What is a Personal Injury Trust, and could you benefit from one?

As we go about our daily lives, very few of us ever stop and think about how we, or our loved ones, would be able to cope if we suffered a life-changing injury. Although we rarely plan for it, accidents and personal injuries are fairly common occurrences, and the effects can be devastating – especially if we aren’t the ones at fault. 

According to the Health and Safety executive, around 565,000 working people sustained an injury at work between 2021 and 2022. In the same year, there were over 15,000 clinical negligence claims made against the NHS, from people who felt that they suffered significant harm due to substandard care. 

Whilst accidents do happen, and are typically unintentional, this can be little comfort to a person who has sustained a life-changing, or even permanent personal injury. And where compensation is awarded to address these unfortunate incidents, the safest thing to do with these finds is to ensure they are held in a personal injury trust.

In this article, we will discuss personal injury trusts, the benefits of setting one up, and whether a personal injury trust is the best option for you. 

What is a personal injury trust?

A personal injury trust (PI Trust) is a legal arrangement where money awarded from a personal injury claim is held by people called trustees, for the benefit of an injured or disabled individual (also known as the beneficiary). 

There are numerous types of trusts which can be formed under the law. However, a PI Trust is known as a bare trust and is distinct for the following reasons:

• it is made up exclusively of funds awarded from a personal injury or clinical negligence claim (which could include compensation money, charitable payments, or life insurance policy payouts);
• the person setting up the trust (called the settlor) will be the injured party (beneficiary);
• that person will be the sole or one of the beneficiaries of the trust.

If you have been awarded compensation money, it’s important to obtain advice on how to protect those funds. A significant benefit of compensation money being held within a personal injury trust is that the money is excluded from assessments for means tested benefits and social services assistance. The ‘ringfencing’ of the fund, in this manner, allows the injured party to continue to receive the benefit of that state funding if they need it, whilst using the personal injury trust to meet the cost of additional needs.

For example, if a person is already eligible to receive universal credit (UI) based on a condition which impacts their ability to work, and may subsequently suffer a personal injury. Any compensation they receive from this injury shouldn’t lower their existing UI payments. For instance, they may need to use their personal injury payments to cover the cost of a visiting nurse, which will be additional to the support they were receiving due to their original condition. Personal injury compensation is typically awarded to address any initial pain and suffering an individual may have gone through as a result of the injury, and to cover any future medical expenses they may have due to the injury. 

How does a personal injury trust fund work?

If you have been awarded money as a result of a claim for compensation, you may choose to ring-fence the funds in a personal injury trust account. This means that the sum awarded and placed in trust will be exempt from assessment for means-tested benefits (like universal credit) and less vulnerable to incidents like theft or fraud.

Normally, the beneficiary of the trust will be one of the trustees. However, if they are under 18 years of age, or have diminished capacity, two or more trustees may be appointed to manage the funds on behalf of the beneficiary. The trustees will be responsible for making decisions in the best interests of the beneficiary, such as arranging regular payments, authorising one-off payments if the beneficiary requires them, and even making sensible investments.

Trustees will often arrange monthly maintenance payments, to support the beneficiary with regular medical expenses or support that they require to live a comfortable, fulfilling life. Larger payments can be made, for large expenses such as buying a home or a car, but these will need to be approved and signed off by each trustee, and in the best interest of the trust’s beneficiary.

Setting up a Personal Injury Trust

To set up a personal injury trust, the settlor of the trust must generally have the requisite mental capacity to give instructions for its creation.  If they lack mental capacity, an alternative structure for the management of a compensation award is usually more appropriate. In incidents involving a minor (16 or under), a parent or guardian can establish a personal injury trust to manage such funds for their child with approval from the Court.

When setting up a PI Trust, it is usual practice for a trust deed to be drawn up by a solicitor detailing the terms of a trust. Trustees can either be lay (for example family members or close friends), a professional (solicitor) or a mixture of the two. 

