What Is A Personal Injury Trust?

When someone is provided with compensation following a personal injury, it’s often the case that they receive a significant amount of money. This is especially likely if they have been forced to give up work or reduce working hours because of the injury. As you can imagine, such a large amount of money must be handled correctly to ensure it benefits the person as much as possible, for the rest of their life, in many cases. For this reason, people in this situation can set up a ‘personal injury trust’ when they receive compensation. But what is a personal injury trust?

A trust essentially acts as a form of protection for the compensation received and ensures it cannot be interfered with or drained by third parties. In this post, you’ll be able to learn everything you need to know about personal injury trusts.

What is a Personal Injury Trust?

Legally speaking, a personal injury trust is a legal entity established by someone who receives compensation following a personal injury (the settlor) or by the court if the settlor is a child. To create a personal injury trust, a person must sign a document known as a personal injury ‘trust deed.’ Trusts consist of assets, which can include both money and property, and the trust is the legal owner of the assets.

To set up a trust, a settlor must fully understand what putting a trust in place means and how the assets will be managed moving forwards. If there is a lack of understanding in this regard, the Court Of Protection will decide to assign a deputy or reconsider if a trust is the most effective way to manage the funds.

Anyone who monitors or makes decisions about the assets within the trust is known as a ‘trustee.’ The person who initially sets up the trust can decide which people are best suited to the role of a trustee. This is often family, close friends or professional third parties such as a solicitor. While the settlor themselves can be a trustee, they would also require two non-related people to be fellow trustees.

When a person sets up a trust, they transfer legal ownership of the assets to their trustees. Don’t worry; we know this can sound like an enormous vulnerability. However, it’s crucial to note that trustees can only ever use the funds in ways that directly benefit the settlor. Although trustees do indeed have control of the money, they have an absolute and legal duty to only think of the needs of the person who received compensation. Therefore, the funds cannot be used to benefit third parties, with minimal exceptions.

With a trust in place, settlors can get the money paid daily into the bank account. This can be managed day-to-day to pay their bills or any other purpose. Essentially, it allows them to manage money the same way as they would before the injury.

Personal Injury Trusts: Pros and Cons

So, now you know what a personal injury trust is, it’s time to discover a few of the pros and cons.

Pros

Does Not Impact Means-Tested Benefits

The first key advantage of a personal injury trust is that the funds will be overlooked for means-tested benefits and local authority funding. While this shouldn’t be looked at as a crafty loophole, it’s just a unique situation that the government recognises.

This law is referred to in paragraph 12 of schedule 10 of the Income Support Regulations 1987, stating that personal injury claim payments will be ignored for 52 weeks after the settlement date. After the 52 week period, only funds in the trust or held by a deputy are to be ignored by means-tested benefits.

Removes Stress of Handling Funds by Yourself

The second, and for many people, the most crucial advantage, is removing the burden of managing such a significant sum of money. Trusts offer a hugely beneficial solution for people who have already been through a great deal because of an injury and subsequent fallout. For many people, having the option to ask trusted family and friends or professional advisors to take some responsibility and carry the weight can be very appealing. This way, there is no possibility of them losing money due to vulnerability or as a result of poor decisions stemming from the impact of the injury.

Cons

Initial Start-Up Cost

Regarding disadvantages, they are few and far between. There is an initial start-up cost of establishing a trust, as you will require advice and guidance from a professional. Additionally, you will also be required to pay more if you decide to choose a professional trustee, which comes with professional services costs. But when you consider the financial advantages that come with having a trust, it’s tough to see this as a disadvantage. It’s simply something to keep in mind. OH Parsons will always quote fixed fees for preparing Personal Injury Trusts.

You Technically Lose Control of Your Money (But Hear Us Out)

Of course, the disadvantage that stands out and causes some concern is that the funds will no longer belong to the settlor. It sounds strange, doesn’t it? But as we explained above, this is perfectly normal and also offers protection for the person who was compensated. The trustees can only use the money (or funds from property sales) to benefit the compensated person. It is managed by trusted people whom the settlor has chosen themselves. Additionally, and to offer a sense of balance and give the compensated person some authority, a personal injury trust can be ended at any moment.

Do you want to find out more about personal injury trusts and want to speak to an expert? OH Parsons is a leading law firm with a stellar reputation for winning personal injury claims. Get in touch with our helpful team if you want to make a claim.

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