Skip to main content

The use of Personal Injury Trusts


Is a Trust right for you?

Trusts can have a variety of uses and benefits and are not just for the wealthy.  If you are receiving a sizeable sum of compensation following a personal injury claim there could be benefits to setting up a Trust so that the compensation award you receive can be ring fenced and managed for the future going forward, particularly if the award is intended to provide support and assistance for many years.

If you receive compensation following a personal injury claim it may increase your capital above various assessment thresholds and so affect your entitlement to benefits, where you are in receipt of means tested benefits.  The receipt of compensation may also deprive you of the possibility of applying for such benefits in the future.  A Trust is a legal arrangement where you appoint Trustees to look after your compensation money.  The Trustees are usually people that are known and trusted by you (often you might be one of the Trustees) and can include a professional advisor.  The benefit of having a Trust in place is that if you become unable to look after things in the future, the Trustees will be able to continue to administer the Trust without any further procedures being put in place.  This might not be the case if the compensation money was held by you personally, where some different arrangements may be needed, such as appointment of guardians.

Trusts set up following the award of a compensation payment are called Personal Injury Trusts.  There are many different types of Trusts and the best one for you can be chosen according to your particular circumstances. 

The three main types of Trusts used are a Bare Trust, Discretionary Trust and Liferent Trust. 

  • A Bare Trust is commonly used for holding compensation money as it is the least expensive and simplest to run.  You are entitled to all the income that arises and can get the money back at any time.  Where the injured person is incapable of managing their affairs, very young or there is some need for the Trust monies to be protected, for instance from others who might seek to influence how the monies are used, it is possible to set up either a Discretionary or Liferent Trust. 
  • With a Discretionary Trust the Trustees have discretion as to whom and when they make payments.  In addition to the injured person who has received the compensation, other beneficiaries may be included, for example their spouse, civil partner, children or other relatives.  It is normally up to the injured person, if they are able to do so, to decide who the possible beneficiaries will be.  If it is more beneficial for the Trustees to retain part or all of the income, instead of making a payment, then they can do so. 
  • With a Liferent Trust the injured person is entitled to all of the income earned on the compensation money held by the Trustees.  The injured person and other beneficiaries are able to receive lump sums if required, but at the discretion of the Trustees.  When managing payments out of a Trust the Trustees would be mindful as to any impact on the injured persons affairs i.e. would it take them above threshold for benefits?

There are running expenses associated with Trusts.  Generally the cost of running a Trust can be offset to an extent by the benefits from the preservation achieved, or investment of the compensation award. 

As with most matters, it is important that advice is tailored to your personal circumstances, your own financial position, the size of your reward, whether or not you are in receipt of means tested benefits now or are likely to be in receipt of them in the future and what your income needs are going to be.

If you would like more information, or to discuss setting up a Personal Injury Trust, contact Private Client Solicitor, Lynne Hopkins on 01592 268608 or email lhopkins@thorntons-law.co.uk. or any member of our Private Client team.

Posted by Lynne Hopkins

Associate

Stay updated

Receive the latest news, legal updates and event information straight to your inbox

Stay Updated
See all Personal Injury articles See all Private Client articles

< Back to all Knowledge articles

Top