Personal Injury Trusts
Why set up a Personal Injury Trust
If an injured person is in receipt of means tested State benefits or might be entitled in the future then if a large capital payment is made to them by way of compensation then there is potential for this to impact on entitlement to means tested benefits.
Setting up a Personal Injury Trust is a way of avoiding these adverse consequences. Damages paid into a personal injury trust are not taken into account when assessing entitlement to means tested benefits.
What is a Personal Injury Trust
A trust is in essence a “legal container” in which assets are placed and held separately from any other assets you own. A Personal Injury Trust can be used as a
“legal container” for compensation received from a personal injury claim.
Trustees administer the trust. The trustees are be able to make payments from the fund for the benefit of the injured person.
Time to set up a Personal Injury Trust
The rules relating to the impact of personal injury damages awards on means tested benefits are not straight forward.
For the first 52 weeks following the receipt of the whole or part of an award of damages from a personal injury claim the damages will be disregarded in calculating your capital for the purposes of means tested benefits. The 52 week disregard begins the day on which you first receive any payment and so care should be taken where there is an early interim payment of damages. Care should also be taken where the damages are used to purchase an asset which is then sold within the 52 week period. In certain circumstances the proceeds of that asset can be taken into account when assessing capital.
Consequently it is necessary to look closely at an individual’s particular circumstances to see whether it is appropriate to rely upon the normal “disregard” rules or whether to set up a personal injury trust.
Advantages and disadvantages
Advantages of paying the damages into a personal injury trust include:
- if now or in future your circumstances are such that you are entitled to means tested State Benefits the money in the trust would not be taken into account when assessing your entitlement to means tested benefits - this exemption would continue for such period as the trust remained in place
- possible comfort in knowing that while the trust continues expenditure from the Trust would need the approval of the trustees
Disadvantages of paying the damages into a personal injury trust include:
- you would not have direct control over the money in the trust
- there would be costs involved in setting up the trust and possible further costs in administering the trust
Terminating the trust
If you set up the Trust you can terminate it at any future date but the protection in relation to the assessment of your entitlement to means tested benefits would then be lost.
Administering the trust/ Trustees
It is necessary to have two trustees to administer the trust.
Payments from the trust would be at the discretion of those trustees. Both trustees could be trusted members of the family or friends. Equally you might prefer both to be professionals (such as Solicitors from my firm).
The advantage of including professional trustees would be their greater technical knowledge in the administration of trusts. There would, however, be additional costs in relation to meeting the fees arising from the professional trustees’ input in the administration of the trust. A further option would be for one of the trustees to be a professional and the other a trusted member of the family or friend. This might however give rise to additional costs arising from the need for those trustees to communicate.
In theory you could be a trustee along with at least one other trustee. There would in those circumstances be concern as to whether the trust would be fully effective in preserving your entitlement to state benefit. Furthermore solicitors may not be willing to accept joint appointment with you.
Setting up a trust
The terms of the trust may need to be tailored to meet the particular needs of the injured person. This is where the specialist advice we can provide comes into its own.
Please contact us if you would like any further details of the assistance we can offer.