The importance of setting up a Personal Injury Trust

A personal injury trust is a form of trust in which funds are held by persons, called Trustees, for the benefit of another person or persons upon the terms of a document called a Trust Deed. A personal injury trust allows someone who has received payment, as a result of injury, to hold and manage their funds to ensure that they are not considered for assessments of means tested benefits or care contributions.

Why you should set up a personal injury trust

Where you are pursuing a personal injury or criminal injury compensation claim, and the award is large enough to impact upon your benefits, a personal injury trust can be a sensible way to manage the payment you receive. If you do not set up a personal injury trust, and you are receiving means tested benefits such as income support, income based jobseekers allowance, income related ESA, housing, tax or council benefits, there is a risk that you could lose those benefits.

There is a 52 week grace period during which the initial payment that is received cannot be included in means testing for benefits or care contributions. However, it should not be mistakenly considered that because you have this period of grace that you can, during that time, dispose of your award. If you “blow” the money during this period by giving it away or spending it, it may be seen as a deliberate depletion of your capital, and as a result, you may lose out on your entitlement to state benefits.

By putting your compensation into a personal injury trust, you can protect your award. In stark contrast to this fact, if you spend your award during the first year and you have not set up a personal injury trust, it could result in your benefits being stopped for a considerable length of time.

How big does the award need to be for it to merit a personal injury trust being set up?

It does not have to be a very significant award. If the award is more than £6,000, it can affect your benefit entitlement. Furthermore, if you have already got some capital, then you must consider whether that capital and the award together exceed the sum of £6,000. If it does, then again, your award could be affected if you do not set up a personal injury trust.

What if I do not receive benefits at the present time?

It is still important to set up a personal injury trust if there is a potential that you may receive benefits in the future, or if there is a possibility you may need to go into a care home.

By creating an appropriate personal injury trust, you can prevent your award from being taken into account for the purposes of means testing or care contributions. You may well find the cost of setting up a trust can be far outweighed by the benefits which could be lost.

At what point do I need to consider setting up a trust?

We would suggest that before you settle your personal injury or criminal injury compensation claim, you should take steps to set up a personal injury trust. This will ensure that it is put in place as soon as possible and that your award is properly ringfenced.

Some people wrongly think that during the 52 week grace period, they can just give the money away, spend it or hide it. However, the DWP can review or possibly withhold your means tested benefits if they believe that you have disposed of your award. You could end up having your benefits stopped or reduced if you do not set up a personal injury trust.

How do you set up a trust?

It is usually prudent to obtain advice from a solicitor on the best type of trust which suits you and who the Trustees should be. The usual position is that there needs to be two Trustees, of which you could be one of them. The most frequently used type of personal injury trust is a bare (or absolute) trust. A bare trust means that the trust property, in every meaningful sense, except for the purpose of means testing is treated as your own.

If you wish to have assistance in creating a personal injury trust, then you should consult a solicitor who is familiar with the procedure involved and can advise you on the process.