I may need a personal injury trust

Do I need a personal injury trust to protect my compensation

A personal injury trust is the only legitimate way to hold compensation and still receive state means tested benefits. A personal injury trust is an opportunity to use your compensation as intended and keep your benefits options open.

A personal injury trust means your compensation will be ignored if you or others in your close family either claim, or need to claim, means tested benefits or require local authority care.

I continue to be surprised by the advice given to people receiving accident compensation about personal injury trusts. The advice presents a personal injury trust as an optional extra. A personal injury trust is vital in many cases and advisable in others.

Image shows trust deed for personal injury trust to protect means tested state benefits

You will usually receive compensation in a lump sum, and if that lump sum is not ring fenced by a personal injury trust you may lose your entitlement to means tested benefits for many years to come. You can’t just blow the money and then claim benefits, as there are strict rules which apply to depletion of capital before you claim means tested benefits. This applies even if the compensation is spent within the first 52 weeks after receipt.

One often ignored benefit of a personal injury trust is that it provides protection against the means test for services provided by local authorities. When a local authority assesses your need for care it must assess your financial situation. If you have tucked away your compensation money for a rainy day, that money may mean you have to pay for your own care. Worse still there are rules about depleting capital which mean you cannot just blow the money and then claim financial help. Placing the compensation in trust is the answer.

With all this in mind you should see a personal injury trust as a helpful necessity rather than an optional extra. The law allows you to hold and use your compensation in a trust, so why not take advantage.

So why do many people decide not to use a personal injury trust to protect their compensation? The reasons are:

  1. The advice from your personal injury solicitor is weak.
  2. The advice comes late in the case.
  3. It sounds complicated and expensive.
  4. Fear you will lose control of the money to trustees.
  5. The compensation will not be noticed by benefit agencies – please note all compensation is notified to the Department for Work and Pensions and all bank accounts opened are notified to HMRC.

The reasons for needing a personal injury trust are very clear. Do not just look at your personal circumstances today, think ahead.

Feel free to telephone for a chat without obligation on 0330 223 1708 or see how I work and the cost.

Ideally you should create a personal injury trust ready to receive the compensation, or within one year of receipt of the first payment of compensation. You can set up a trust later, but do get advice quickly, as the sooner the better.

A trust is created by a deed, a legal document, which identifies the compensation paid, the reason for compensation, it appoints at least two trustees (and you can usually be a trustee) and sets out how the money is to be managed. Your trustees must set up a separate bank or building society account for the trust fund. This means there is no question what money falls outside the means testing process.

You can continue to have some control of the compensation, as the usual method is to create a bare trust. You will be able to bring the trust to an end and add and replace trustees.

The money in a bare trust is treated as yours for tax purposes, so the interest on investments is included in your tax return. This makes management of the trust easy and avoids ongoing expense.

There are occasions when a more complicated type of trust is necessary, but usually the bare trust route is the right way forward.

If you have been advised that a personal injury trust may be a good idea and you want to set up a trust the cost should not put you off. I currently work on a fixed fee of £480, which includes VAT, with no ongoing cost and only limited administration for the trustees.

The cost of not setting up a personal injury trust will be the loss of means tested benefits and local authority financial support for care for a long time to come.

You can find questions and answers by clicking here and do feel free to telephone for a chat without obligation on 0330 223 1708.

About Mark Thompson

Personal injury and accident specialist solicitor
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123 Responses to I may need a personal injury trust

  1. Amanda says:

    I have been offered £73,350 for being raped by a family member when I was 14 years old, for mental trauma and loss of earnings due to depression and anxiety. I am currently receiving Income related ESA and PIP. Would a trust be the best option for me? Can I have my brother as a second signature? THANK YOU!

    • Mark Thompson says:

      A trust is the only solution if you want to continue to receive the income related element of ESA and any other means tested benefits.

  2. Lyndsay kilpatrick says:

    I am looking to set up a trust fund for A criminal injury compensation payment . It’s for £17000 but as I am on Means tested benefits it would take me over the £16000 ..I have 28 days to arrange it so need advice . I have had advice from a few local financial advisors and they vary in prices and also in the acc advice so was looking for your advice and also how fast I could set it up as obv you do it all online .

    Thanks

  3. Penny Jones says:

    I will shortly be receiving compensation for an accident. I have always wanted to improve my younger daughter’s finances (she’s very hard up)by giving her a couple of thousand pounds. Would I be able to pay this from a PI Trust, or am I better to pay it from my bank account now (leaving me with a low amount) and would I be able to top ,my own account up to £6000 from the PI Trust. Thanks very much.

    • Mark Thompson says:

      You have not said how much compensation you are to receive.
      You can give the money to your daughter through the trust. That is better than having to squabble with a benefit agency which says you have dissipated your assets.
      If thi sis the first payment of compensation, you can make a once-only transfer to yourself, but keep it way below the £6,000 limit. Expenditure from your personal account is assessed against a test of reasonableness for someone receiving benefits. It is not a generous test, so even though you have spent money, you can be treated as still having it. This is called notional capital.
      If you transferred £6,000 to yourself, even once spent, that money is very likely to be treated as notional capital. That would mean you would always be treated as having £6,000 and your total funds would often be over £6,000, which would reduce your benefit entitlement. If you must make such a transfer, take your existing funds into account and stay well below that £6,000 limit.

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