To help you make your decision, I have set out the pros and cons of setting up a personal injury trust. For this comparison I will deal only with a bare trust.
- Compensation ignored when assessing your entitlement to means-tested benefits.
- Compensation ignored when assessing your entitlement to local authority funded care.
- Compensated person can retain a level of control.
- Compensation can be spent from the trust with few restrictions.
- Compensated person must not have personal access to trust fund.
- Trust must have a separate bank or building society account.
- The trust must have at least two trustees.
- Trust bank account requires signature or approval of at least two trustees.
- There is a cost in setting up the trust (not as much as you think).
The significant benefit of a trust for personal injury compensation is the compensation and income received into the trust fund are ignored when calculating your entitlement to benefits. There is no legitimate alternative to a trust for personal injury compensation.
This is a very generous provision which accepts a payment following injury is not a windfall and is intended to cover an injury, plus past and future losses. To gain this significant benefit you should set up a trust and put up with the slight inflexibility involved in managing the trust fund. It is no more than a nuisance, but compare it to the advantages and the decision is clear.
If you are in receipt of benefits or care, or likely to be in receipt of benefits or care, a personal injury trust should be set up to hold the payment received in consequence of a personal injury.
A personal injury trust is a positive thing.
Happy to have a chat without cost or obligation on 01392 314086.
Personal injury trust fund to protect means tested benefits
61 thoughts on “What are the pros and cons of a personal injury trust”
What’s the best way to set up a personal injury trust? I’m due to receive a criminal injury payment while on universal credit and being pregnant definitely can’t go back to work any time soon. Would I need a trust deed from a solicitor before I can appoint the trustees in charge of the account or can the bank do that? Thankyou
A trust is created by a trust deed. The deed is a document which sets out the reason for teh trust, appoints trustees and sets out their powers.
A trust is not created by a bank account. Once the trust is set up by deed, the trustees will then open a joint current account for teh trust. i advise the bank account be given the same name as the trust, as that shows the benefit agencies the compensation is held by the trust.
The trusts I write do not limit the trustees to holding all funds in a current account. If the money is to be held for some time, it is important the trustees have the ability to invest.
The way I work and the current fixed cost of £480, including VAT, can be read here.
If you have approx 100k in a Bare Trust Account, is this protected against insolvency(Trust Deed/Sequestration)? Personal debt level approx 50k.
A bare trust offers no protection against creditors. Thi sis because you remain the owner, that i sthe beneficial owner, to us ethe correct legal term.
There are other types of trust, but protection from creditors depends on the terms of the trust.
A trust, whatever its nature, set up to avoid creditors, is unlikel;y to be supported by a Court. Inteesting reading here.
Hi my father is due to relieve a personal injury claim. Hes in receipt of universal credit and has been advised to set up a trust account. He does not want the compensation but his wishes are to gift the amount to his children equally. He is also being told that this can not happen as it would be fraudulent for his children to receive such funds. He has not been given his final settlement but is about to receive and intrem payment. Again his wishes are to share with his children
If your father receives the compensation and gives it away to his children, it is very likely a benefit agency will treat him as still having this money. This is caused nominal capital.
The simple solution, is to set up a trust and make his gifts from that trust.
Hi, I am thinking of opening a trust fund as I am due a 7 figure settlement very soon . I am in recite of UC and pip ( I believe pip is not means tested) but not to concerned about losing the UC entitlement as this has been factored into my claim but wanted to know more of the benefits like from separation from partner (hopefully it will never happen) or other benefits of a trust fund like paying off my mortgage, loans from the trust . Also if we did go a head with you to open a trust, would I be liable to pay tax on any interest generated from the trust, would the interest be taxable and would I have to do a tax return each year
Going forward, Universal Credit may well be important, so I suggest you protect it by holding the compensation in a trust. The trust will also mean the compensation will be ignored if you ever need local authority suport for care.
It would not surprise me if benefit and care rules become tougher, so taking advantage o fthe protecton available now makes sense to me.
