Personal injury trust

You can keep your compensation and still claim means-tested benefits if your compensation is protected by a personal injury trust.

Personal injury trust or special needs trust or compensation protection trust and protection of State means-tested benefits. All names used for a trust to protect personal injury compensation.

A trust will mean personal injury compensation is ignored when your finances are assessed for benefits and care. Here we help you understand protection of compensation with a trust.

When you receive compensation for a personal injury it can take you above the financial limits for means–tested State benefits, and affect your entitlement to local authority support for care. So be aware and 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 as benefits are claimed by a family unit.Image shows personal injury trust deed to protect means tested benefits

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

A short-term decision may cost you dear.

The law quite rightly accepts compensation is not a bonus or windfall. Compensation is designed to put right the financial damage, both past and future, caused by an accident or injury. For that reason it is possible to receive compensation for an injury and still receive state benefits which are means tested. This can legitimately be achieved by paying the compensation into a trust, the sole purpose of the trust being to receive personal injury compensation.

These trusts are given a number of names which can confuse. I use the term personal injury trust, but some prefer compensation protection trust or special needs trust. What we are talking about here is a trust set up to hold compensation received after a personal injury.

It might sound complicated but for most cases a simple trust can be drawn up; trustees appointed (one of which can usually be you); a separate bank account opened; and that is it. The most straightforward trust is a bare trust which I can draw one up for you. For large sums, when the compensated person is a child, or if there are mental capacity issues, a more complicated arrangement may be necessary, but not to worry as I will help you through the process.

I have set out some questions and answers which should help you.

Do I Need a Personal Injury Trust?

If you receive a compensation award in respect of a personal injury, your current or future entitlement to certain state benefits and local authority care may be affected. If the amount of compensation will lift you over the financial limits for benefits either now or in the future the answer is simple, you need a personal injury trust. You can only hold a certain amount of capital before means tested benefits are reduced or stopped, so a personal injury trust is the only answer.

When should a Personal Injury Trust be set up?

As soon as possible is the only answer. If you are in receipt of means-tested benefits there is a period of 52 weeks during which the compensation will be ignored, but take care as the 52 week period runs from when you first receive compensation, even if it is a small interim payment. A trust can be set up beyond the 52 weeks but leaving things to the last-minute is asking for trouble. My preference is to set up the personal injury trust before any personal injury compensation payment is received. This applies to an interim payment as well as the final settlement. Having the trust in place to receive all compensation is the best way to avoid problems and prevent means-tested benefits being lost. Learn more about the 52 week period.

Who should I choose to be my Trustees?

A personal injury trust should have at least two trustees. If the simple form of trust is used you can be one of the trustees. but you should then have at least two other trustees. Your trustees must be persons you trust and may include family, friends, a solicitor or a trust company. It is your decision as to who you want to act as your trustees. There are no general restrictions as to who can be your trustees although they must be at least 18 years of age and have full mental capacity. A trustee should also have a good bank and credit rating or there may be problems opening the trust bank or building society account.

What are the responsibilities of my Trustees?

The trustees hold your personal injury compensation and administer the personal injury trust for your benefit. Although your trustees hold and have control over your compensation award, they cannot use it as their own personal property or for their own benefit. If you set up a bare trust the money is essentially yours, you can add and replace trustees and bring the trust to an end whenever you want. You do not have to give away control of your money when you set up a bare trust.

What if something happens to my Trustees?

If, for whatever reason, your chosen trustees are unable or unwilling to continue, then the terms of the trust will tell you how a trustee is to be replaced. I recommend you have the power to add and replace a trustee.

Will my chosen Trustees’ Means Tested State Benefits be affected?

No, the trustee holds your award as a trustee and not as an individual so the trust fund is not counted as part of their own capital.

How do I access my Personal Injury Trust Fund?

You must set up a separate bank or building society account. You are not limited to one account, so you can have a current and a savings account. Depending on the terms of the trust property and other investments can be held. The golden rule is that all holdings should be owned by the trust, and not by you personally. The trustees will have banking facilities and the correct approach is to use only a cheque book. All Trustees should sign cheques issued on your behalf from the Trust fund. You should pay for items you buy directly from the trust bank account and avoid transferring funds to your personal bank accounts.

How much can I put into a Personal Injury Trust?

You can put the total value of your personal injury compensation into a personal injury trust. You can add income earned on the money held in trust, or profit made on trust assets. The one trust can hold compensation from more than one personal injury if its terms are drafted widely enough.  Depending on your own circumstances, you may decide to place less than the full value of your compensation into the personal injury trust.

Are there limitations on how the money in the trust is used?

