Personal Injury Trust

What is a Personal Injury Trust?

When a person receives an award of damages following a personal injury, they should seek advice on putting that money into a trust. Money held in a personal injury trust will be disregarded by the local authority for the purposes of means-tested benefits. Damages that qualify for this sort of trust include compensation received from the following:

• an accident where someone else is at fault;
• criminal action of another person;
• medical negligence;
• an industrial disease where the workplace was at fault; or
• negligence which causes the death of a parent and results in the injury of a minor.

Any type of trust can be used to hold the compensation money, and what type of trust is best will depend on the individual circumstances.

The trust must be set up wholly or mainly for the benefit of the injured person.

Which benefits are means-tested?

• Pension credit
• Housing benefit
• Council Tax support
• Cold weather payment 

Why transfer funds to a Personal Injury Trust?

The main reason why people transfer their compensation to a Personal Injury Trust is to protect their means-tested benefits. If a person holds capital of between £6000 and £16,000, then their means-tested benefits will be restricted. If they hold over £16,000 in capital, they will lose their means-tested benefits altogether.

The compensation can only be held for 52 weeks by the injured person before it becomes “assessable capital” and will be considered by the local authority for means-tested benefits. 

Therefore, funds need to be transferred to a personal injury trust within 52 weeks from the damages being received. How this works where payment is received in instalments is not clear cut, and individual cases need to be looked at carefully.

It is important to note that total household income and capital are considered when the local authority assesses someone for benefits.

There are other benefits to having a trust, and people who are not looking to claim means-tested benefits should still consider transferring their damages to a trust. Other reasons why an individual may wish to transfer damages to a trust include:

• if it is likely they may need to claim means-tested benefits in the future;
• they will likely be assessed for funding for care fees when they are older;
• protection on divorce;
• protection on bankruptcy;
• they are unable to manage large amounts of capital themselves or are likely to make unwise decisions regarding the money;
• protecting money from outside influences, such as friends wanting to take advantage of the injured person’s newfound wealth;
• the injured person’s mental capacity may be in doubt in the future.

What type of trust should be used?

The type of trust to use will depend on the value of the compensation, how the award is structured (e.g. are there periodical payments or just one lump sum), and the circumstances of the injured person.

Different tax treatment applies to different types of trusts, and therefore the professional adviser will need to assess which is the most tax-efficient trust to deal with the injured person’s situation.

Here to help

At Myerson, we advise on all aspects of trust law and can help you choose the right trust option for you. If you have any more questions or would like more information regarding Personal Injury Trusts, you can contact our Wills, Trusts and Probate Team below.