Divorce or separation is not my area of practice, so you need to consult a specialist.
The compensation itself is not taxable, whether in or outside a trust. I write bare trusts, which would mean you would be the taxpayer. Income or capital gains on the trust fund will be included in your personal tax return. Your personal tax allowances will apply.
If you do receive a large sum in compensation, you should take financial advice. It takes much planning and careful investment just to keep up with inflation, so do seek help with investment.
My partner is going to open a PIT for his interim and final damages payment, we receive universal credit as a joint claim. Can I be the trustee? Or is it best using two people who aren’t in our household? Thanks
You can be a trustee. The important point is the trust bank account should operate on at least two signatures. If you, or your partner, have individual access to the trust fund, a benefit agency will not accept the trust is genuine.
I am due to receive money from a personal injury claim which I intend to put into a trust.
I receive universal credit atm and I intend to set up a trust just in case a year from now I find myself still needing the support I currently receive.
Say I set up this trust utilising 2 other people, If I have money I want to allocate to someone or I want to say furnish my house with it some of it, How exactly do I go about that without, 52 weeks down the line, in curing problems with my benefit? I understand I won’t have “personal use” as its in their names but what and how exactly would I gain use of the capital without it seeming for personal use?
Sorry for the windfall
The 52 week disregard is simply a period of time within which to set up a trust. It is not a period within which to spend the compensation, as you will face a test of the reasonableness of the expenditure. Reasonable in your eyes will not necessarily be reasonable in the eyes of a benefit agency.
The solution is to set up a trust now and hold the compensation in the trust. Make your expenditure direct from the trust and you will then have no issue. Th ebenefit regulations have set out a legitimate path which protects your benefits, so I suggest you use it.
More information about the 52 week disregard can be found here.
I may get a compensation payment for personal injury.
I am currently getting Contribution Based New Style Employment & Support Allowance. Will any award affect my benefit?
I wasn’t sure if contribution based was treated the same as income based.
I am considering whether it would be a good idea to set up a trust.
“New Style ESA is a fortnightly payment that can be claimed on its own or at the same time as Universal Credit (UC).
New Style ESA is a contributory benefit. Normally, this means you may be able to get it if you’ve paid or been credited with enough National Insurance contributions in the 2 full tax years before the year you’re claiming in.
Your (or your partner’s) savings will not affect how much New Style ESA you’re paid. If your partner works, it does not affect your claim.
Most income is not taken into account (but a personal pension can affect the amount you may receive).”
The words above are quoted from the government website.
I suggest you think beyond the benefits you receive now and ask, will we need means benefits or care in the future. If this is possible, a trust could be a vey good idea.
Hi. If I put my significant award in a PI Trust can I gift money to one of the Trustees (to be spent how they wish)?
The trust will probably be written for your benefit, which is given a wide interpretation. With your agreement, your trustees can make a gift on your behalf.
I have to set up a bare trust account i have the deeds but have not been informed of how I go about using these,every bank I speak to seems to know nothing of these trusts?
I find that bank central call centres do not have specific information about joint accounts for trustees. If the information is not on the computer screen, the person dealing with your call cannot help.
The Covid crisis has made it difficulat for banks to operate normally. At the moment I suggest you make an appointment for the trustees to attend a Barclays or Metro Bank branch. If you do not want to attend a bank branch, then contact Cater Allen.
You can find further information by reading my guidance about bank accounts for trusts for personal injury compensation.
I am due to receive personal injury compensation. I am disabled and self employed so I receive working tax credits, PIP, Housing Benefit and Council Tax Reduction.
If I put the PI compensation into a personal injury trust to protect my entitlement to these benefits then can property or land be bought as an invested by the trust?
Also, can I add some more money into the trust, or can a third party add money into the trust- make a donation so to speak. Would I need to set up a separate trust for this?
I’m thinking of doing a fundraiser for specialist medical equipment and wouldn’t want that to affect my benefits or tax credits.
If your trust includes power for the trust to hold property, then the trust can buy and hold proeprty, either fo ryou to live in, or as an investment.
