Personal Injury Trusts – What You Need To Know
Many people assume that a personal injury claim ends when the claimant receives their compensation.
However, deciding what to do with this pay-out is an important, and often, daunting decision. The money may be intended to support the recipient for the rest of their life, so arrangements need to be made to ensure it is used carefully to help fund future care and rehabilitation.
Compensation awards may affect entitlement to certain means tested benefits because of the limits on capital that an applicant is able to hold without failing the means test. This would include, for example, benefits such as Employment Support Allowance, Universal Credit and Housing Benefit and could also affect Local Authority assistance and other sources of state-assisted help.
This can seem unfair when the compensation was awarded to help you adapt to your new circumstances and injuries, and cover loss of earnings.
To protect your award and ensure your eligibility to state benefits and local authority assistance is not affected, you may choose to setup a Personal Injury Trust (also called a PI Trust).
What exactly is a Personal Injury Trust?
A Personal Injury Trust is a trust fund for people who have received compensation following a personal injury.
There are a few variations to the type of Trust and these are sometimes referred to as a Special Needs Trust or Compensation Protection Trust.
The trust is a vehicle to hold whatever assets you deem suitable. It is a legal framework for how the assets are held and who by. Your home could be held within a trust, or bank accounts or investments, as long as the assets were paid for, with compensation.
There are various types of trusts and it is important to choose one that meets your needs.
What are the benefits of a Personal Injury Trust fund?
The main benefit of putting your personal injury compensation into a fund is that the trust fund is ignored when calculating your entitlement to benefits.
Means tested benefits are assessed regularly and if you have more than £6,000 in savings, there is a strong chance that your benefits will be reduced. If you have £16,000 or more, your benefits may be completely stopped.
In addition to not affecting your means tested benefits, another key benefit of a Personal Injury Trust fund is that if you were taken into residential care at any point, the cost of your care would not be taken out of your trust fund, as rules currently stand.
Do I need a Personal Injury Trust?
As mentioned above, the main advantage of a PI Trust is that the funds contained within the trust are not taken into account by the benefits agency, and therefore should not affect your entitlement to means-tested benefits.
If you do not have a Personal Injury Trust, and your household savings are more than £6,000, then your entitlement to means tested benefits and assistance will be affected. As mentioned above, only assets deriving from compensation can go in to a PI trust and therefore enjoy the special exemption rules.
If you have more than £16,000 your benefits may stop altogether.
I don’t receive any means-tested benefits. Do I need a PI Trust?
Remember that compensation awards are often for life, and PI Trusts have a finite time period to be set up in. While you may not receive means-tested benefits at the moment, setting up a Personal Injury Trust safeguards your compensation from affecting future entitlement to certain state benefits.
In addition, if you need Local Authority or Social Services assistance for your care in the future, a Personal Injury Trust means your compensation is not included in financial assessments by the local authority.
Whilst a Personal Injury Trust is not an asset that can be shielded from a financial settlement upon a divorce, ultimately it does give those assets a barrier and certain level of protection as there is a specific purpose for the use of the those funds, as opposed to general matrimonial assets.
When should I set up my Personal Injury Trust?
It is advisable to set up your trust as soon as possible, ideally before any personal injury compensation payment (either interim or final settlement) has been received.
However, you usually have up to 52 weeks, from when you first receive either an interim or final settlement pay-out, to place the funds into a PI Trust before your benefits are affected.
These rules can differ if the beneficiary of the Trust is a child.
Who should I choose to be my trustees?
Other than being over 18 years old, there are no general restrictions on who can be your trustees. It is usual for a trust to have at least two trustees, and people often choose family, friends, a solicitor or a trust company. You can appoint yourself as trustee but generally we advise against this.
It is the trustee’s responsibility to run the trust once it has been setup. This includes dealing with; day to day expenses, property issues, investment meetings, annual tax returns and accounts.
You may wish to choose Osborne Morris & Morgan to act as your professional Trustee, though please note that you have the power to change your trustees at any time depending on the type of Trust.
What can I do with my money in a Personal Injury Trust fund?
How you use the money in your Personal Injury Trust fund is down to you and your trustees. There used to be restrictions on what the funds could be used for, but this is no longer the case.
If you are receiving means tested benefits, then it is advisable to continue using this money for living expenses such as bills, food or clothes, and to use the money in your trust fund for larger purchases not covered by your benefits.
Assets in a personal injury trust are accessed in the usual way e.g. through online banking however they will need to be controlled by the trustees, who are the legal owners of the asset(s).
Will I need to inform the benefits agency of my Personal Injury Trust?
You will need to let the benefits agency know about your Personal Injury Trust. Many law firms will do this for you if you provide them with your National Insurance number and the address of your benefits agency.
How much can I put into a Personal Injury Trust?
You can put any amount up to the total value of your personal injury compensation into the trust. If you wish, you can put in less, but not more.
What happens if my circumstances change in the future?
As long as the trust permits it, you can instruct the trustees, in writing, to transfer the money over to you at any time if you decide you no longer need the Personal Injury Trust.
Remember that this means the Personal Injury Trust will then cease and you may lose your entitlement to any means-tested state benefits and support.
What happens to my Personal Injury Trust if I die?
If you were to die, and assuming the trust has been drafted accordingly, the value of your Personal Injury Trust would usually be distributed in accordance with the terms of your Will.
If you die intestate (without a Will) your estate would be distributed in accordance with a set of legal rules which apply to anyone without a Will.
How can Osborne Morris & Morgan help?
Osborne Morris & Morgan’s experienced Personal Injury Trust team offer clear and concise legal advice with your welfare at heart.
Our Professional Trustees will work with you to ensure the best protection for your assets, providing expert help and advice in all areas of creating and managing a trust.
Contact Osborne Morris & Morgan to Discuss Personal Injury Trusts
If you would like to learn more, call our Personal Injury Trusts team on 01525 378177 for an initial obligation-free discussion.