Setting up a personal injury trust does not have to be complicated or expensive. I will offer a fixed fee in most cases. I have set out all the points to think about and the information I will need to help you.
The answer to most peoples’ need is a bare trust. This is a simple trust in which money is held for you, and it remains your money. You can change the trustees, and bring the trust to an end whenever you wish.
A bare trust is tax neutral which means for tax purposes the money and any income or capital gain is considered to be yours. Any income or capital gain on the trust fund will be treated as your personal taxable income or capital gain and should be included in your tax return. Your personal tax allowances will apply. If that interest remains in the trustee bank account it will have the protection of the trust in respect of benefits you claim.
A trust should have at least two trustees. A friend or family member can act as trustee provided they are at least 18 years of age.
You can be a trustee if your personal injury trust is a bare trust, but there is one very important point to bear in mind: you must have at least two other trustees. The reason for this is that a bare trust is a “device” for holding your own money. If you were ever left as the only trustee your trust ends, and the protection of the trust will be lost. This would only happen if your other trustee died suddenly, the trust ending at the time of that death leaving you no opportunity to add another trustee. I appreciate this may seem unlikely but the third trustee is a very necessary precaution. I appreciate you may have concerns about privacy and convenience but if you are to be a trustee, then at least two other trustees is the best way forward.
We must plan ahead and consider what should happen to the money in the trust if you die. The simplest approach is to include a clause in the trust which transfers the remaining trust fund to your estate so it can be dealt with in accordance with your Will. This strikes me as most sensible as having separate provisions in your trust and Will may frustrate your ultimate wishes. The alternative is to appoint a beneficiary or beneficiaries so the trust fund will pass to them in the event of your death.
You are not bound to follow my suggestion. If you want the trust to contain a clause which deals with distribution of any funds in the event of your death please tell me what you have in mind.
I have to be mindful of the regulations which apply to money laundering. These regulations are the reason you are asked to prove your identity when undertaking a financial transaction. Please therefore send me your driving licence or passport, and a domestic bill or bank statement which names you. You can send them as email attachments or by post.
Once the trust is complete you will set up a separate bank or building society account to hold the funds. Do not contact banks before the trust is complete. That account must hold only the compensation from the personal injury action and any income received on that money. The account can be a deposit account rather than a current account if you wish, but do make sure access to the funds is convenient. I suggest you set up the trust first and then approach banks and building societies. The account ought to require signatures of all trustees, and the account should have the same name as the trust itself. The bank may shorten the name on a cheque book which is fine provided the account itself has the same name as the trust. You are not limited to a single account as the trust will contain powers which allow you to open other accounts and investments, or own property. The protection of the trust will cover these investments provided the trust owns the investment,
The best approach is to set up the bank account to receive the compensation cheque, as that will make an audit trail of the compensation money easy to follow. If you have already received your compensation payment that can be transferred to the trust bank account, but you will have to retain statements and documents which confirm the money came from a personal injury compensation case.
Please note you should disclose the existence of the trust to the agency which deals with the assessment of your means-tested benefit. They should be told you have received compensation and you have set up a trust. You do not need to provide any more detail than that although questions may be asked and additional detail sought. I prefer to give notice to your benefit agencies.
The money in the trust can be used pretty much as you wish. There used to be rules that the trust money could not be used to pay for items for which State benefits were intended. Most of these rules have now been brought to an end, but as rules can always change ans benefit agencies come under increasing budgetary pressure, I recommend you keep a record of all transactions under the trust. One thing I would strongly advise you to avoid is paying a regular amount from the trust bank account to a personal bank account. Paying yourself “wages” to cover the necessities of life can clash with some agencies interpretation of the rules. Getting into an argument with a benefit agency is to be avoided, as they stop the benefit and leave it to you to prove they are wrong. This may all appear artificial as you may not always be in receipt of benefits, but as it could prove necessary in the future to show how the trust fund was used you should keep your records from the start.
When you use funds from the trust you should not transfer money to your personal bank account or withdraw cash, as by doing this you will lose the protection of the trust and the transferred money or cash will become subject to benefits means-testing. This is the case even if the money is only held briefly. The trust bank account should be used to directly purchase items.
A list of everything I will need to prepare a trust for your compensation is set out below:
- The date of your accident, or a description of your injury and the period if it occurred over time.
- Your full name and address.
- Your national insurance number.
- Your date of birth.
- Copy documents to confirm your identity – passport OR driving licence, AND a utility bill or bank statement.
- Do you wish to be a trustee?
- Please provide the full name/s and address of the person or persons to act as trustee/s.
- To confirm the identity of the trustees please provide passport or driving licence AND a utility bill or bank account statement.
- Should any trust fund remaining at your death be dealt with under your Will? If not, what are your wishes?
- The amount you received as compensation. I need the gross settlement or Judgment figure as well as the actual amount you are to receive.
- Have you received any interim payments, and if so when were payments received and the amount?
- Have you received a final settlement and if so when was the money received and where is it held?
- Documents such as a Court Order or letters or emails from your solicitor to confirm the personal injury claim, the date of the injury, and the amount of compensation.