What is a personal injury trust and do I need one?

A personal injury trust is a legal arrangement to enable a minimum of 2 persons (called ‘trustees’) to hold and manage a personal injury award for the person receiving it (called a ‘settlor’) to ensure the settlor:

  • retains their entitlement to means-tested benefits, and/or
  • minimises their contribution towards the costs of ‘community care support’ provided by their local authority social service department

An interim payment or a final settlement in respect of your personal injury case is a type of capital and may be considered when being assessed for the above benefits and care support.

However, regulations state that personal injury awards held in a personal injury trust are to be disregarded when assessing entitlement to means-tested benefits and contributions towards community care costs.

If the settlor is below pension age and in receipt of means tested benefits, or of any age and in receipt of community care support or are likely to fall into either of these groups in the future, it may be advisable for the settlor to set up a personal injury trust.

 Who is the Settlor?

The Settlor is the person entitled to the personal injury settlement.

Who should be a Trustee?

A trustee is a person, chosen by the settlor, who looks after the personal injury funds awarded to the settlor. A minimum of 2 trustees are required to form the personal injury trust. The settlor can be one of the trustees, with at least one other person.

A trustee can be anyone over the age of 18, including family and friends. They should reside in the UK and ideally should not have a negative credit rating or criminal record, as this will cause problems in setting up the trust bank account.

The trustees will vet what is spent from the trust and what it is spent on, and they will need to consent to the withdrawal, and its proposed use. Trustees must always act in the best interest of the settlor.

How do I set up a personal injury trust?

The trust itself is a legal document which can be prepared for the settlor by Ann Coutts, Senior Associate in our private client department. The settlor and trustees would need to meet with Ann, either in person or virtually to discuss the matter, and then the trust document would be prepared. Ann would also liaise directly with your personal injury Solicitor here at Ellisons.

Once prepared, the document needs to be signed by the settlor and all trustees. The trust will be named for example “the (settlor full name) personal injury trust 20 (**)”.

Where are the monies invested?

The trust funds must be held separately to any personal funds, and therefore the trustees will need to open a trust bank account. The account must hold only the personal injury settlement and any income received on that money and should be opened in the name of the trust, not the name of the trustees.

This account may only be a ‘holding’ account for the funds, which the trustees may wish to invest in other financial products, to gain a better rate of return, and Ann can help provide recommendations of independent financial advisors to assist with this.

Where can I open a Trustee bank account?

Once the trust is created and signed by the settlor and trustees, banks which offer accounts to trustees include Metro Bank, Barclays, and Cater Allen, although we can not recommend any specific bank.

It is important that if the settlor is a trustee that they do not have sole access to the account, as the use of direct access, for example by a debit card and personal internet banking, could make the trust invalid for the benefits agencies.

How does the Settlor access the fund?

The main method is for the Trustees to either issue a cheque or make a bank transfer into the settlor personal bank account. It is important that these payments do not take the settlors personal account over the allowed limits.

The rules as to how much a settlor receiving means tested benefits or community care support can hold in personal assets and as to both capital and income are complex, and we would be happy to provide further details upon request and confirm our charges for the additional advice.

Tax requirement of the trust

Depending on several factors the trust may need to be registered at H M Revenue & Customs and file ongoing tax returns. We can provide further advice on this if required and would confirm our additional charges.

Can the Settlor receive funds whilst the bank account is being set up?

If the settlor needs funds whilst the trust is being established, the settlor can ask for an ‘advanced payment’. This is only possible if the funds have been received by the personal injury solicitor and careful consideration should be given to ensure any such payment does not increase the settlors personal account to affect their entitlement to means-tested benefits.

If you require any further details regarding personal injury trusts, please contact Ann Coutts.