Protecting your compensation with a Personal Injury Trust
If you have suffered serious injury, for example in a road accident or have a medical negligence issue, you may be entitled to receive compensation to help meet the needs of your new life. Compensation can come either from a legal award or an insurance pay-out and, in the case of a serious injury, it is likely to be a substantial sum.
If you receive a large sum of money this will impact on any means-tested benefits you may need to claim now or in the future. Your compensation is intended to cover special costs, rather than your regular housing or living costs, but you may end up having to use it to subsidise these.
This answer to this…You can set up a Personal Injury Trust.
Why might I need a Personal Injury Trust?
There are a number of reasons to set up a Personal Injury Trust, and, as mentioned, the most common of these is to protect your means-tested benefits from the government or your local authority.
Many of these are being gradually combined into the new Universal Credit, but currently the main benefits in question are:
- Housing Benefit
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Child Tax Credit
- Working Tax Credit
- Income Support
- Assistance with care when you are elderly
Means-tested benefits depend on how much money or other financial assets you have. If your savings and investments total more than £6,000, this will start being set off against the benefits you receive. If you have more than £16,000, you will be entitled to no benefits at all, which will eat into your compensation. However, money in a Personal Injury Trust (also known as a Special Needs Trust or a Trust for Disabled People) is excluded from this calculation and will not affect claiming benefits.
While means-tested benefits are usually the most urgent issue, a Personal Injury Trust protects your compensation in a number of other situations. If you become bankrupt or are involved in a divorce settlement, funds in the Trust are ring-fenced, while they are also excluded if you are being assessed for care home fees. Alternatively, you may either not be mentally capable of managing your own finances or simply not want the hassle involved.
What is a Trust Fund?
A Trust Fund is a vessel to hold assets such as cash, stocks, bonds and property. It is set up by drawing up a legal document specifying the terms under which the assets will be held and in what circumstances they will be paid to one or more people known as beneficiaries, as well as appointing two or more people, referred to as Trustees, who are responsible for administering the Trust Fund.
A Trust Fund can be set up for a variety of reasons, using a number of different models. The most common reason is to protect an inheritance when the heirs are still minors, but protection of Personal Injury compensation is also used frequently.
Who can be a Trustee?
You can appoint anyone over the age of eighteen as a Trustee, but in practice you will need to be confident that you can rely on them to manage your finances. Most people are likely to appoint a partner, a family member or a close friend. In some cases, though (especially if the finances are complex) it may be more suitable to appoint a professional, such as a solicitor.
Some people like to preserve an active role in managing their assets, and as long as you are over eighteen and mentally competent, you are entitled to appoint yourself as a Trustee. In this case, however, you must still appoint two other Trustees.
If you are a minor or are considered not to have the mental capacity to make financial judgements, a Trust Fund will be set up and Trustees appointed for you. In the case of a minor, this will be done by a parent or legal guardian. If you lack mental capacity, whether as a result of the injury or because of a pre-existing condition, this may be done by someone you have granted Lasting Power of Attorney, or else it would need to go through the Court of Protection.
When should I set up a Personal Injury Trust?
Ideally, a Personal Injury Trust should be set up as early as possible in the process, and you can do this before you even receive your compensation. If this proves impossible, you should certainly aim to set it up during the first year after the initial payment has been made, during which time compensation is exempt from means testing. Remember, however, that this period of grace starts even if the first payment is a partial interim one.
If a year has passed, you will still be able to set up your Trust but will be unable to claim back retrospectively any benefit that has been stopped. It is worth bearing in mind that only assets derived from your compensation can be included in a Personal Injury Trust Fund, and the longer you leave it, the harder it will be to separate these from any other assets you may have.
How does a Personal Injury Trust work?
Like any Trust, a Personal Injury Trust is established by drawing up a legal document with a solicitor who specialises in this area of law.
This will specify:
- the amount of compensation paid
- the names of the two (or more) Trustees
- details of how the money is to be managed
- terms under which the Trust may be ended, if applicable
- what will happen to the Trust in the event of your death
Within these pre-determined boundaries, the Trustees will manage the assets in the fund by unanimous decision, including both regular and special payments to you as the beneficiary.
If you think you may be likely to receive Personal Injury compensation in the foreseeable future, setting up a Personal Injury Trust can have substantial benefits, from protecting your assets, to making their management easier.
To speak with our team of Trust specialist solicitors you can contact us here or call us on 01525 378177 to discuss your situation.
We look forward to hearing from you.