What the pros and cons of setting up a personal injury trust?

Personal injury trust graphic

If you are claiming means-tested benefits and you are awarded compensation following an accident or injury, your eligibility to receive benefits could be affected.

Protecting your compensation settlement or award

Most people assume that any settlement or award that they receive following an accident or injury will not affect any means-tested benefits they may also be receiving.

However, it may be possible to protect both your compensation and your benefits, by ring-fencing your compensation with a Personal Injury Trust (PI Trust).

What are means-tested benefits?

Many benefits received from the state are 'means-tested' - meaning your broader financial circumstances are taken into account when assessing your eligibility to claim benefits.

Typical means-tested benefits include:

  • Income Support and Housing Benefit
  • Council Tax Benefit
  • Jobseeker's Allowance
  • Pension Credit

Will my benefits be affected?

Local authorities do not distinguish between compensation you may have received following an injury and your savings.

If you have between £6,000 and £16,000 of capital, your benefits will likely be reduced to some degree. If you have more than £16,000 in capital, you likely lose all entitlement to means-tested benefits, such as Housing Benefit and Council Tax Support.

See also:

How will a personal injury claim affect my state benefits?

How can I protect myself against loss of benefits following a personal injury claim?

General damages awards are made for any pain and suffering and loss of amenity. General damages are carefully calculated to ensure that as a claimant, you receive the right amount of compensation to help put you back in the position you were in before your accident.

Special damages may be also be awarded to compensate you for any financial losses. such as loss of earnings.

If your means-tested benefits were to be cut following a compensation award, then you would have to subsidise your living costs from your compensation award. This could, for example, leave you unable to pay for any necessary medical treatment.

To prevent you from falling into this trap, your solicitor may advise you to set up a Personal Injury Trust.

What is a Personal Injury Trust?

A Personal Injury Trust is a legal way of ring-fencing your compensation, preventing it from being taken into account when assessing your financial means. As such, a Personal Injury Trust may allow you to continue to receive means-tested benefits.

You do not need to set up a trust before knowing whether your claim has been successful.

Claimants can set up a trust within 52 weeks of receipt of compensation. In practice, it is usually advisable to set a trust up as soon as possible after the award has been made.

Setting up a trust will require you to nominate a minimum of two trustees whose role will be to manage the compensation placed in that trust.

Trustees are people that are trusted by you, the beneficiary, and are usually family members or friends. A claimant can be a trustee of their own trust, but it will still be necessary to nominate a minimum of 2 further trustees. A trustee must be over 18 years old.

Personal injury solicitors are familiar with the process of setting up Personal Injury Trusts and they will advise you accordingly.

What the pros and cons of setting up a personal injury trust?

If you currently receive financial benefits from the state, or you suspect that you may need to claim financial benefits in the future, setting up a personal injury trust is usually recommended.

Setting up a trust is not expensive, although it may not be worth it if the compensation award is of a nominal amount. To determine whether a trust is for you, it is worth speaking to a solicitor. However, you do not need to decide whether to set up a trust before embarking on a claim. You can make this decision after you have received an award.

Are there any other benefits of a Personal Injury Trust?

Yes. A trust will also ring-fence your injury compensation from any third party. As an example, if a claimant subsequently goes through divorce proceedings or declares bankruptcy, the money held in your trust will not be taken into account.

See also:

Will I have to pay tax on my injury compensation award?

How did your injury happen?

The compensation claims process will depend on where and how your injury occurred. Click the icons below for more information:

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Gaynor Haliday, Legal researcher

Author:
Gaynor Haliday, Legal researcher