Personal Injury Trusts – a quick guide

Personal Injury Trusts are a way to ensure that when someone receives compensation for a personal injury, money can be properly looked after on their behalf. They will also not be prevented from being entitled to means-tested benefits.

What are trusts?

One of the more structured ways of ensuring a recipient is able to manage their inheritance properly is to put it into a trust. For larger amounts that are bequeathed to younger recipients, this can be a method of ensuring that the money is distributed in such a way that they don’t fritter it away or that it comes to them at a point in their lives when they most need it (for example, when they go to college or get married). It can also make sure that a child or vulnerable person does not inherit a very large amount too early in their lives and then be subject to unscrupulous relatives who may try to extract the cash from them.

Another form of trust is for those who are less fortunate – victims of serious injuries. Personal Injury Trusts, which are also referred to as Compensation Protection Trusts, have some type of personal injury compensation as their source. For example, if a young person suffered a life-changing injury in a road traffic accident and the fault was designated to a third party, the money paid in compensation for that child’s injuries could then be placed into a trust.

The point of a Personal Injury Trust is to pay for the care required to give the injured person a better quality of life, or to pay for ongoing treatment, special adaptations in the home or pay for a carer.

Means-tested benefits

One of the most important factors to consider when setting up a Personal Injury Trust is to ensure that the claimant will not be penalised by the benefits system and will be able to continue to receive things like mobility allowance and carer’s allowance (if the person is older). This should apply, regardless of how large the award may be, and is often hugely important to disabled people or their families who may not have access to trust funds at the start of the process.

Honesty is always the best policy when dealing with the Department of Work and Pensions who oversee benefit payments, so if you’re concerned that you or someone else receiving compensation may be penalised then it’s important to engage a legal representative who can work on your behalf.

Who gets personal injury awards?

Personal injury awards can be given in cases that range from a relatively mild case of whiplash to gross medical negligence resulting in life-changing injuries. It can be anything from poor primary care at birth, through to vaccinations, severe injury as a result of an accident, military service, or a disaster, or a lump sum from an accident insurance policy.

How do Personal Injury Trusts work?

A personal injury trust can be set up at any point, although it’s always a good idea to get things sorted out as quickly as possible so that any benefits are not impacted, and it is important that the compensation award is not mixed with any other money before being paid to the trust. Trustees (those who manage the trust) must be people that the recipient can trust and can be friends or a solicitor, as well as family members. Trustees must be over 18 and to be on the safe side, it is generally wise to have two trustees managing the trust together.

Trustees are there to look after the trust fund and ensure that things like home adaptations, special transport or ongoing care are paid for from the trust fund. They cannot benefit personally from the money; remember, it’s there to make the life of the injured or disabled beneficiary better.

Trusts are normally set up with a bank account that’s separate from any other money. Trustees are permitted access to the account and can sign cheques or make payments on the beneficiary’s behalf.

Is it taxed?

The most usual form of Personal Injury Trust will be subject to the same taxation rules as any other income and capital. There may be situations where a more complex form of trust is appropriate, but these are rare.

What should I do?

If have been awarded a substantial amount as a result of an injury or accident claim, then the best thing to do is to discuss your situation with a solicitor or personal injury lawyer to decide whether a Personal Injury Trust is appropriate.