Personal injury trust Q&A

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.

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.

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.

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.

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.

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.

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

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

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.

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

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.

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.

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.

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.”

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.

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.

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.

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.

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.

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 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.

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.

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.