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Personal injury trusts

What is a personal injury trust?


A personal injury trust is a legal arrangement whereby the compensation awarded from your personal injury claim is held by people you choose whose responsibility is to look after the money and use it for your benefit.


The person who sets up the trust is called the ‘settlor’. The people responsible for holding and managing the trust fund are called ‘trustees’. A person who benefits from the trust is called a ‘beneficiary’. You should have at least two trustees; typically these will be yourself and a close family member. For the purposes of your personal injury trust, you will therefore be the settlor, a trustee and the sole beneficiary.


Why set up a personal injury trust?

A common reason for setting up a personal injury trust is to protect entitlement to means-tested benefits. As a general rule, your entitlement to means-tested benefits will be affected if you have over £6,000 and you will usually lose entitlement altogether if you have over £16,000.


When your eligibility for means-tested benefits is assessed, any damages held in a personal injury trust will be completely disregarded when calculating how much capital you own. Therefore, if you claim means-tested benefits or there is a possibility that you will in the future, a personal injury trust may be appropriate depending on the size of your award, as the trust will allow you to claim benefits whilst maintaining your access to your compensation.


Other reasons for setting up a personal injury trust might be to preserve long term care funding or to protect your award from being subject to any future divorce or bankruptcy proceedings.


Is there a time limit to set up a personal injury trust?

Generally speaking, you have 52 weeks from the date that you first receive a damages payment to set up a personal injury trust. Beyond this point, if you receive means-tested benefits, your compensation will count as capital when your entitlement is assessed.


How is the personal injury trust set up?

We will prepare the trust deed for you. Once the deed has been validly signed and witnessed, we will store it and provide you with a certified copy. You and the other trustee(s) will then need go to a bank or building society to open an account for the trust.


Once the trust account has been set up, your compensation award can be transferred into the account. It is at the point when the money is transferred into the trust account that the trust will legally come into existence.


What happens next?

The money is yours. If you do not spend it, it will remain in the trust account and earn interest. The signatures of all trustees will be required for cash withdrawal forms and cheques, but the money will still belong to you and you can require your trustees to use it for your benefit at any time. If you are unhappy with your trustees for any reason, you will also have the power to remove them and appoint new trustees.


If your award is significant in amount, you may wish to speak with a financial adviser about potential options and how best to manage your money. We can recommend a financial adviser for you if you wish.


Please note that you will have a duty to inform the Department of Work and Pensions (DWP) about your change of circumstances. In particular, you will need to tell the DWP about your award and the fact that it is being held in a personal injury trust. If you prefer, you can provide us with your National Insurance number and we will be happy to inform the DWP for you.


Will the trustees have to complete an income tax return?

Because you are immediately entitled to the trust fund, the trustees will not have to complete a tax return in relation to the trust. Any income earned by the trust however will need to be included on your personal tax return if you need to complete one.


Is there anything that the injured person should not do?

You must not place any money in the trust account that is not your compensation. This is extremely important. If you mix your own (or any other) money with the trust money, it might be difficult to identify the trust fund and this would lead to problems with the trust.


You should also ensure that you avoid paying yourself ‘regular’ payments from the trust fund. An example would be paying yourself a fixed amount on the same day of each month or continually transferring the interest payments from the trust account to your personal current account. Anything like this might be deemed as regular income and this could affect your entitlement to benefits. If you need to pay yourself money from the trust fund, you can of course do so; just make sure that the payments are not made regularly and that they differ in amount.


It is also important that you are careful not to pay too much money into your current account at any given time. Remember that if you have more than £6,000, your entitlement to means-tested benefits will normally be affected. In circumstances where trust money is required to be paid to a third party, the money should usually be paid directly from the trust account to avoid it going through your own account.


If you have any queries about personal injury trusts, please do not hesitate to contact us on 01992 422 128.

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