Personal injury trust Q&A

Below are some frequently asked questions. Feel free to ask your own questions.

Keep your compensation and benefits with a personal injury trust.

When you receive compensation for a personal injury, it can take you above the financial limits for means–tested State benefits. This will affect your entitlement to benefits and local authority support for care. You should look at the benefits you are receiving today, and, just as important, the benefits you may need in the future. Don’t just look at yourself if you claim benefits as part of a family unit.

It is worth repeating that you must also look at your care needs, both now and in the future. A personal injury trust can protect compensation when local authority care is assessed.

A short-term decision may cost you dear.

The questions often asked are set out below with our answers.

Mark Thompson accident personal injury trust solicitor

I am making a personal injury claim and expect to receive compensation. Should I set up a trust now?

You should consider a personal injury trust when you know how much compensation you are to receive. Until you know the amount of compensation and that money is on the way, there is no benefit in setting up a trust.

I have received an interim payment. Should I set up a trust now, or when I receive more compensation?

If the money received is more than a few thousand pounds, set up the trust now. If this is a second interim payment, then set up the trust before you receive the money.

Once I have been offered compensation, should I tell Universal Credit right away, or wait until I get the money? Do I need a lawyer to set up the trust account?

You have a duty to tell benefit agencies of a change in your financial circumstances, so wait until you receive the compensation. When I write trusts for clients, I deal with the notification of benefit agencies.

Your trust must satisfy banks and benefit agencies. I would say, a trust should be prepared professionally.

You need a trust first, created by a trust deed. Only then do the trustees open a separate bank account for the trust fund.

Can I pay my compensation into the bank account of a family member?

You cannot hide the compensation. The Department for Work and Pensions is told when a claim is made and the amount of compensation when paid. This information is made available by the party paying the compensation under the compensation recoupment system (CRU). Even if you are tempted to hide the money, benefit agencies already know it has been paid.
The benefit regulations allow you to keep and use the compensation, with no change to your benefits, so take advantage of the only legitimate route.

Are personal injury trusts taxed?

The trusts we write for personal injury compensation, are BARE trusts. A bare trust is tax neutral, which means the trust itself has no tax liability and the trustees need not file an annual tax return.
The compensation held in the trust is not taxed.

If the trust earns income, or interest, or makes a capital gain, that should be reported in the personal tax return of the beneficiary of the bare trust. The good news is, personal tax allowances will apply, so unless the income is significant, a tax return will not be necessary.

Can family members be trustees?

Yes. A trustee should be at least 18 years of age and trustworthy, as the name suggests. You are asking people to hold and use money for your benefit, so be sure they will work with you.

I receive Universal Credit and have been awarded a personal injury settlement of £2825. I have no savings. Will this affect my UC claim please

You can hold up to £6,000 and still keep your full entitlement to Universal Credit.
To check your benefit entitlement, do visit entitledto.co.uk

I know you recommend having three trustees where the compensated person is a trustee. What if I only have one trustee available?

You can set up a bare trust with you, as the compensated person, as one of two trustees. The downside of this arrangement is, if you become the only trustee, your trust will collapse.
This is why I advise a compensated person, who wants to be a trustee, to have at least two other trustees. I understand you may not have a third trustee available, or you may want the trust to be confidential, but with you and only one other trustee, there is always a risk.

You could start the trust as one of two trustees, then appoint another trustee later.

I have been injured in two accidents. Will I need two trusts, one for each compensation payment?

I write trusts for any personal injury compensation you might receive, so one trust will cover both compensation payments.

Can a personal injury trust own a property?

Yes, is the short answer. It actually depends on what is allowed by the trust, but those we write certainly do allow purchase of a property, along with a wide range of assets and investments.
It is worth pointing out, that the “owners” in terms of Land Registry rules, will be the trustees, in their position as trustees.

If a trust owns a property, can the compensated person be the tenant and claim Universal Credit?

No. You will not be able to claim benefits to pay rent on a property owned by you or your trust.

I’ve just received £2,500 pounds compensation for a back injury. I work, but also receive Universal Credit. Will the compensation affect my UC? Must I tell them about this money?