To be protected for benefit purposes, the trust can only hold money paid in consequence of personal injury to you.
You cannot top up the trust fund from personal funds.
If money was raised for you, in consequence of your personal injury, that money could be held in trust.
I am just starting Universal Credit but hope to be off it by the time my settlements come through. If I have a trust, and am not on UC by the time the trust is completed, how long will the benefits agency have an interest in the trust – will it be for as long as there is more than £6,000 in the account?
The benefit agencies only have an interest in your finances, including a trust, for as long as you are claiming benefits.
If you expect to be off benefits by the time the compensation arrives, look forward to see if benefits or care are likely. If likely, you should consider setting up a trust anyway, as it will allow you to seek help in the fiture with the compensation ignored.
Hi Mark , firstly thank you for this service 🙂
Due to previous bad business decisions we have poor credit
Due to the injury , we will need to set up a PI trust
It will take time to build a purpose built house
In the interim can a PI trust rent a property? or can it be used as a guarantor? as due to adverse credit we would not get credit approval on our own
Many quetions do not have a legal answer, they depend upon how businesses, or in your cas ea landlord, react to a trust. A landlord may agree to you as a tenant, with the trust paying rent in advance. If you claim Housing Benefit, or your rent thrugh Universal Credit, then a trust should not be paying the rent. A trust should not be used for those items for which benefits are intended.
I am due a compensation payment within the next 30 days, I am on universal credit and would not like this to affect my benefits.
Am I allowed to hold onto this money personally for up to 52 weeks before adding it to a trust?
If so am I allowed to spend any of that money and if I spend some of that money does that then affect my benefits?
If the money gets put directly into a trust what can I spend this money on? Would I be able to pay for a new bed from the trust, or a car? Can I pay for maintenance to my house? Can I pay off my debts and finance agreements? What about my children school uniform for the year?
I read your statement about utilising a credit card for shop purchases and then paying that off with a cheque. I believe I can’t use it for any day-to-day living expense such as bills, clothing or food is that the case?
Provided you have not already received compensation, you can hold compensation for 52 weeks, during which it will be ignored for benefit purposes.
You are treated as having received the compensation as soon as it arrives in your solicitors’ client account.
The 52 week disregard is a period to hold compensation, but not spend it. You can read more here.
The trust must not be used for the basics, for which benefits are intended, but beyond that, the trust can be used for almost any purpose. All of the items in your list can be paid from the trust. Please note, the payment must be direct from the trust.
You must not have personal access to the trust fund. If you use a credit card as you like, knowing the trustees will cover the bill, that looks very like having personal access to the trust fund. A credit card should be used for particular purchases approved by the trustees.
I’m due CICA compensation of possibly £27,000+ and I’m on ESA and PIP. I am looking at it being sent straight to my adult child, who is no longer living at home. This is because they have suffered greatly to to my health and I just don’t want as it’s blood money, I’ve been we wanted it and made my mind up from the beginning. Can I do this where it doesn’t enter my account, but is given directly to my adult child?
IS your ESA income-related? If income-related then you are receiving a means tested benefit. You may also be getting help with housing.
It is your money, so for benefit purposes your circumstances have changed and should be reported to the DWP. I would be pleasantly surprised if the DWP agreed you can make such a payment and keep your benefits.
If you are determined to give the money away, I think you will have to first set up a trust.
If you have not already received an interim payment, you have one year to set up the trust (but not to blow the money), so you could explain your plan to the benefity agency and set up a trust if they react as I expect.
Hi I’m due to receive 12000 compensation next week. I’m on income based jobseekers. I want to know what restrictions I will have on a trust fund. As I
want to buy a few things out of the money .
Your starting point should be to accept you need a trust to avoid your benefits being significantly reduced.
The trust holds the compensation separately from your personal funds. keep the two separate and spend direct from the trust and you won’t go wrong.
You cannot use the trust for the basics, for which benefits are intended, but otherwise you can use the trust money as you wish, remembering to spend direct from the trust.
