What is a personal injury compensation trust?
A personal injury trust allows the compensation that you receive because of an accident or injury to be disregarded when you are assessed for means tested benefits. It may also protect your compensation from being used to pay any care fees if you need to go into residential care in the future. To remain eligible for state benefits, your compensation must be placed in a specially designated trust, bank or building society account, set up by trustees and held separately from your personal finances.
How does a personal injury trust work?
Instead of receiving your compensation directly, the money is held by your trustees on your behalf. Once a trust is set up a bank account is opened up by your trustees which is run on your behalf by your trustees. The trust document must appoint at least three (but no more than four) trustees. The person receiving the compensation and setting up the trust (the ‘Settlor’) can be one of the trustees and the others could be your family members, friends or a professional. The trust document sets out guidance on how the money is to be managed by the trustees.
The role of the trustees
The trustees hold and have control over the compensation award, but you can choose to access the money at any time and the trustees do not have to be persuaded to release it. You also have the power to remove a trustee and appoint someone else at any time.
Use of the trust money
The money held in the trust must be used for your benefit and you can obtain the money at any time. There are some rules about how you should spend the money and you cannot make gifts to other people. To safeguard your benefits, you must not be seen to have personal access to the trust fund. Therefore, it is recommended that the trust is used to pay for things directly.
It is up to you how the money in the trust is used but typical examples which would not affect your benefit entitlement are the purchase of personal possessions, for example, a TV/DVD player, holidays, cars, mortgage capital repayment, school fees, TV license and the cost of care and other needs.
Online banking and card transactions are now possible with some trust accounts, check what facilities are offered by each bank.
The DWP and local authorities can treat amounts that they consider to have been ‘alienated’ (whether by spending or gifting) as still forming part of your assessable estate and you could end up having your benefits stopped, interrupted, or reduced, even after spending your award funds.
Your benefits are worked out on your personal funds, not on the compensation held in the trust. If you put trust money in your own hands or personal bank account, that money will be treated as yours and could reduce or stop your benefits. To avoid this, you should not access the trust fund by paying money to yourself or withdrawing cash. Your trustees should buy what you need direct from the trust bank account.
Contact our Private Client Solicitors
For expert legal advice and assistance on how to set up a personal injury trust, please contact our private client solicitors on 020 8240 9018 or via the enquiry form on our website.