I suggest you calculate your maximum monthly funds, then add the £2,500 compensation. If the total is comfortably below the £6,000 you are allowed to hold, you do not need a trust.
Your financial situation has changed, so you should advise the benefit agency of your personal injury compensation.

I have been made redundant, so I am on Universal Credit. I am due a pay out from an accident. My solicitor has advised I put it in a trust fund, Will my benefits stop completely, if I get over £8000?

Means tested benefits stop if you have savings of £16,000 and reduce if you have more than £6,000. You should decide on a trust once you know how much compensation you will receive.

I have just received £12,000 in a dental negligence claim. I am in receipt of income support and child benefit. Will this affect my benefit? I owe £3,000 and wish to buy a car. I estimate I will have around £5000 left. Is this OK? I have 6 children so a car will be beneficial.

It is assumed this is the first payment of compensation. It is possible, but only possible, that benefit agencies will accept your planned expenditure is reasonable. If they do, you will not need a trust. You should ask the question and have the reply in writing, as you cannot rely on the answer given by whoever answers the phone at the benefit agency. So do write to the benefit agencies, set out your plans and ask for their agreement there is no need to set up a trust.
Do not spend any money before you have an answer. If you have to set up a trust, make the planned expenditure from the trust.

Who should I pick to be my trustees?

You need people who you trust. They must accept the money is yours and work with you. Avoid those who will impose their views as to the use of the money. You might need someone to apply a handbrake on spending, but the money is yours. Avoid those who will ask for a “loan.”

Is being a trustee a heavy burden?

We are talking about bare trusts for personal injury compensation. Once the bank account is set up, the trustees role is to work with you as to how your money can be used for your benefit.
The trustees do not have to report to any agency and do not have to file a tax return.

I plan to buy a property from compensation in a personal injury trust. Can I own the property, or should the trust be the owner?

If you do use compensation to buy part, or all, of a property, there is a good reason to hold the property in a trust. At the moment, ownership of the property in which you live is not a factor when assessing benefit entitlement, but that could change. Ownership of a property is relevant to the financial assessment for local authority care. That assessment would have to ignore a property held by a personal injury trust, so think long term.

Should I hold personal injury compensation in a bare trust, or a discretionary trust?

The various benefit regulations all talk of the compensation payment being held in a trust. In relation to the benefit regulations, a trust is what is required, there being no requirement for a particular type of trust. I write only bare trusts for compensation, as such a trust allows a level of control to the compensated person. You can be a trustee, you can end the trust when you wish and you have the ability to add and replace trustees. This simple form of trust is the answer in 99% of cases.

I am on universal credit and get around £1,500 a month for me, my husband and daughter. We have no savings. I am going to receive around £1,800 for an injury and my husband expects around £4,500, but not yet. Should I inform DWP about this?

Your financial position is changed by the receipt of compensation. You should tell benefit agencies. As you can hold £6,000 with no effect on your benefits, your compensation should not change the position.
When your husband receives compensation, that may well take you over the £6,000 line, as you claim as one unit, so a trust for his compensation may well be necessary.

My late mother passed away 3 years ago and my father has been awarded £30,000 for the negligence claim in respect of her death. He is claiming benefits and no savings. Can he protect his benefit claim with a trust?

The benefit regulations only allow personal injury compensation to be protected in a trust if the injury is to the benefit claimant. If the compensation relates to the injury to your mother, your father cannot set up a trust to protect his benefit claim.

I received a personal injury compensation payment of £2,100. I told the DWP and have no other savings. They said I could spend it, but with covid and everything, I was too anxious to spend and now over the 52 week. Am I now not allowed to spent it and is too late for a trust.

If you received £2,100 and this sum left your total personal funds well below the £6,000 line, you do not need a trust. This is because you remain well below the £6,000 limit.
A benefits agency might say you have not spent the money reasonably, but that will only mean you will be treated as still having the money (called notional capital). Provided your funds, including notional capital, remain well below £6,000, this will not matter.