A trust bank account will operate on the basis of two signatures for a financial transaction, which means you have a cheque book only. Cheques are of little use in shops, but many service providers will accept a cheque. You can overcome this issue, if you or someone close has a credit card. Trustees can agree to a purchase being made by credit card and pay the credit card bill with a cheque.
Don’t risk your benefits and take advantage of the legitimate ability to set up a trust.
Am I right to assume that any income (received from property or investments) held in the personal injury trust, but not paid out to the me, would be ignored when dealing with means-tested state benefits?
I assume that this would be taxable if held in a bare trust, but would not affect means-tested benefits unless the income was was paid to me.
You are correct on all points.
Income received by the trust will have no effect on your benefits. Transfer it to your personal account and you are asking for trouble,
With a bare trust, you are the taxpayer. Your personal tax allowances will apply.
Hi. Can i be a trustee, along with one other person, for my own disabled persons trust? Take money out and add money as i wisj?
Take care with terminology.
A disabled trust, sometimes called a vulnerable persons trust, is a trust with a specific purpose.
If you simply plan to hold personal injury compensation in a trust to protect benefit entitlement, a disabled trust is a complicated solution when compared with a bare trust. I wuld say there would have to be very good reasons for setting up a disabled trust if all you are trying to do is protect your benefit entitlement.
The various benefit regulations simply demand that personal injury compensation be held in a trust. I usually advise the simplest form of trust be used.
Hi. Can a trust be opened for a civil compensation claim against a government agency settled out of court or must it be a personal injury claim only?
The type of case for which compensation is paid is not the deciding factor.
Most benefit regulations refer to “any payment made in consequence of any personal injury to the claimant,” claimant being the benefit claimant.
The personal injury can be physical or psychological.
Some examples of the payments which can be protected by a trust are set out here.
I am about to receive a sum of 22,000 for a violent crime however I am on universal credit. I want to put the money in a trust and one day when I am in a better financial situation and can get a mortgage, use it as a deposit to buy a house. I am still confused whether this would be possible. If I can have no access to the money does that mean I can never be able to use it at all or just after a period of time? I really need it in layman terms.
If I prepare the trust for you, the trust will be able to be used in any way you could use the money personally. The only investments which cannot be made are ISAs and Premium Bonds, as these can only be held by individuals. You can make a payment towards a property or just put the money in a savings account.
The trust has very few limitations, provided you spend direct from the trust. What has confused you is the advise that you cannot transfer the trust fund into your own account or hands, as it will then count against your benefit entitlement. Follow the golden rule of spending direct from the trust and the restrictions are few. Take a look at my recent post which explains why you should see a personal injury trust as a positive thing.
Had a neglagence claim but i owe all the money out if i transfer it to the person i owe the money to will it affect my benefits in the future?
Benefit agencies will sometimes agree commercial debts can be paid off, but they are suspicious of personal debts. It would be very easy to say I owe my brother £6,000, transfer the money and carry on claiming benefits.
If you are waiting to receive the compensation, or you have not held compensation for more than 52 weeks (the period starts with the very first payment of compensation), you could ask the benefit agencies. If they follow the “suspicious” approach you would still be able to set up a trust and repay your debt from the trust. If you can prove this is a genuine debt, you never know.
I often see the “head in the sand” approach advised on websites, where you transfer the money out of your account and hope for the best. In six months time you may be pulled in for review by a benefit agency, which will spot the transfer and decide you have not been entitled to benefits since you transferred the money. You will then be asked to repay benefits and/or may be prosecuted for fraud. That is why the “head in the sand and hope for the best” approach makes no sense.
Thank you. One last question, if the amount in the account goes to below £6,000 does it still need to be kept there or can it be transferred to my normal bank account? Thanks.
Once the trust fund drops below £6,000, the money can be transferred to your personal bank account.
To end a trust, another deed is necessary, but transferring the fund and leaving the trust in existence is the more pragmatic solution.
