Personal Injury Trusts

If you have received an award of compensation and you claim benefits, then you may wish to consider setting up a personal injury trust. Did you realise that the money you have received could result in your benefits being stopped, which may seem like adding insult to injury, but by obtaining the right advice and taking a few simple actions, this can be prevented.

If you are in receipt of certain means tested benefits, there will usually be a capital limit on how much you can have in savings before your benefits are affected.  The Government’s new flagship benefit ‘Universal Credit’ has a lower capital limit of £6,000 and an upper limit of £16,000. Similar limits apply to Income Support, Jobseeker’s Allowance or Employment and Support Allowance but all these will be phased out when Universal Credit is introduced across the country.

As a result, you don’t have to receive a huge amount in compensation before your benefits may be affected. However, the inherent unfairness of suffering an injury that wasn’t your fault and then losing your benefits when you are compensated for that injury has long been acknowledged. Special rules are in place to allow a claimant to set up a simple trust and place their compensation within it. This capital (and any income generated by it within the trust) is protected from the means testing rules.

A trust isn’t necessarily complicated and at its heart is an arrangement whereby one or more persons (the trustees) hold money or assets for and on behalf of the person who is entitled to the benefit of that money (the beneficiary). It should be noted that the beneficiary can, and frequently does, act as a trustee of their own fund.

Protecting your entitlement to benefits may be a key motive for setting up a trust, but there may also be other reasons or advantages in doing so. In particular the recipient of the award may:

  • be inexperienced or nervous of handling large sums of money;
  • need the protection that trustees can offer against wayward or ‘money-grabbing’ relatives;
  • prefer to delegate the responsibility and administration of the finances to a professional or third party without having to concern themselves; and/or
  • wish to try and ‘ring-fence’ the award against other issues such as bankruptcy and divorce.

In most cases, the simplest (and easiest to understand) form of trust will be sufficient but there are a number of alternative types of trust that could be considered. This is particularly so if what you are aiming to achieve is more complicated. The tax implications of creating a trust also need to be considered as the failure to take proper advice could result in significant and unexpected tax charges and other costs that could probably have been avoided.

Whether you want to set up a simple personal injury trust, appoint a professional trustee or perhaps create a trust with more ambitious objectives, our Court of Protection and Deputyship team has many years’ experience of advising on all these issues. 

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