I have been awarded £21,000 for a personal injury claim. I have set up a trust as advised by the solicitors, only to be told by my mortgage advisor, I cannot buy the house from the trust and cannot put the house in the trust once purchased. I’m so frustrated. The trust was only open today can i cancel it ? I was not given any information. I’m a first time buyer and really struggling with all of this. I am unable to work due to my injuries, so with this money, I am in the middle of getting a mortgage. If I do buy this house and did not put it in the trust, would my universal credit be stopped ?

I would be surprised if your trust cannot buy property. Check the trustee powers included in the deed.
I understand that mortgage lenders do not like lending where the property is owned by a trust. You need to consult a specialist mortgage broker.
I think the trust can only hold that portion of the property for which it has paid. If you cannot get a mortgage for the rest, check if the trustees can make a loan to you. That loan can pay the deposit, you can arrange the mortgage and when the house is sold, the loan can be repaid to the trust.
I recommend the loan be registered against the property, which will be second in priority to the mortgage.
At present, property ownership is not relevant for means tested benefits, but it is very relevant for care. By having a formal loan, you can satisfy agencies the trust is involved and protects a portion of the property.

I am due to receive £20,000 compensation for unlawful detention from Home Office. I am on Universal Credit full benefit. Will the compensation affect my benefit as it is not injury claim or compensation?.

The Universal Credit regulations say “where a sum has been awarded to a person, or has been agreed by or on behalf of a person, in consequence of a personal injury to that person” it will be ignored if held in a trust.
I look at the reason for compensation. If the compensation is paid for injury, which can be physical, psychiatric, psychological, distress or injury to feelings, then a trust can be set up. Ask your solicitor how your compensation was calculated and the factors which are included. If those factors are as listed above, a trust may be possible.

I had a serious accident at work in 2018 and started claiming benefits. My claim for compensation for the 2018 accident has not been settled. However, I also had another accident at work in 2016 and was not on any benefit at the time. I received a cheque for £17000 for the earlier personal injury claim.

When you claim benefits, you should declare all the funds you hold. In 2018, you should have declared all funds held by you and those you claim with. That declaration should include compensation. If compensation arrived after 2018, its receipt was a change of financial circumstances, which should have been reported.
You can set up a trust now, but it will not wipe the slate clean.
To be fair to benefit agencies, when they come across someone who could have set up a trust, but did not know of the possibility, they tend to be forgiving when a trust is eventually set up. The only proviso is, if an agency thinks you have been fraudulent, they will not be so forgiving.
I would set up a trust now, particularly if you are to receive compensation for the later accident.

I am in receipt of universal credit and housing benefits. I am about to receive compensation for £2,500 and have no savings. Do I need a trust?

As you have no capital, receiving of £2,500 will make no difference to your means-tested benefits. You can hold up to £6,000 and still receive full benefits.
You ought to tell benefit agencies about the money, as you have a duty to let them know when your financial circumstances change.

Can I pay off debts with compensation and avoid the need for a trust?

The best approach is to pay the debts from your trust. You might think it reasonable to pay your debts, but a benefit agency might not agree. If the agency does not agree, you will be treated as still having the money you have spent. This will count against your benefit entitlement.

You can direct the question to benefit agencies, within the 52 week disregard period. Ask in writing and get a reply in writing. A telephone answer is no good, as you cannot rely on it if the person dealing with your call got it wrong. An agency might say OK, but they would have to agree it was reasonable to take on the debt in the first place.

I have received personal injury compensation. Can I spend my way below £6,000 and avoid the need for a trust?

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. So the answer is no.

If I set up a personal injury trust, do I have control?

With the trusts we write for compensation, you can be a trustee, you can end the trust when you wish and you can add and remove trustees. So yes, you retain a high level of control.

The trick is to appoint trustees you can rely on and work with you, so you do not have to exercise these powers.

If I open a trust, am I able to buy a house with some of my compensation? If yes, whose name does the house go into?

To do this, a trust must give the trustees the power to purchase a house. The trusts we write certainly do.
The Land Registry rules mean the trustees are registered as the property “owners”, in their position as trustees.

Can I make gifts to family members from my personal injury trust?