I would not transfer the full £6,000 and wait until the amount is lower. The reason is that any expenditure from your personal account can be assessed as to its reasonableness for someone in receipt of benefits. If not reasonable, despite spending the money, you will be treated as still having the money, called nominal capital. That nominal capital will be added to any other funds you receive and can reduce your benefits. My suggestion is you keep using the trust until the fund is well below £6,000.
Thank you for your answer. I can probably get one person, would myself and them be enough?
Re the fees, can they be paid out of the compensation or are they paid separately?
One last question, I would like to purchase a year’s gym membership out of the money, would that be possible? The rest will remain untouched.
Thanks again for your time.
You can pay me from the compensation.
Buying a gym membership direct from the trust is fine.
If you do not have a third trustee, you plus one will suffice. You can read more about the risk of you being one of only two trustees here.
I want to set up a personal injury trust for money I am about to receive for an injury I sustained a few years ago. I’m on JSA.
However I don’t have anyone who can be a trustee. Is there a way round this? Thank you.
You can use a professional trustee, but it is a very expensive answer.
You can be a trustee, so with you as a trustee and a bank account requiring two signatures, are there two people who can work with you as trustees?
I have had a trust fund for 5 years with low risk investments……i am not in receipt of any state benefits and am not likely to due to be in receipt of a Police Pension with injury award.To date in March of this year i asked how much it he company has earned from my investment management and the sun was around £22,000 ….I have not lost any money but neither have I gained any interest for myself in those 5 years. I am asking for me to be released from my Trust Fund…but am having to chase after the company managing It? Any advice please.
Hi Catherine, It sounds as if you are unhappy with the investment made through your trust.
You say you cannot claim means-tested benefits due to your pension. One point to note is the trust will protect its assets should you ever need care through your local authority. Protecting the value of the trust may be important to you, so do not end the trust without careful thought.
If you have a bare trust, you are highly likely to be able to end the trust. If the trust says it is “revocable” the trust is a bare trust and can be revoked, or brought to an end. There will be a clause which says how this may be done, probably by deed, which is an appropriately worded legal document.
So first decide if the trust has a long term financial benefit. You should then have a discussion with the trustees so you understand the investment strategy. My guess is you have financial advisers involved, so again ask what is the investment strategy. Do make sure the method of investment has not already committed you for years ahead. The trustees and/or advisers may agree to change the strategy to your liking, or you may have to end the trust to get your own way.
Discover your options and understand the investment. Only then should you decide and act if necessary.
I have been awarded compensation and do not want this to effect my benefits, i would like it in a trust account where nobody knows about this and cannot touch it except from myself & trustee how do i go about this?
It is a misunderstanding to think the compensation is paid into a special type of account.
What you need is a trust deed, a document which creates a trust. The trustees then open a joint bank account for the trust fund. It is the deed which creates the trust, the bank account simply being the place where the funds are held.
My grand daughter is about to receive a personal injury payment she has been quoted
a figure of £660.00 to set up a personal injury trust is this the normal fee as the amount of compensation is about £3,400. Her and her partner are on full State benefits
The first question I would ask is, do they actually need a trust if the total compensation is £3,400. The answer depends on whatever funds are held by those included in the benefit claim.
I am happy to work on a fixed fee if you would care to telephone for a quote.
Hi mark, a bare trust is being set up for my son, and all intermin payments will be going into it, along with the final settlement, which may be a few years yet, the compensation is going to include care for him & at the moment my son gets esa, pip & a personnel budget from the local authority to fund care, which in effect our son is our employer as we are his carers, today we were told by the court of protection team at his solicitors, setting up the trust, that we will not be able to have the local authority care fund as you cannot have two means of care, I tried to say that the compension for care would be in the trust, so surely he is still entitled to the local authority funded one as well, we are not being greedy as this would just add more care for him. But she said no you cannot get both. Is this right, also does she mean that this personnel budget for local authority care would end after the 52 weeks disregard as this is all that we are living on, as we
have both had to pack in our jobs to look after our son, who lives with us, so effectively, would we have to
wait for another interim payment to be paid into the trust, the first intermin payment is being used for other things in his rehabilitation, ie. Case manager, property specialist,
etc etc but there may be enough money left for our son & us for a holiday.
