properly set up, can avoid these problems, and can help those with the lowest incomes to benefit fully from their award of damages.

With solicitors' increasing awareness of welfare benefits, it is to be hoped that personal injury practitioners will increase the use of trust funds and thus help clients to avoid the benefits trap.