Your trust will be written for your benefit, so can be used for what you want and need. That could include a loan or gift to a family member. Make the payment direct from the trust bank account.

Can I open a personal injury trust for compensation for PTSD?

The Universal Credit regulations tell us compensation will be ignored “where a sum has been awarded to a person, or has been agreed by or behalf of a person, in consequence of a personal injury to that person.” I take the view it is the nature of the compensation which is important. If the compensation is for the effect of circumstances on you, whether that be physical, psychiatric or psychological, the sum can be held in a trust.

Can I hold compensation before setting up a trust?

Provided this is the first payment of compensation, you can receive and hold the money for up to 52 weeks without benefits being reduced or stopped. The compensation must be held in trust within 52 weeks of first receipt of compensation, which includes receipt by your solicitor.

There is no benefit in just holding the money, as you cannot spend it for fear of the nominal capital rules.

Start setting up a trust when you accept an offer. The process should not take long.

I am going to be receiving a compensation payment of about £15,000. I receive child tax credit payments at the minute, not on universal credits. Will this payment affect my child tax credits?

Tax credits are based on your income. The compensation is not income, but if you invest and receive income/interest, that may reduce your tax credits.
Your income has not changed, so I do not think you have to report the compensation.
You should think beyond Tax Credits, as when you are moved to Universal Credit, which is a means tested benefit, your capital will become relevant.

I am to receive compensation of £10,000. I owe my sister £5,000. If I pay my sister back, will I still need a trust?

After repaying your sister, you would have less than £6,000, but this will not work. Benefit agencies would have to accept your expenditure was reasonable. If they suspected you did not owe the money, or if borrowing money was not reasonable, you would be treated as still having the money. It is not unknown for people to hide money, so you cannot blame benefit agencies for being cynical.
You do need a trust. You can then repay your sister from the trust and avoid problems.

I have a friend whose 12-year old child was involved in a RTA. The child will receive an injury compensation for that. The parents are on UC. Will their child’s injury compensation affect their UC and child benefit? Will the child need a trust for that please?

A compensation settlement for a child must be approved by a Court. The Court will decide how the compensation should be held until the child reaches 18 years of age. It is usual for funds to be held by the Court Funds Office. Compensation “administered” by a Court is ignored for benefit purposes, without the necessity of a trust. If the child is to receive benefits when the compensation is to be released by the Court at age 18 years, a trust can be set up at that time.

I have just accepted a settlement of £11,580.00 and I claim universal credit and housing benefit. I am pregnant with my second child and have just been made redundant. Will this affect my benefits? I have no other savings.

You can hold up to £6,000 and receive full benefit. If you hold £16,000 or more, your Universal Credit will no longer be payable. Between the two figures there will be a reduction in your benefit. A trust is the answer so the compensation is ignored.

I was injured in a road accident. I’m on PIP and ESA and hope to receive £8,000 compensation. I have an overdraft of £1400 and once I receive the money I will pay that off, then buy a cooker and TV, both of which do not work. Am I able to buy these, pay a few debts and my £1,400 overdraft? This will take me under the allowed £6000. Will I be penalised by the benefit rules?

I suggest you wait until you know how much money you are to receive. At that point, put your plans to benefit agencies and see how they react. Put your plans in writing and make sure the reply is also in writing. If you cannot get agreement, then, depending on the compensation amount, you may well need a trust. An agency will ask, is this expenditure reasonable for someone in receipt of benefits? It is not possible to say what the reaction will be, so do not start spending before you have the benefit agency answer. You might think the expenditure is reasonable, but there is a distinct possibility a benefit agency will not agree.

I am self employed and on a low earning wage. I previously claimed tax credits to top up my wages, which were changed to universal credit as a low earner. Each month I have to go online and declare my earnings for the month and they work out my entitlement. I have just been awarded £1,900 for a road accident, so would I have to declare this to DWP as it’s not earnings?

The compensation is relevant to Universal Credit, but will not reduce the benefit, provided you do not have much other money in savings.
Do declare the compensation and make it clear the money is personal injury compensation. The compensation is not income, but it is best to be open about what money you have.
Unless your current savings exceed £4,000, with this level of compensation, you will not need a trust, because your total savings will be below £6,000.

