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Published 07th January 2020 by | Personal Injury, Trusts

What is a Personal Injury Trust Fund?

No-one likes to think about being left physically disabled due to an injury, or a serious illness, yet it can happen to anyone.

If this should happen to you, you would need to think about how to manage your finances for the remainder of your life. You may well receive money in the form of compensation, or from an insurance policy or a charity, but this can disappear very quickly if it is simply left in a bank account and affect any means-tested benefits.

The best way of protecting your finances in this situation is to set up a Personal Injury Trust Fund.

What is a Personal Injury Trust Fund?

A Trust Fund is a legally binding arrangement under which money and other assets can be held and managed by Trustees. The various types of Trusts are used for a wide variety of purposes, which is likely to determine which kind is used.

A Personal Injury Trust Fund is a very specific kind of Trust for money acquired as a direct result of a Personal Injury and which will be needed by the injured person for their long-term needs. There are three requirements for a Personal Injury Trust Fund:

  • All funds must derive from payments received as a consequence of a Personal Injury.
  • The Settlor (the person setting up the Trust) will normally be the injured party.
  • The Settlor will also normally be the sole beneficiary of the Trust.

What type of Trust Fund is suitable?

Various forms of Trust Funds are available, but three general types are most suitable for a Personal Injury Trust Fund. The choice should depend on your particular situation and needs.

  • A Bare Trust is the simplest type. Here, the Trust is managed by the Trustees according to the terms of the Trust, and on the injured person’s death the Trust will be wound up and the funds will form a part of their estate.
  • A Life Interest Trust is similar, but here the Trust deed specifies that the Trust will pass to a new beneficiary (or beneficiaries) after the injured person’s death.
  • A Discretionary Trust is managed by the Trustees, and funds are paid out at their own discretion. It may continue or be wound up after the injured person’s death.

Each of these may be the most suitable in a specific case, and this should be discussed with your solicitor before making a decision.

Where will the funds come from?

You may derive funds for a Personal Injury Trust from various sources, but you can only use funds directly connected to the injury. This is different from other types of Trust Fund, which can be assembled from any legally held source.

Although the list is not exhaustive, this will typically include money from:

  • Compensation awarded by the courts.
  • Compensation agreed in out-of-court settlements.
  • Payments under an accident insurance policy.
  • Payments from the Criminal Injury Compensation scheme.
  • Payments under Industrial Injuries schemes.
  • Payments from charitable collections or public donations following your injury.

Why might you need a Personal Injury Trust?

If you have been seriously injured, it is possible that you will be unable to work in the foreseeable future, and perhaps for the rest of your life. This would not only make it difficult for you to support yourself, but you may also have family members who rely on your financial support.

At the same time, your needs could be substantially higher than they were before. You may require specialist care for the rest of your life, or medical treatments not available from the NHS. You may also need special equipment that will allow you to cope with your disability, or to have your home modified.

Much of this expense will be ongoing for the rest of your life, which could be a considerable amount of time. The problem is that, when you receive your compensation or other funds, this will be taken into consideration for any means-tested benefits you are entitled to.

If your funds are held in a Personal Injury Trust, on the other hand, they belong to the Trust rather than you, and they are consequently not taken into account for means-testing. This means that either benefits or any income you are able to earn can be used for day-to-day living, while your compensation can be used for your special needs and important extras such as holidays, as intended.

Holding funds in a Trust will also protect them in other circumstances. For example, if you divorce, they will not be included in any divorce settlement, and they will also not apply if you are declared bankrupt or own a private business that becomes insolvent. Looking further ahead, if you eventually have to move into a care home, anything in a Trust will not be considered when assessing what contribution you have to make.

How do you set up a Personal Injury Trust?

In most circumstances, a Personal Injury Trust should be set up by the injured person.

If you are setting up a Trust for yourself, however, you should discuss it with a solicitor who specialises in Trust Funds before deciding how to approach it. You will then need to appoint between two and four Trustees to manage the fund. The only restrictions are that they must be over the age of eighteen, have mental capacity and be willing to take on the role.

Trustees will typically be close relatives or friends that you can rely on, although if you wish you may be one of the Trustees yourself. However, some people prefer to have a professional person involved, such as a solicitor.

Once you have decided on all the terms of the Trust, your solicitor will draw up a deed that specifies rules and obligations and names the Trust (e.g. The John Smith Trust). The Trustees will then set up a bank account in the name of the Trust, which should be entirely separate from your other finances and which they will administer. The Trust funds can also be invested in various ways which we can assist you with.

When should you set up a Personal Injury Trust?

If the primary consideration is to preserve your means-tested benefits, it is not essential to set up your Personal Injury Trust as soon as you receive compensation, since it will not be included in means-testing for the first 52 weeks.

However, setting up a Personal Injury Trust can take a while, so the sooner you begin, the better.

If you have suffered from a Personal Injury, it is vital to get expert advice and support from the right people. Our specialist Personal Injury and Trust teams are experts in their field and are very happy to help you. To make an enquiry, or to make an appointment please get in touch with us online or call 01525 378177.

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