How does a personal injury trust work?

If you’ve suffered injury and have been awarded compensation, the result can be as a daunting as it is a relief. Compensation awards can amount to substantial sums of money, and receiving it all at once may raise questions about how you’ll manage it and whether you can keep receiving benefits.

To answer these concerns and more, personal injury trusts are a way of protecting compensation payments without complicating means tested benefits.

What is a personal injury trust?

A personal injury trust is a type of trust reserved for individuals who receive compensation for personal injury.

Like any trust, it’s a way of protecting and managing assets—in this case, cash—without outright cutting the individual off from it. Usually, a trust is an ideal option for people who are underage or have a condition that renders them unable to manage their money independently.

However, personal injury trusts are often a necessity even for those who know how to handle their finances perfectly well. The benefits they confer directly protect the beneficiary’s finances and ensure that compensation payments don’t end up ultimately doing more harm than good.

Accordingly, the trust is intended only for the awarded money, and it cannot be combined with other cash. This practice of ‘mixing’ can render the protective benefits of the trust void and make the trust itself ineffective.

The account used for the trust must be set up in the name of said trust, and not in the name of the individual who stands as its beneficiary. This also applies to assets purchased, which we’ll go into further later on.

Why use a personal injury trust account?

When you are awarded compensation for a personal injury, the money may be paid directly to you and placed into your bank account.

For a time, this is perfectly fine. There exists a grace period which protects that money for 52 weeks starting from the initial payment, meaning it doesn’t factor into benefits or care fees. Means tested benefits will be calculated regardless of the amount you were awarded, but this will only be the case within that 52-week period.

Once it expires, the compensation will be counted as savings without any further special consideration if it is still mixed with other personal finances.

Money that has been placed into a personal injury trust is exempt from benefits calculations. This allows beneficiaries to continue receiving means tested benefits regardless of the amount they were awarded.

The money in the trust can still be accessed and spent, albeit with the appointed trustee needing to grant permission for withdrawals by signing off on requests. This is one of the factors that grants an additional layer of protection to the money contained in the trust.

Trustees are in place to oversee the money in the trust and act in the best interests of the beneficiary where needed. They cannot access it for themselves or use it independent of the beneficiary.

Trustees are trustworthy individuals such as relatives, particularly parents if the beneficiary is a child, or a partner. Some people may elect to choose a solicitor as a trustee for many reasons. Since you need at least two, it may be wise to choose a loved one and a solicitor to make up your pair of trustees.

One of the added benefits of this approach is that the solicitor can act as a source of guidance for the other trustees and ensure they fully understand their role and responsibilities.

Who can set up a personal injury trust?

Anybody who has been awarded compensation for a personal injury—perhaps from a legal claim or as the result of an insurance pay out—can set up a personal injury trust. If this is not possible due to any kind of impairment or other special context, a solicitor can set up the trust on behalf of the beneficiary.

Banks should be able to facilitate the process by setting up an account with the chosen trustees in control, verifying their identities and ensuring the account bears the name of the trust so that it stands apart from the beneficiaries personal assets (as far as benefits eligibility is concerned).

When should a trust be set up?

As soon as possible, even if you’re comfortably within the grace period and don’t intend to receive means tested benefits in future. Once the trust is set up, it’s ready to receive the money and you ensure that you don’t end up leaving it in personal accounts on accident.

This is especially true if compensation is paid in more than one instalment; the 52-week period applies only to the initial payment, so any further payments need to go into the trust in order to not be counted against benefits.

What can I spend my personal injury trust on?

The money in a personal injury trust can be spent as the beneficiary sees fit, as long as it’s for their benefit. Purchasing a computer, paying for a holiday, or buying a house with a personal injury trust are all perfectly legal and sound.

If purchasing something like a home, it must not be bought under the name of the trustees as an investment in order for it to be discounted against means tested benefits. Additionally, the property would legally be the property of the trust, since the money within a trust is not legally the beneficiaries.

Bought in the right way so that it is legally the property of the trust, buying a house with a personal injury trust won’t impact means tested benefits.

Legal help for personal injury

If you need the help of a qualified, experienced solicitor to guide you through the legal proceedings resulting from personal injury, contact Mark Reynolds Solicitors.

Our team can provide thorough advice backed by years of collective experience and show you the way to the respect and compensation you deserve.

To find out more about our services, contact us today.