I have been claiming ESA/HB/CTR/PIP for years now due to a spinal condition. Last year I had an accident which damaged my leg, and my solicitor estimates compensation of around £15k. I understand I need to create a trust, but my question is with regard to the CRU. As I was claiming benefits before the accident and they are not being paid as a result of said accident, will the CRU still recover the value of the last year’s benefits from my compensation?

A trust will protect your entitlement to receive means-tested benefits. This is quite separate from the recoupment of benefits.
The liability to repay benefits to the government lies with the defendant paying the compensation. You do not personally repay the benefits, the defendant must make that repayment in addition to paying you compensation.
When calculating your compensation, you must give credit for certain benefits against certain parts of your financial loss. This is part of the role of the solicitor dealing with your compensation claim.

I have just started to get GIP (guaranteed income payments) from the Armed Forces Compensation Scheme. The first backdated payment totals £67,000.As you can guess I have been on ESA since my discharge from the army. I have informed the DWP of both payments and they have asked for all the letters related to both payments from the Army, so they can work out what they are going to do. They have already reduced my ESA to £23 every two weeks.But here is the question, I’ve been told they can’t take my AFCS GIP payment into account and they should still pay me full ESA. Is this true? Also, can they take money from my back payment of GIP and AFCS pay out?

I would be interested to know the source of the suggestion that guaranteed income payments under the Armed Forces Compensation Scheme should be ignored for the purposes of means tested benefits.
The payments you receive are made in consequence of an injury to you, so I think the payments made, together with the payments to be made,  can be held in a trust and ignored for benefit purposes.

I’m currently receiving income-based ESA and I’m about to get an interim payment of £10,000 for a work related incident. Shall I tell DWP now of the changes in my financial circumstances, or when the money comes into my account? Also, the second question, after I tell them, can I just cancel the benefit, or will they try to take money off me for cancelling? I have no other savings but will be trying to return to work.

When your financial circumstances change, you should advise benefit agencies.
If this is your first interim payment, it can be ignored for a period of 52 weeks. If you need to spend some, or all, of the payment, the best approach is to set up a trust and spend the money from there.
If you are not confident of returning to work, a trust will allow you to hold and use the compensation and preserve your benefits. If you do set up a trust, I will contact benefit agencies on your behalf once the trust and trustee bank account are in place.

A personal injury trust is not forever, so if you decide you no longer need it, the trust can be unwound without great difficulty.

My father was awarded £64,000 for an accident three years ago, which was put into a personal injury trust. Due to injuries he received he had to move to an extra care housing facility and he pays the rent for this out of his income, derived from state pension and attendance allowance. His savings have now fallen to below the threshold for claiming means tested housing benefit and I was wondering will the solicitor have informed DWP about the trust even though he has not yet claimed any means tested DWP benefit, or will I have to inform them when he makes a claim?

I guess the DWP have not been told about the trust. If no benefits were being claimed, I would not have contacted DWP.
In the application form, do give clear information about the trust and make it very clear the trust holds personal injury compensation.

I am currently on legacy benefits and receiving income support with disability premiums, PIP, child benefit, child tax credit, housing benefit and council tax reduction. I have just accepted an offer of £60,000 for a car accident. Will all my means tested benefits stop once I receive this money. or do I have 52 weeks before it gets taken into account? Also, how can they judge that you’ve blown the money to carry on claiming benefits?

If you have not already received an interim payment, you can rely on the 52 week disregard and set up your trust. If you have already received an interim payment, the compensation should be paid to a trust bank account opened by the trustees of your trust.
The 52 week period is there to allow you time to arrange the trust. It is not a period in which to blow the money.
Your compensation is reported to the Department for Work and Pensions by the party which pays you compensation.
The test of what expenditure is reasonable is a tough test. A broken fridge could be replaced, but an upgrade would not be reasonable. Do not be tempted to play with the system, as you can set up a trust, keep your benefits and spend your trust money very much as you like.

My contact details

mark@markthompsonlaw.com

01392 314086 (landline rate)

07785 342483 (mobile rate)

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