Personal Injury Trusts Explained

What is a personal injury Trust?

Personal Injury Trusts are trust funds set up with the compensation paid as a result of a personal injury. A trust fund is a variety of assets such as cash, stocks, bonds, property and other financial products that when well-managed provides long-term financial security by creating an income.

Personal Injury Trusts – also called Special Needs Trusts or Trusts for Disabled People – all have some form of compensation as the source of the fund.

Since there are many types of trusts that can be set up using personal injury compensation money, it is important to choose a trust that meets a claimant’s needs, family circumstances and the possible involvement of the Court.

One major benefit of selecting the right trust is that claimants can keep their entitlement to most means-tested state benefits and/or local authority support, no matter how large their award might be.

Do I need a personal injury trust?

If you receive a compensation award in respect of a personal injury, your current or future entitlement to certain state benefits may be affected. This could mean that your state benefit income may be reduced or even stopped if you have more than a certain amount of money held in your name.

When does a personal injury trust need to be set up?

Although the benefits agency will usually give you up to 52 weeks from when you first receive either an interim or final settlement, it is often best practice to set up a Trust as soon as you receive your compensation.

Who should I choose to be my trustees?

Your Trustees should be people that you trust and may include family, friends, a solicitor or a trust company. You decide who to appoint as your Trustees. There are no general restrictions as to who can be your Trustees but they must be over 18. If you choose to involve friends or family, it’s preferable to have at least two Trustees.

What are the responsibilities of my trustees?

Your chosen Trustees hold your Personal Injury award, and administer the Personal Injury Trust for your benefit. Although your Trustees hold and have control over your award money, they cannot use it as their own personal property or for their own benefit.

What if something happens to my trustees?

If, for whatever reason, your chosen Trustees are unable or unwilling to continue, you can replace them.

Will my chosen trustees’ means tested state benefits be affected?

No, they hold your award as a Trustee. It is not counted as part of their capital.

How do I access my personal injury trust fund?

Trustee banking facilities, which include a Trust cheque book, are available to the Trustees. All Trustees need to sign any cheques issued on your behalf from the Trust fund.

How will payments from my personal injury trust affect my benefits?

It is best if your Trustees pay you varying amounts at irregular intervals from your Trust. Under the Means-Tested State Benefit regulations, you are allowed a certain amount of money in your own name. Provided that payments to you from your Trust do not exceed the relevant capital limit, your means-tested state benefits/support will remain unaffected.

If you require money to pay for more expensive items or to repay debts, we suggest that you ask your Trustees to pay these directly from the Personal Injury Trust, so that large amounts of money do not pass through your personal bank account.

How much can I put into a personal injury trust?

You cannot put more that the total value of your personal injury compensation into a Personal Injury Trust. However, you can decide to put less into the trust if you wish.

What happens if my circumstances change in the future?

If at any time you decide you no longer need the Personal Injury Trust, you simply instruct your Trustees in writing, to transfer the money over to you. The Personal Injury Trust will then cease, but you may lose your entitlement to any means-tested state benefits/support.

What happens if I die?

If you were to die, the value of your Personal Injury Trust would be distributed in accordance with the terms of your will. If you die without making a will, you may not control who would receive your award money and your estate would simply be distributed in accordance with a set of legal rules.

Is the trust money taxed?

All money held in the Personal Injury Trust is usually taxed in exactly the same way as if you held the money yourself.

What else do I need to know?

If after the 52 week grace period given after an award is made, you deliberately deprive yourself of your money by giving it away in order to claim, or increase, your means-tested state benefit/support, the benefits agency may treat you as if you still had the money in your possession and control. So not only will you have you given your money away, but you will also be likely to lose your entitlement to means-tested state benefits. A Personal Injury Trust will help you access entitlements and retain your compensation for long-term security.