If you’ve received compensation for a personal injury through a personal injury claim or an insurance policy payout, it could impact your eligibility for means-tested state benefits like Income Support, Jobseekers Allowance, Employment Support Allowance, and Housing Benefit. Compensation is often intended to cover lost earnings or assist with adjusting to new circumstances and injuries.
To safeguard your entitlement to benefits and secure your financial future, you may consider placing the compensation in a Personal Injury Trust. This arrangement aims to prevent your compensation from being considered when determining your eligibility for state benefits, potentially allowing you to continue receiving them.
What is a personal injury trust?
A Personal Injury Trust is a legally binding arrangement to handle money received after an injury. Personal injury trust funds are managed by trustees. These trustees hold the money for the person who benefits from the trust, known as the Beneficiary. If you need money from the trust, all trustees must agree. The Trust aims to make sure the money is used in the best way for the person who got injured.
To keep getting state benefits, the compensation should be put in a special trust bank account. This account should be separate from your personal money. You can your partner can have £6,000 (combined) outside the trust before it affects your eligibility for benefits.
What are the benefits of a personal injury trust?
Protects your eligibility for benefits and funding
When money is placed in a personal injury trust, it doesn’t count when the government checks if you can get certain benefits or services based on your income. This means you can keep receiving benefits like income support, employment and support allowance, job seekers allowance, housing benefit, and council tax benefit. The trust also helps protect your eligibility for local authority funding if you need to live in a care home or receive care at home.
Provides extra protection to vulnerable individuals
A personal injury trust can also be a valuable safety net for people who might need extra protection, like children, elderly individuals, or those living with disabilities. The trustees, who are guardians of the trust, have to agree on everything related to the money in the trust. This makes sure that the funds are used in the best way for the beneficiary and prevents misuse.
Ensures financial decisions are made in your best interests
Trustees of a personal injury trust can act as advisors to the Beneficiary. They bring their knowledge and experience to help with important decisions. This way, the money in the trust is managed in a way that keeps the beneficiary's best interests in mind for the long haul.
Ringfences compensation from personal injury claims
A personal injury trust ringfences money that comes from a personal injury claim. It creates a clear boundary around these funds, keeping them separate from other assets.
This boundary can be really helpful if a person’s situation changes, and they need benefits or care services down the road. When compensation from a personal injury claim or insurance payout is held in a trust, the trust acts as a guard, ensuring that the money from the personal injury stays safe and doesn’t affect the beneficiary's eligibility for support in the future.
What funds can go into a personal injury trust?
According to benefits rules, certain funds, like those from a personal injury claim, shouldn’t affect means-tested benefits. This includes:
Personal injury awards;
Compensation received from the Criminal Injuries Compensation Authority (CICA) as a result of a criminal injury claim;
Compensation from the Motor Insurers’ Bureau for injuries caused by an uninsured or untraced driver;
Awards from the Armed Forces Compensation Scheme;
Awards from other government-led compensation schemes;
Charitable or public donations following an accident;
Accident or travel insurance payouts;
Payouts from a professional negligence claim.
A personal injury trust ensures these funds won’t interfere with a person’s eligibility for means-tested benefits.
How to set up a personal injury trust
To set up a personal injury trust, you need to appoint trustees. These trustees will set up a special bank account, just for the trust money. This account needs to be separate from any other personal finances, and whenever there’s a need to write a cheque or make a transaction, all the trustees will have to sign off on it.
Selecting the right trustees is important because they’ll be in charge of the trust and the money it holds. These trustees need to collaborate well and always put the best interests of the person for whom the funds are held above all else.
In situations where there’s a substantial amount of compensation money involved, it’s often a good idea to include a professional trustee, like a solicitor. This adds an extra layer of expertise to make sure the trust is handled with care and precision.
It’s also wise to get help from a solicitor to determine the most suitable trust. A common, and often fitting, choice for personal injury funds is a ‘bare trust.’ In this type of trust, the money still belongs to the person with the injury, and they keep the ability to close the trust whenever they desire.
Having said that, you should seek legal advice to make sure the right trust structure is established for your situation. There may be that there are other more appropriate trust types. In deciding which trust is right for you, consider factors such as how the trust may affect the distribution of your estate when you die. Provisions for the person's family in the future should be carefully taken into account when determining the most appropriate trust structure.
Once the decisions are made, a trust deed outlining all rules and obligations should be prepared by a solicitor. This document is then signed, witnessed, and dated. The personal injury trust typically acquires a title (e.g. Jane Doe Trust).
As well as considering which type of trust is right for you, you should also look closely at the costs associated with establishing the trust. While these costs might sometimes be covered within a compensation settlement, it’s not uncommon for individuals to cover them independently. Further, if a professional trustee, like a solicitor, is appointed to manage the fund, they typically charge an annual fee.
When should you set up a personal injury trust?
You should set up a personal injury trust before receiving funds to make sure funds are transferred smoothly without the risk of losing benefits or care funding entitlement. Although some individuals may not be eligible for means-tested benefits and services initially, circumstances can change in the future which may impact eligibility. For example, an individual may:
Move out on their own;
Move to a care home;
Be discharged from hospital;
Go through a divorce or separation;
Reach a significant age milestone;
Lose their job;
Experience a change in health.
While it is possible to create a trust after receiving personal injury funds, doing so after the fact doesn’t allow for claims on missed benefits before the trust was set up. There’s also a risk of funds getting mixed up with other finances, leading to complications.