The golden rule is not to use the trust for purposes for which state benefits are paid. This means the trust could not be used for the “normal expenses of daily living.”. I always advise that a record of expenditure should be kept, and the rule of not paying the “normal expenses of daily living” should be followed. One practice to avoid is making a regular transfer from the trust to yourself. Do not pay money across from the trust fund to your personal bank account; spend directly from the trust and you will avoid problems.

What happens if my circumstances change in the future?

If you have used the simplest form of trust, known as a bare trust, the money is yours and you can tell the trustees what to do. If at any time you decide you no longer need the personal injury trust you are usually entitled to bring it to an end. The personal injury trust will then cease, but you may lose your entitlement to any means-tested State benefits/support. If you need a more complicated form of trust you will need detailed advice on this point.

What happens if I die?

If you die, the value of your personal injury trust would be paid to the beneficiaries named in the trust, or it may be paid across to your estate. You must choose which course is best so it can be written into the trust.

Are there any tax implications?

The money held in the personal injury trust is usually taxed in exactly the same way as if you held the money yourself. This is the case for a simple bare trust. If the possibility of a discretionary trust is raised do make sure you understand the inheritance tax and income tax issues which apply to such a trust. Getting this wrong can be very expensive.

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About Mark Thompson

Personal injury and accident specialist solicitor
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123 Responses to Personal injury trust

  1. Kate says:

    My husband has a bare PIT of which I and 1 other are trustees. My husband and I are on means tested benefits. I am not really clued up on the responsibilities of being a trustee. My husband is investing a large amount of his trust. Will he have to pay tax on the money generated from the investment and who is responsible for tax returns my husband or the trustees. This is worrying me as I don’t understand the responsibilities of being a trustee. Thank you

  2. Kath says:

    I’m a bit confused about property purchase and investments. Can a property be purchased by the trust and I live in one flat and rent out the top floor flat, can the income go back into trust ? Or would I then need to dissolve the trust ? I have read on a different site to yours that investments are not encouraged with bare trusts, because the income will still be classed as personal income so I figure there would be no point in having a trust if I make that decision ? Thanks

    • Mark Thompson says:

      I will assume you have a bare trust set up to hold personal injury compensation.
      Bare trusts are often used for personal injury compensation. They are easily managed and the person setting up the trust is treated as the taxpayer. The more complicated types of trust are taxed direct. One advantage of a bare trust, is your personal tax allowances apply, so you may find little or no tax is payable.
      I have not seen your trust deed, but it should be able to hold a property and receive rent. The property and rent paid to the trust will be ignored for benefit purposes.

  3. Louise haley says:

    Hi i opened a personel injury trust account for some compension with my now ex partner, we are in the process of a messy break up is there anyway i can access the money without his signiture?? Thank

    • Mark Thompson says:

      The answer depends on who are the trustees and how those trustees set up the bank account. Please note, the bank are not bound by the trust deed, they are bound by the arrangements made with the trustees who opened the account.
      I am guessing you and your partner are the only trustees. You should have been advised to set up the trust bank account on the basis of two signatures.
      If you look at your trust, you should have the ability to add trustees. I repeat, the bank are not bound by the trust deed, they are bound by the arrangements made with the trustees who opened the account. The aim is to have your partner cooperate, by retiring as a trustee and signing papers for the bank to be removed as a signatory. That retirement will be dealt with in a supplementary deed which, at the same time, will appoint at least one further trustee. I recommend you add two more trustees.
      You may not feel like it at the moment, but you need to work together.

  4. Christine Annable says:

    Hello Mark Thompson,

    My husband has just opened a PI bare trust fund account and waiting to receive a payment of £35,000.00, we are confused what we can or cannot used it for. We are in receipt of means-tested benefit and are worried about been penalised.

    We would like to put forward some questions please if possible :
    – After buying a car with the trust fund, can we pay for the Tax, Insurance, M.O.T and Petrol out of the trust fund?
    – When travelling by car to a holiday destination, can we pay the petrol expenses out of the trust fund and a one off restaurant meal during the holiday period.
    – And is it true we can use the trust fund for an annual TV Licence payment plus an outstanding bank overdraft of £ 300.

    Thank you for any help and a reply.


    • Mark Thompson says:

      Do not use the trust for the basics of life, for which your benefits are intended.
      Expenditure from the trust should be direct, with any payment not passing through personal bank accounts.
      Follow these golden rules and you will not go wrong.
      I have not seen the trust deed which created your husband’s trust, but I see no problem with any payment you propose; but follow the golden rules.

    • Thank you for your reply but still a little confused how to pay for the petrol direct from the trust fund with a cheque book. Can we transfer monies from the trust to a separate bank account to pay for the petrol and an occasional one off restaurant meals while on holiday.
      Thank you very much for any advice.

