Personal Injury Trusts- what you need to know

A Personal Injury Trust will help you to manage and protect your finances If you have received compensation as a result of a Personal Injury or Medical Negligence. 

If you or a loved one have the misfortune to be involved in an accident or Medical Negligence leading to a serious and permanent injury, the chances are you will need adequate financial resources for the rest of your life. In some cases, you will be able to claim substantial compensation for your injuries.

However, you will still be faced with the need to manage the money you receive to last throughout your life.
The best way to do this is to set up a Personal Injury Trust.

What is a Personal Injury Trust?

A Trust is a way of managing your money, property and other assets (e.g. stocks and shares). This will be administered by one or more Trustees for the benefit of one or more beneficiaries. The Trustees may be given varying degrees of discretion, but there are likely to be conditions specified when setting up the Trust.

Trusts can be set up for various purposes. A common reason is to protect your estate should you die while your children are still minors. However, a Personal Injury Trust is valuable for both protecting and managing compensation received following an injury or Medical Negligence.

How is a Personal Injury Trust set up?

A Personal Injury Trust should generally be set up solely with money received as compensation for the injury. This may be awarded by a court, but it could also include money paid under an insurance policy or charitable donations made specifically as a result of the injury.

A Trust is a complex legal document, and as always it is advisable to set one up with the help of a Personal Injury solicitor specialising in this area.

Who can set up a Personal Injury Trust?

If the injured person has mental capacity, they will normally set up the Personal Injury Trust themselves. For example, the injury may have left them with serious mobility issues, but with little or no neurological disability.

If the injured person does not have the mental capacity to arrange the Trust, it may be set up by a specified person. This could, for instance, be someone specified under a Lasting Power of Attorney, if this has previously been arranged. Otherwise, a deputy would need to be appointed via the Court of Protection.

If the victim is a minor, their parents or legal guardian will normally have the authority to set up the Personal Injury Trust on their behalf. In some cases, though, the court may direct that the Office of the Account of Court is involved, in order to safeguard the child’s best interests.

What are the advantages of a Personal Injury Trust?

A Personal Injury Trust safeguards any benefits that may need to be claimed. Many of these benefits are means tested, but money held in a Trust will not be taken into account for this purpose.

In common with other types of Trust, though, it can protect the funds in it against competing claims. For example, if you were to divorce after the compensation had been awarded, the money in the Trust would not be included in the divorce settlement. Similarly, the funds cannot be claimed by creditors and would not be counted if, for example, you were declared bankrupt.

Besides protection of the money, setting up a Personal Injury Trust provides an excellent way of managing finances. The guidelines for investment and payment of funds will usually be established at the start, providing a clear framework.

When is the best time to set up a Personal Injury Trust?

If you are awarded compensation for a Personal Injury by the court, this will be exempt from means testing for benefits for the space of a year, after which it will be included in the assessment. This means you will want to set up a Personal Injury Trust by the end of that year.

However, that does not mean it should necessarily be left till the last moment. Setting up a Trust may take longer than you expect, and if you miss the deadline, any money you lose to means testing will not be refunded. Besides, the year’s disregard period will not necessarily apply to money from other sources, and the funds will also be vulnerable to any other claims.

The best course is to initiate the process as soon as the award has been made. You will not even have to wait until the first payment has been made, since the Trust can be set up in readiness for payments to go straight into it.

Who can be appointed as Trustees?

Anyone who is over the age of eighteen and has mental capacity can act as a Trustee, but it is vital to make sure they are willing to act in this capacity before naming them. You can appoint as many Trustees as you like, but two or three is the normal choice.

If you have created a Personal Injury Trust for yourself, you are entitled to act as a Trustee, but you cannot be the sole Trustee, or the Trust may be invalid. For this reason, you should normally appoint two other people besides yourself, in case one should die before you, leaving you in this position.

It is obviously in your interests to appoint Trustees that you know and trust. Family members and close friends are the usual choice, though you may also choose to appoint a professional, such as a solicitor.

What types of Personal Injury Trust are there?

The most common types of Personal Injury Trust are Bare Trusts and Discretionary Trusts. Bare Trusts are more straightforward to set up, and you will have more control over the funds, but funds will be taxed as if they were your own money. When you die, the Trust will be treated as part of your estate.

A Discretionary Trust, on the other hand, is less vulnerable to tax and outside claims, but the Trustees will be given more discretion as to how to manage the Trust. You can also choose what happens to the contents of the Trust on your death.

If you choose an expert solicitor to help you, they will advise you on the pros and cons of these types.

How much does a Personal Injury Trust cost?

The cost of setting up a Personal Injury Trust will depend on circumstances, including how complex the situation is. In general, though, the set-up costs will comprise:

• initial reporting to HMRC
• legal advice
• fee for drawing up the Trust Deed

There may also be ongoing costs, since the Trustees may need expert advice — e.g. legal advice, investment advice or other financial advice. As is usually the case, however, these fees may cost the Trust less in the long run than attempting to proceed without professional advice.

It is not a simple matter to administer the funds required to provide you or a loved one with as good a life as possible after a serious Personal Injury. However, setting up a Personal Injury Trust makes the process more streamlined, as well as ensuring that the funds are kept safe.

For advice on how best to look after compensation for a Personal Injury, please contact our Trusts specialists and we’ll be happy to discuss your needs.
Call us on 01525 378177 or contact us online.