Personal Injury Trusts for children

We all hope that our children will grow up healthily and be able to enjoy full lives. While this is most often the case, sometimes, children will suffer serious harm and as a result incur injuries that result in their abilities being restricted, either due to physical disability or brain damage.

If this happens, and it was due to no fault of their own, they may be entitled to Personal Injury compensation from the party that caused their injury, to pay for the special care they will need. In order to safeguard your child’s compensation, the best option is to set up a Personal Injury Trust.

What is Personal Injury Compensation ?

If the accident that caused the injury was someone else’s fault, the victim may be entitled to compensation. The fault may be due to direct actions, but most often it will be the result of negligence. This can be anything from careless driving to failure to maintain equipment or ignoring safety procedures.

If there is a good case for establishing someone’s fault for the incident, you can make a claim to the court for compensation.

In an ideal situation, the person or organisation involved will admit liability and the two sides’ solicitors will negotiate a settlement. In practice, however, the claim will normally need to go to court, either because the other side does not admit liability or because no agreement can be reached over the amount.

What is a Personal Injury Trust?

A Personal Trust Fund is a legal arrangement that allows money, property and other assets to be kept safe and used independently of any individual ownership. A Trust is set up by the ‘Settlor’, who will name two or more Trustees to administer the Trust on behalf of a Beneficiary. Who, in the case of a Personal Injury Trust, will be the injured person.

PI Trusts not only protect your Personal Injury compensation but are particularly useful for managing inheritances. As the assets in the Trust are not the property of the person who benefits from them, they will not count towards any means-tested benefits.

This is important because Personal Injury compensation is intended to allow the beneficiary to maintain their quality of life, whether adapting your home or hiring professional care. It is not intended for paying your day-to-day bills, so it is important that you receive any benefits you are entitled to.

In addition, a Trust will protect the compensation from any external claims on the Beneficiary’s assets. If they are involved in a divorce settlement, for instance, or if they are declared bankrupt, the assets in the Trust may not be included in the calculations, since it is not their property.

How does this apply to Personal Injury Trusts for children?

Some benefits the child’s parents or guardians claim for, when caring for the child may be affected if the child has a large amount of money, and this will be avoided if the money is protected in a Trust.

Setting up a Trust while the victim is a child will mean that the same provisions may continue seamlessly when they become an adult, if the terms of a Trust are still appropriate.

What kind of Trust would be best for a child’s Personal Injury Trust?

For a child’s Personal Injury Trust, there are two common types:

• A Bare Trust is one where the funds are administered by the Trustees, in accordance with the terms of the Trust deed, for the Beneficiary’s life, and will form part of their estate on their death. The main disadvantage is that the funds in the Trust will be fully taxed.

• A Discretionary Trust is one where the Trustees have discretion (within any terms specified in the deed) on how to spend the assets and what should happen to the Trust after the Beneficiary’s death. This is most likely to be the best choice for a child’s Personal Injury Trust, but it is vital to discuss the options with an expert solicitor.

What is the process for setting up a Personal Injury Trust for children?

The Settlor for a Trust must be over eighteen, so a child cannot set up a Trust. The child’s parents or legal guardians will normally have the legal right to do so, but it is best to establish this at the court hearing that makes the award. In some cases, however, the court may direct that a professional Trustee, such as a Trusts Solicitor be appointed.

A Trust deed is a complex legal document, and without expert advice the deed may say something unintended, or even be legally invalid.

Our specialist Trusts Team can advise on the creation of trusts, as well as all aspects of trust management. Get in touch with our Personal Injury Trust team to find out more.