      • Mark Thompson says:

        Cheques seem to be rarely accepted at petrol stations.
        Any money transferred from the trust to yourself, whether it be cash or to a personal account, will no longer be protected by the trust. Any personal expenditure can be assessed as to its reasonableness by a benefit agency. If not considered reasonable, you will be treated as still having the money you spent, this being called notional capital. If you keep spending personally, this notional capital can build to a point where it exceeds the money you are allowed to hold and reduce or stop benefits.
        One answer is to use a credit card and pay the bill with a cheque from the trust. If not possible, you could make a once only transfer to your current account, keeping funds well below £6,000, accepting the money will be treated as notional capital. I say once only to avoid the notional capital figure getting too high. I also say once only, as regular payments from the trust to you will be used to show you have ready access to the trust fund.
        The benefit regulations are quite generous, as you can keep and use your compensation and still receive benefits. You have to respect the trust arrangement and accept the money cannot be used as conveniently as if it were in a personal account.

  5. Richard says:

    Thank you for your reply. I think it is a bare trust but will have to check. When you say “holding at least your part in trust makes sense”, what do you mean by this? Half of the house would belong to the trust and the other half belonging to my partner?

    • Mark Thompson says:

      The trust can hold part of the property, provided it is the trust which is buying that part. If the purchase is to be made with personal funds, rather than personal injury compensation, then the property could not be held in the trust.
      Mortgage lenders do not seem to like a trust being involved, but I have the impression you are buying without a mortgage.

  6. Richard says:

    Hi Mark, I currently have a personal injury trust and I have only ever bought property through the trust which includes my current home and buy to let. I am looking at purchasing a forever home for myself and my partner to live in under both our names using money from the trust (current home will be sold after settling in). My question is, would buying my next house not under the trust class us as first time buyers/buying next home or will I still subjected to the additional 3% stamp duty as a second home? Thanks

    • Mark Thompson says:

      If you trust is a bare trust, you are treated as the taxpayer, so you will be buying a second or third home.
      To discover if you have a bare or simple trust, check the trust document to see if you may revoke the trust. It may say revocable. If it does, you have a bare trust.
      I understand the reasons for holding property jointly, but holding at least your part in trust makes sense. The trust held asset is disregarded for benefit purposes and is kept outside a financial assessment for local authority care. Think hard about your plan.

  7. KMARIE says:

    Hi. I was just wondering if you have to have a trust drawn up in order to open a bare trust account or if you can open them without one? Thank you in advance.

    • Mark Thompson says:

      A trust is created by a trust deed, a legal document which explains the reason for the trust, appoints trustees and defines the powers of the trustees.
      The trustees then open a bank account to hold the trust fund.
      You cannot just open a bank account and ask benefit agencies to accept it is a trust.
      You can read more here.

  8. Cielle Simpson says:

    Hi Mark Thompson
    Can the personal injury trust purchase property to rent out?
    Will the beneficiary of the trust retain the Right to buy their council property if their personal injury trust has already bought a property?

    Thank you

    • Mark Thompson says:

      The trusts I write for personal injury compensation include the power to buy a property. Not all trusts are written the same.
      The right to buy a council house is based on occupation of the property. To protect the discount, the council property must be bought in the name of the purchaser, not the trust. The trust can lend the money for the purchase and the property can be transferred to the trust at the end of the discount period.

  9. MIRIAM KILNER says:

    my husband has a personal injury trust and we have brought a new house in joint names we also have our previous property which is up for sale with the intention of paying the proceeds of the sale which is also joint straight back into the trust which is a lower amount than we borrowed from the trust , the house cost 99,000 and the proceeds from our old house will be around 60/65.000 will thisaffect our income support

    • Mark Thompson says:

      If properly drafted, your trust can hold all sums derived from personal injury compensation. So a loan from the trust can be repaid to the trust. If a trust asset increases in value, the trust can hold that additional value. What you cannot do, is pay into the trust money which is not derived from personal injury compensation. You cannot “top up” the trust from private funds, nor from the sale of an asset which was not bought using the compensation.

  10. tina hargrave says:

    Will I still get my council tax paid if I take out a trust fund.Thank you

    • Mark Thompson says:

      Yes. Council Tax Reduction is a means-tested benefit, so compensation for personal injury held in a trust will be ignored.

  11. Jane says:

    Hi. One more question, sorry. Myself and my partner are in receipt of JSA and have a joint claim together. Can we both be trustees for a trust in my name? I don’t have anyone else to ask. Thank you.

    • Mark Thompson says:

      Yes, provided the trust bank account is operated on the basis of two signatures. You must not have individual access to the trust fund.

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