How to set up and operate a trust bank account

Personal injury trust bank account use

This page is to help you set up and operate a joint current bank account for the trustees of a personal injury trust. It is along similar lines to the information provided to clients of Mark Thompson Law for the creation of a trust for personal injury compensation. If your trust has not been drawn up by this practice, do not assume all of the information applies to you.

This page will answer most questions and help you and your trustees to set up and operate your trust current account.

Benefit regulations allow you to keep your benefits and hold and use your compensation. The compensation must be held separately from your personal funds and the device used to achieve this is a trust. Once you understand and accept this need for separation of funds, you will be well on the way to understanding how the trust should operate.

When the trust is finalised, the trustees set up a separate joint bank account to hold the funds. That account must hold only compensation from the personal injury action and any income received on that money.

The first account for the trust should be a current account. You can then set up other accounts and investments, but these must be held by the trust, not by you.

The trust bank account ought to have the same name as the trust. It will be “The (YOUR FULL NAME) Personal Injury Trust 2023.” Benefit agencies sometimes ask if trust money is held separately, so what better answer than a bank statement showing the name of the trust.

Trustees should agree to a financial transaction, so the starting point is all should sign for each financial transaction. If this makes management of the account inconvenient, the trustees can agree to reduce the requirement to two trustees.

As the compensated person, you must not be tempted to allow transactions based on your signature alone. If you have direct access to the trust fund, which includes the use of debit cards and personal internet banking, the trust will not be accepted by benefit agencies.

As at November 2023, the only consistently helpful banks for current accounts for trusts are Metro Bank (£150 opening fee and £5 per month if balance below £25,000) and Cater Allen (no charges).

You only need the facilities of a current account if you are to start spending the compensation. If you plan to save the money for a while, the trustees can open a savings account, or invest the money, without a current account.

Use of trust fund

The trust is a device which holds your compensation and the golden rule is to keep it separate from your personal funds. My tips are:

1.       Use your benefits to pay for the basics of life.

2.       Do not use the trust on items for which benefits are intended.

3.       Buy direct from the trust current account.

3.       Do not transfer money from the trust to your personal account.

4.       Do not withdraw cash from the trust.

Money in the trust can be used pretty much as you wish, provided expenditure is made direct from the trust.

The trust should avoid expenditure on items for which benefits are intended, such as food, ordinary clothing or footwear, household fuel and rent.

I recommend you keep a record of all trust transactions. This may appear artificial, as you may not currently be in receipt of benefits. It could prove necessary in the future, so keep your records from the start.

When you use funds from the trust, DO NOT transfer money to your personal bank account or withdraw cash. By doing this, you lose the protection of the trust and the transferred money or cash will be subject to benefits means-testing. This is the case even if the money is only held briefly. The trust bank account should be used to directly purchase items.

Must the trust account only have a cheque book?

If you, as the compensated person, are one of the trustees, the account must be operated on at least two signatures. You must not have personal access to the trust fund. Even where the compensated person is not a trustee, the trust should operate on a minimum of two signatures.

Two recent developments are dual authorised online banking and telephone banking for joint accounts.

Dual authorised online banking is offered by some banks. It is internet banking , but with an approval process to replace a second signature. The first trustee sets up the transaction using online banking, the second trustee wil then login to approve the transaction.

Metro Bank will open an account for trustees. There is an account opening fee of £150 and a monthly charge of £5 if the account balance falls below £25,000. The funds can be used by cheque, by telephone banking for a joint account, at a branch or through an App.

Cater Allen is part of the Santander group. This bank offers accounts with a cheque book and dual authorised online banking. They charge no fee. The bank website may say they are not opening Reserve Accounts for Trusts at the moment, but an account can be opened through a professional known to the bank. Mark Thompson Law is registered with Cater Allen so we can help our clients to open a joint current account for their trust.

If you already have a trust account with Barclays, you may only have a cheque book. Contact the bank and ask about online banking with Dual Authorisation.

If I cannot use a cheque, are there any options?

Yes, as accounts for trusts have improved. You should not be left using only a cheque book. First check if your existing bank can now offer additional facilities.

If you are limited to using cheques, there are options.

  1. Check if the bank will update the account and offer internet banking, telephone banking or an App.
  2. The signatories of a bank account can go to the bank branch and arrange a bank transfer (check for bank charges).
  3. The signatories of a bank account can go to the bank branch and arrange a bankers’ draft (check for bank charges).
  4. The trustees may authorise the use of a credit card for an agreed transaction. That can be your credit card, or one belonging to someone else.

You must not use a credit card knowing the bill will be paid by the trustees. That is the same as having personal access to the trust. Each transaction should be agreed beforehand by the trustees.

A credit card works, as the funds do not pass through your hands or personal bank account.

Can I keep some of the compensation in my personal account?

The answer is, possibly.

The answer depends on whether you have already received compensation and how much money you, plus those claiming benefits with you, hold in personal accounts.

Means tested benefits allow you to have up to £6,000 and no more than £16,000. Once funds go over £6,000, your benefits are reduced. Beyond £16,000 your benefits stop.

It is not enough to look only at the balance of accounts, you must include money already spent. 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.

This means, if you have already received an interim payment, you should not pay further compensation to yourself. Depending on how you spent the compensation money, you may well be treated as still having that money.

For someone who has not already received compensation and with personal funds well below £6,000, a once only transfer from the compensation to your current account can be made. Once only, because regular transfers will provoke a benefit agency to object to the validity of the trust.

How much of the compensation can you transfer to yourself? Including the compensation you plan to transfer, you should stay as far below the £6,000 limit as possible. 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.

Think carefully about how you plan to use your compensation. I know it feels good to have money in your account, but do think hard about planned expenditure and buy direct from the trust account.

It is a matter of getting used to your money being held in a separate device. The rules take a little getting used to, but the benefits are obvious. You can keep and use your compensation and still receive means tested benefits.

Related content

Which bank account is best for a personal injury trust
Can I access my personal injury trust bank account?
Personal injury trusts guide

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