Personal Injury Trusts

Osbornes Law’s trust solicitors set up and run personal injury trusts for people who have received compensation, including people who lack capacity and children.

After a serious injury, your compensation has to last. It may need to pay for care, equipment, adaptations to your home and lost earnings for years to come. If it sits in your own bank account, it counts as your savings, and that can reduce or end your means-tested benefits and help with care costs.

A personal injury trust keeps the money separate from your savings so that it is ignored in those assessments. Our trust lawyers work alongside your personal injury solicitor so the trust is ready when your compensation is paid.

There is more than one way to protect an award. The right choice depends on whether you can manage your own affairs, your age, how much the award is and what it needs to pay for. We explain the options below.

What is a personal injury trust?

A personal injury trust is a trust that holds money paid to you because of an injury. This includes court awards, out-of-court settlements, interim payments and Criminal Injuries Compensation Authority awards.

The money is held by trustees (the people who look after it) for you as the beneficiary (the person it is for). It is kept in a separate trust bank account, not mixed with your own money.

The law treats compensation held this way differently from savings:

• For Universal Credit, the capital in a personal injury trust and the income it earns are ignored (regulation 75 of the Universal Credit Regulations 2013).
• For the older means-tested benefits, such as income-related Employment and Support Allowance and Housing Benefit, the value of the trust is also ignored.
• For council care charges in England, the value of a personal injury trust is ignored when the council assesses what you must pay towards your care.

Do I need a personal injury trust?

You are likely to need one if you receive, or may later claim, any of these:

• Universal Credit
• income-related Employment and Support Allowance or income-based Jobseeker’s Allowance
• Income Support
• Housing Benefit
• help from your council with the cost of care

Universal Credit stops if your savings are over £16,000, and it is reduced once they pass £6,000. A modest award held in your own account can therefore have a real effect on your income.

You may not need one if you only receive benefits that are not means-tested. These include Personal Independence Payment, Disability Living Allowance, Attendance Allowance, contribution-based (new style) Employment and Support Allowance and the State Pension. Savings do not affect these.

Even then, a trust can still be worth having if you think you may need means-tested support or council-funded care in the future. Pension Credit has its own rules, so tell us if you receive it.

How long do I have to set up a personal injury trust?

There is no deadline for setting up the trust itself. The time limit is on how long your compensation is ignored for benefits while it sits in your own account. The rule depends on which benefit you receive.

Universal Credit

A personal injury payment that is not in a trust is ignored for 12 months from the date it is paid to you. Each payment is looked at separately. For example, if you receive an interim payment now and a final settlement a year later, each gets its own 12 months.

Older means-tested benefits and care charges

For income-related Employment and Support Allowance, Income Support, Housing Benefit and council care charges, the rule is stricter. Compensation in your own account is ignored for 52 weeks from the day you receive the first payment for that injury. Later payments for the same injury do not get a new 52 weeks.

This means an early interim payment starts the clock for the whole claim. For council care charges, any part of an award that a court has specifically set aside for the cost of care can be counted even within those 52 weeks.

When to act

We recommend setting up the trust before your first payment arrives, so the money can go straight into it. If you have already received your compensation, or have mixed it with your own savings, speak to us. A trust can usually still be set up, but the sooner you act the less your benefits are at risk.

What types of personal injury trust are there?

The right structure depends mainly on whether you can manage your own money, and how much control you want.

Bare trust

A bare trust is the simplest form. You are entitled to all of the money, and you can ask the trustees to pay any of it to you, or to spend it for you, at any time. You can be one of the trustees yourself.

This suits most adults who can manage their own affairs and want to stay in control. Income tax and capital gains tax are charged as if the money were yours.

Discretionary trust

In a discretionary trust, the trustees decide when to pay money out and how much. You cannot demand payments.

This gives more protection if you are vulnerable, could be pressured by others, or may find it hard to manage a large sum. It also means the trust can carry on helping you if your health changes. The tax treatment is different from a bare trust, and we explain it before you choose.

If the injured person lacks mental capacity

Some people, for example after a severe brain injury, cannot make decisions about their money. They cannot set up a trust themselves.

In that case, the Court of Protection usually appoints a deputy to manage the compensation. The court can also authorise a trust to be set up for the injured person under the Mental Capacity Act 2005. We advise families and deputies on which route is better, and make the application to the court.

If the injured person still has capacity but expects to lose it, a Lasting Power of Attorney can sit alongside the trust.

Compensation for a child

A settlement for a child must be approved by the court before it is valid. The court then decides how the money is held. It is often invested by the court and paid to the child at 18, although the court can make other directions.

Money held and controlled by the court in this way is ignored for Universal Credit, in the same way as a trust. Before the money is released, it is worth planning whether a trust is needed, particularly if the young person may claim means-tested benefits as an adult.

Trusts for disabled beneficiaries

Where the beneficiary of a discretionary trust is disabled, the trustees can usually make a vulnerable person election with HMRC. This means the trust pays income tax and capital gains tax at the beneficiary’s own rates rather than the higher trust rates. The trustees and the beneficiary both sign HMRC’s form VPE1. See HMRC’s guidance on trusts for vulnerable people for who qualifies.

Who should be a trustee?

Trustees must keep the trust money separate, keep records and act in the beneficiary’s interests. Our guide to the duties of trustees explains what this involves.

A trust holding only money can legally have one trustee. We usually recommend at least two, so that decisions are shared and the trust keeps running if one trustee dies or steps down. If the trust buys a property, at least two trustees (or a trust company) are needed to sell it later.

Trustees are often family members or close friends. A professional trustee, such as a solicitor, can be added for large awards or where family relationships are difficult.

What can I spend the money on?

Trust money can be spent on anything that benefits you. Common examples are:

• care and support at home
• rehabilitation, therapy and treatment
• specialist equipment and mobility aids
• a car or adaptations to a vehicle
• buying or adapting a home
• holidays, education and day-to-day living costs

Once money is paid out of the trust into your own account, it counts as your savings again. It is usually better for the trustees to pay bills directly, or to pay you only what you need at the time. If you claim means-tested benefits, the benefits office or council may ask about large payments, so the trustees should keep receipts.

What are the disadvantages of a personal injury trust?

A trust protects your benefits, but it does bring some extra work and cost:

• The trustees must open and run a separate bank account and keep records of every payment.
• With a discretionary trust, you do not control when money is paid out.
• Trustees may need to complete tax returns, and professional trustees charge for their time.
• Ending a trust or changing trustees needs paperwork.

For most people who rely on means-tested support, these costs are small compared with the benefits and care funding the trust protects.

How much does a personal injury trust cost, and can I set one up myself?

It is possible to set up a simple bare trust yourself using a trust deed. The risk is that a badly drafted deed, or money paid into the wrong account, leads to your benefits being stopped while the problem is sorted out.

The cost of using a solicitor depends on the type of trust and whether a court application is needed, for example for someone who lacks capacity. We explain our fees in writing before we start.

How we can help

Our trust and personal injury lawyers work as one team. We can:

• advise you on whether you need a trust and which type suits you
• prepare the trust deed and open the trust account before your compensation is paid
• act as professional trustees, or support family trustees with their duties
• apply to the Court of Protection where the injured person lacks capacity
• review an existing trust if your circumstances or your benefits change

We act for people with serious injuries, including spinal injuries and catastrophic injuries. We can set up a trust whether or not we handled your claim.

Speak to a personal injury trust solicitor

Call us on 020 7485 8811 or fill in the contact form below.