If a trust is being used I assume your son has mental capacity to set up a trust. Therefore the involvement of the Court of Protection is not required.
Lawyers call this double recovery. It does sometimes happen. A claimant receives compensation to cover the cost of their care needs and then asks a local authority to cover those care costs. Unless there was an order or undertaking within the personal injury litigation, not to seek help for care from a local authority, I do not think there is a problem in you seeking local authority help.
If a local authority pays for care there will be an argument in the personal injury case to say the cost of private care should not be included. At the moment the Courts do not accept such an argument as there is no lifetime guarantee that care will be provided at public expense.
Thank you Mark for your clarification.
SIn response to the above comments, does this mean that:
a) the compensated person (1st trustee) cannot draw cash at all?
b) the compensated person can only can only go to the bank to draw cash with a 2nd named trustee?
What method would the compensated person be expected to use when making purchases, would they:
a) have to use a cheque signed by both the self and a second named trustee?
i) If so would both the compensated and the 2nd name trustee have to be present in store?
ii) could the 2nd trustee alone be present with a cheque signed by themself and the compensated person?
How would the compensated person be expected to pay in-store for more expensive items that exceeded the value on a cheque guarantee card?
What method of payment would the compensated person use to pay for items purchased online?
What method of payment would the compensated person use for impulse purchases made if away from home?
Can the compensated person have a debit card
with the trust account?
A bank or building society account set up fr a trust must operate separately from the personal funds of the compensated person, which I am assuming is you. You have identified the inconvenience of a trust fund.
You cannot have a debit card or internet banking for the trust account, as having personal access to the account would leave you open to an argument the trust is not operating as a trust.
I would expect a business to want to see both signatories sign a cheque, but as you will not have debit cards you will not be able to prove your signatures. Cheque guarantee cards are no longer issued by banks.
The signatories can attend at the bank or building society branch and arrange payment by bank transfer. It is for this reason I recommend using a local bank or building society account.
Any cash withdrawn and given to you is your personal money and no longer has the protection of the trust.
The trustees can agree to a specific purchase and pay money to your personal account to make that purchase, but a benefit agency is likely to object to such a practice, so although it is technically possible I would not advise it.
Being able to hold compensation in a trust and still receive benefits is a great benefit. I am afraid the inconvenience of using the trust fund is the price you pay for the valuable benefit of the trust.
If you agreed a purchase with your trustees and made that purchase with a credit card or store card, the trustees could write a cheque to pay off the card bill.
Hello my name is Lisa Willcocks I had a PI payment, a trustee account was set up for me could you let me know if my trustee has to be with me in person when I draw money from the account.Thank you
If your intention is to protect your entitlement to claim benefits you need a trust to hold the compensation. A trust is set up woth a deed, which is a legal document. Simply placing the money in a bank account, even if it is called a trust bank account, will simply not work.
I will assume you have a trust deed in place.
The bank account will operate in accordance with the instructions you gave the bank when you set up the account, the bank mandate as it is called. If you have set up the account properly it should require at least two signatures for any financial transaction. You, as the compensated person, must not have personal access to the compensation as that would mean it is your money and not compensation held in trust. Such personal access would be fatal to an argument that the compensation is held in trust.
hi please can you tell me would i lose the interest on the money if i opened a personal injury fund and deposited my money in there . compared to a normal bank account.
The trust fund is placed in a “normal” current bank account. Some banks say they have special accounts for trusts but the reality is these are simply bank accounts with different names for marketing purposes. The likelihood in these low interest days is that the current account you open may not pay interest. You do not have to keep the trust fund in a single current account. Subject to the terms of your trust your trustees will have the freedom to use a wide range of investments. Make absolutely sure that any investments are owned by the trust and not you personally.