What if I receive a lump sum payment whilst in a trust deed?
11th August 2011
If you are in a trust deed and unexpectedly acquire an asset or money it will be classed as a windfall and generally must be paid into your trust deed for the benefit of your creditors. Here we will discuss examples of a windfall (which in terms of a trust deed are also known as ‘acquirenda’).
Prior to entering into a trust deed a good provider will make you fully aware of your obligations. This will include paying over the value of most property or assets acquired during the period of the trust deed for the benefit of your creditors.
If you know or think you may be coming into some money which you’re not prepared to pay to your creditors, you may conclude a protected trust deed is an inappropriate option for you to choose. Your debt or trust deed advisor will help you assess the alternatives.
A windfall could be a lottery win, an inheritance or the proceeds of a compensation claim; all could be classed as a windfall and therefore, in most cases, will have to be paid into a trust deed. A possible exception to the rule might be certain types of payment for personal injury claims. If a proportion of a payment is to cover future expenditure connected to the accident (for example medical treatment or adaptations to your home) it’s possible you’ll be able to keep that element of the pay-out.
Assuming the assets or money you receive is not enough to fully clear your debts then you will be required to pay the windfall to the Trustee, and continue your contributions into the trust deed until completion.
However, should the windfall be sufficient to complete your trust deed you will be required to pay off all of your debts, as well as the accumulated interest and trust deed fees. Once these have all been paid you will be allowed to keep any remaining money.
We strongly advise against the temptation to hide any windfall from your Trustee. If you do not co-operate fully the Trustee has certain powers to recover property or money from you. If your Trustee believes you are hiding anything they are able to freeze your bank accounts apply for your sequestration (bankruptcy). A less severe outcome may be a significant extension to the trust deed monthly payments to recover any windfall funds already spent.
Informing your Trustee of a windfall immediately will enable you to confirm whether the money must be paid over, eliminating the risk of miscommunication or misunderstanding further down the line. If you are unsure whether the money or assets you have received (or will receive) qualifies as a windfall, it is best to contact your trust deed firm for advice.
For further information call our trust deeds advice line on 0800 043 7201.
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