Injury Trusts: Protect your compensation

What is a Personal Injury Trust?

If you receive personal injury compensation, this may be in the form of an interim payment or a final settlement. A Personal Injury (PI) trust is where you hold your compensation funds separately from your other income. 

A personal injury trust is a legal document. It states that the funds held, which is your personal injury compensation, do not count as your income in terms of means-tested benefits and care contributions. Therefore, the law allows you to keep your compensation and, where applicable, still be entitled to means-tested benefits and only contribute a minimal amount towards any community care your social services department offers you. Even if you do not currently receive benefits, you may end up needing to in the future so a personal injury trust fund may still be worth considering. 

The funds that are put into a personal injury trust include:

• court damages
• negotiated settlement sums
• insurance payments
• other types of compensation
• potential charitable donations

However, you should note that your personal injury trust will only include the money you received as part of your personal injury compensation payment. 

How does Personal Injury Trust work?

A personal injury trust works through the use of various laws, coupled with special advice to protect your money and interests. Your compensation is kept in your trust and your trustees are in charge of your money and it takes all of them to agree to the release of any of it.

There are two main types of personal injury trusts. A bare trust, sometimes referred to as an absolute trust, is the most common type. The way a bare trust works is that the trust property is considered yours. Therefore, it is:

• taxed
• considered part of your estate when you pass away
• treated as part of your will

However, a bare trust will not protect your money from people who wish to claim on your personal estate such as third-party creditors.

The other common trust is a discretionary trust. This is protected from third parties and claimants but it can become complicated regarding tax, and is not in your control. Therefore, you must take legal advice if you consider this option.

Special needs personal injury trusts also exist. These allow others to manage the trust when the settlor cannot do so and also ensures that the settlor benefits from specific tax laws. 

Who is the Settlor in such a trust?

You are the settlor in your personal injury trust as you are the person who has been awarded the compensation in the personal injury settlement. You are also referred to as the beneficiary of the trust. 

What is a Trustee, and who can be one?

A trustee is a person who manages a trust. Anyone capable of doing this can be a trustee providing they are:

• over 18
• live in the UK

Also, they shouldn't have a criminal record or poor credit as these can impact their opening a bank account.

You can be the trustee of your own personal injury trust but cannot be the sole trustee. You must have a minimum of at least two trustees for your trust, however it is advised to have more, as if one trustee was to pass away before you, you'd be left with only one remaining trustee. 

Therefore, the safest option is to have at least three trustees for your personal injury trust. When choosing two other people to be your trustees, ensure they are people you can trust and rely on. Also, make sure they are someone who has a good history of managing finances. Your trustees will need to abide by the terms of your personal injury trust.

Some people are trustees by profession which is always a safe option in choosing your trustee. They can also offer professional indemnity for your personal injury trust.

The role  of the trustee is to act in the settlor's best interest and to:

• check how much of the trust is used
• check what the trust is spent on
• agree whether funds can be withdrawn 

However, your trustee cannot stop you from accessing your personal trust fund as ultimately you are in charge of it. 

What are the benefits of a Personal Injury Trust?

The benefits of a personal injury trust mean that the personal injury compensation you receive does not count for means-tested benefits.

In addition to the benefit of treating your personal injury compensation money as funds not counted as income for the sake of means-tested benefits and care contributions, there are other benefits of a personal injury trust. It can help those who find it difficult to manage their own money such as the:

• young
• old
• vulnerable

A further benefit of a personal injury trust is that you can protect your compensation from third parties. All trustees need to agree to every transaction, so a personal injury trust is an excellent way to protect your personal injury compensation.

How do I set up a Personal Injury Trust?

A personal injury trust is a legal document that needs to be set up by a solicitor. You will have to discuss what you require with them and then they will draft it for you. When the personal injury trust is final, you as the settlor and the trustees must all sign it. 

When should I consider setting up a Personal Injury Trust?

If you are making a personal injury claim and the compensation you are likely to receive is a large enough amount to affect your benefits, you should consider setting up a personal injury trust. 

You will need to set this up within 52 weeks of receipt of your compensation payment as the first year is a grace period or disregard period. This means that during the first year, your compensation will not affect your means-tested benefits or care contributions. If you set it up after the first year, any benefit you lost because the personal injury compensation was taken into account, you will be unable to recover.

A personal trust fund, however, is not always needed, such as where:

• the compensation payment is a small amount of money, or
• you use a certain amount of the compensation payment meaning that after a year the amount left is less than the amount which requires a personal injury trust

When can I access the funds in a trust?

You can access the funds in your personal injury trust easily provided the fund was set up properly by the trustees. It should not matter if a bank holds them or if they are invested. Often a personal injury trust will have one trustee as the one who signs to request the funds.  And where your personal injury award is large, it may be worth having a cash account in addition to the investment one to make accessing money easier.  

How can the money in my trust be used?

The money in your trust fund will be invested and not be in the same place as your usual personal funds. Initially, it will be in a desiccated bank account in which the trustees can then choose to invest sums in other financial products which may make more interest for you. 

When you wish to use the money in your personal injury trust, you can use it however you wish. For example, you may wish to use it to pay for:

• a TV
• a holiday
• a vehicle
• school fees
• some of your mortgage
• home adaptations 

What happens if something happens to me? 

If something happens to you, what happens to your personal injury trust depends on the type of trust you chose. When you have a bare trust, the personal injury compensation in it will become part of your will. If you have a discretionary trust, the trust will continue if you die. Therefore, you will have normally nominated beneficiaries for it to go to. 

How much does creating a Personal Injury Trust cost?

There is no set cost for setting up a trust, though a personal injury trust will incur fees such as:

• any registration costs for tax reporting
• legal advice
• preparing the trust deed

Think you could be entitled to make a Personal Injury claim? 

If you have had the unfortunate experience of suffering a personal injury, you are likely due personal injury compensation. If you think you are entitled to make a compensation claim, we at National Accident Helpline can help you make your personal injury compensation claim.

We can immediately give you an idea if you are entitled to make a personal injury claim, as the first thing we do when you contact us is put you in the safe and helpful hands of one of our many caring advisors. They will listen sympathetically to how you were injured and if they think you have a personal injury claim, will pass your details to our highly competent personal injury solicitors. 

To make things even easier for you, you can make your personal injury claim on a no-win no fee basis. Our no-win no fee policy means that there is no financial risk when you claim with us. If you don't win your case, you don't need to pay anything, there is no risk to your money in making a claim. 

Let National Accident Helpline help you claim compensation for your personal injury today. Simply give us a call at Alternatively, you can request a call back here or even begin your claim online.