What is the 52-week rule for personal injury claims?
The first payment received in the first 52 weeks after a personal injury, including interim payments, insurance payouts, and charity capital payments, is disregarded when assessing eligibility for means-tested benefits and services.
However, this exemption doesn’t extend to further payments. The application of this rule can sometimes be unclear, which is why it’s a good idea to seek expert advice on these matters.
Can you set up a personal injury trust for children and people without capacity?
In most situations, the choice to set up a personal injury trust is a decision made by the individual, guided by advice from a solicitor. However, if someone is unable to make decisions on their own, it’s sometimes necessary to get approval to establish a trust on their behalf to ensure they benefit from the protective measures a personal injury trust provides.
Setting up a personal injury trust for children
To set up a personal injury trust for a child, a High Court judge must approve its creation to oversee their funds until they turn 18. The court’s approval is necessary to make sure the trust is beneficial for the child. This process also includes approval of the chosen trustees and the specific type of trust to be set up.
Setting up a personal injury trust for individuals without mental capacity
In some situations, a person may not have the mental capacity to manage their financial affairs, as defined by the Mental Capacity Act 2005. In these cases, an application must be made to the Court of Protection to make decisions on behalf of the individual lacking capacity. A Court of Protection judge will decide the most suitable approach for handling the person’s financial matters.
Usually, a deputy is appointed to oversee someone else’s property and financial affairs, which is often favoured over setting up a personal injury trust. Deputies report to relevant authorities, such as the Office of the Public Guardian (OPG) in England and Wales, the Office of the Public Guardian (Scotland) in Scotland, and the Office of Care and Protection in Northern Ireland. This ensures the best interests of the person lacking capacity are safeguarded. Additionally, funds held by a deputy are disregarded when assessing eligibility for means-tested benefits and services, similar to funds held in a trust.
Who can be a trustee of a personal injury trust?
Personal injury trusts must be overseen by a minimum of two trustees. The beneficiary (who is the person awarded the compensation) can serve as one trustee. Other trustees are typically either friends, relatives, or professionals like solicitors.
All trustees must be at least 18 years old, free from personal financial issues, and deemed trustworthy. Their commitment involves reading, signing, and following the terms outlined in the personal injury trust deed.
Trustees should get guidance about their role, empowering them to work together to decide how to manage the money and handle payments.
Selecting the right trustees is important in overseeing a personal injury trust. They should act in the beneficiary’s best interest, and their judgment and opinions valued. Should a relationship with a trustee change over time, it is possible to replace a trustee in the future.
How can I access my personal injury trust bank account?
In a personal injury trust, it’s really important to keep the compensation separate from your personal funds to ensure that means-tested benefits consider only your personal money, not the compensation in the trust. If you transfer trust money to your personal account, it may be seen as yours and impact your benefits, even if you spend it.
To avoid this, you shouldn’t access the trust fund personally. Instead, you should have your trustees use the trust bank account to make necessary purchases. Trust bank accounts usually require at least two trustee signatures for transactions. Managing your personal injury money in this way avoids complications by keeping trust and personal funds separate from one another.
What can personal injury trust money be spent on?
How funds are used from a personal injury trust is up to you, however you will need approval from other trustees to spend it.
The money within a personal injury trust is exclusively for the benefit of the beneficiary. This might involve home modifications like an accessible shower or bathroom aides, specialised rehabilitation care, physiotherapy, mobility aides, prosthetics, psychological support, and in-home nursing care, among other essential needs.
Can you buy a house with a personal injury trust?
It is possible to buy a house or pay off your mortgage with a personal injury trust, however, it’s important to know that if you use the money to buy a house, that property belongs to the trust, not you.
That means, if you want to sell the house, the trustees handle the process and the money from the sale can then be used to buy another home or invested by the trustees for your future use.
When using a personal injury trust to buy a house, common mistakes can happen, like putting the property in the beneficiary’s name instead of the trustees’ name. Also, not properly assigning the share of an existing property when using funds to pay off a mortgage can lead to issues. These mistakes may affect eligibility for means-tested benefits as the house value might be considered in means-testing.
What are special needs personal injury trusts?
Special needs personal injury trusts are established to provide financial security for individuals with special needs or disabilities. Similar to other personal injury trusts, these funds safeguard any compensation or settlement from being considered for means-tested state benefits.
These trusts enable the beneficiary to take full advantage of specific tax regulations. They also provide a secure avenue for friends or family to make a financial gift to someone who may be unable to manage their affairs. A special needs trust or disability personal injury trust offers additional protection against financial exploitation and makes sure that the funds will support the individual throughout their lifetime.
Do you pay tax on a personal injury trust?
People often think trusts are tax-free, but it’s a bit more complicated than that. If you’re the one setting up the trust and you’re the only one benefiting from it, which typically happens with personal injury trusts, your compensation won’t be taxed when it’s put into the trust.
However, even though the money you put into the trust isn’t taxed, any money the trust earns might be. This includes income, profits from selling something, and even what’s left when someone passes away. A solicitor can help plan things out to keep taxes as low as possible, therefore it’s recommended to talk about this when setting up a personal injury trust.
How can Lawhive help me set up a personal injury trust fund?
If you’re considering setting up a personal injury trust fund, our skilled solicitors are here not only to help with your personal injury claims but also to assist you in creating a trust fund designed to safeguard your compensation and improve your quality of life.
Get in touch with us today for a free case assessment and quote from our legal assessment team.