There are various benefits to having your trust managed by a professional, especially if it involves investing and accounting for large sums of money.  At Anthony Gold, we employ a number of experienced professional trustees. If you would like to speak to a member of our trusts team to learn more, you can contact us via our website and an advisor will be in touch shortly.

The powers of the trustees are generally contained in the trust deed. For instance, whether they can make investments on behalf of the beneficiary, or simply arrange for payments to be made from the existing fund. Legislation also sets the standard by which trustees should manage the fund, together with general trustee accountability.

Being a trustee is an important responsibility, and trustees must ensure they meet certain legal duties. They must act honestly, with a duty of care and in accordance with the law. Of utmost importance, they must act in the best interest of the injured individual.

It is very important to choose the right trustees, as they will exercise control over the personal injury trust and the funds held within it. The trustees selected must be able to work well together, and act in the best interests of the person for whom the funds are held. Most individuals prefer to appoint family members or close friends as trustees, but in some cases, a professional trustee may be more appropriate.

 Where should I open my personal injury trust account?

When choosing where your personal injury trust account should be held, it’s a good idea to carefully consider your options. Some banks and building societies offer specialist accounts, designed for funds which are held in trust. However, you can typically use a standard bank account, as long as there is an option to include your trustees as approved managers of the account. 

Similar to opening a standard bank account, it’s important to look at which accounts will offer you the best rates of interest. However, always opt for a secure account, which meets the requirements that allow your trustees to manage your funds in accordance with your trust agreement, 

How are personal injury trusts managed?

Any monies held on your, or a loved one’s behalf, can be accessed by the appointed trustees, who manage the money on the beneficiary’s behalf. If you are entitled to the funds in the trust, you are considered as the beneficiary, and it is essential that the trustees that are appointed are trustworthy and have your best interests at heart.

If there is more than one trustee, whether a family member, friend or solicitor, all Trustees will be required to agree should you wish to release funds from the Trust. They should apply their own decision-making skills, considering the amount being requested, the future of the fund, and how much it will benefit the recipient of the trust.  

To ensure the continued valid operation of the Trust, the Trustees will likely make payments on your behalf, rather than releasing funds directly into your personal account, depending on how it is proposed that the funds are spent. This could mean that you present them with a request, such as withdrawing funds to put down a house deposit, which they can then assess for the overall benefit it will have to your life, and how this will affect the future of the fund. For instance, if the house deposit would require all or most of the trust to be withdrawn, they may not approve the request. They may have concerns on how you will manage mortgage payments on such a large property in the future, without the funds from your personal injury trust. 

Trustees will also commonly arrange for regular payments to be made from the trust. These payments can be made either directly to the beneficiary for their day-to-day expenses, or to third parties to cover ongoing care or support expenses which may be a result of their injury. All trust agreements are unique, and require the consensus of all parties that this is the most sustainable, and favourable way to use the beneficiary’s compensation.

What can I spend my personal injury trust payments on?

Although there are no legal restrictions on what funds from a personal injury trust can be spent on, any transactions made should be made in the best interest of the beneficiary, and with the agreement of all trustees.

Some reasonable examples of how the funds awarded from a personal injury claim could be spent may include:

• Physiotherapy, or other rehabilitative treatments if the injury resulted in impaired movement
• Counselling, if the injury led to trauma or related mental illnesses, such as PTSD
• Paying for a live-in or visiting carer
• Paying other professionals for help with daily tasks (for instance, a cleaner)
• Medical equipment and assistive technologies, such as walking sticks, hearing aids, or a wheelchair
• Maintenance payments, which will help fund the beneficiary’s day-to-day spending and supplement their income if they are unable to work

Again, any money spent from the personal injury trust should be for the improvement of the beneficiary’s quality of life. It may be that they wish to withdraw some of this money for a holiday, or something they want rather than need. While this may improve their life in the short-term and therefore be an appropriate use of funds, trustees should carefully consider the impact this will have in the long-term before approving a payment like this. 

Can I make investments with my personal injury trust?

The funds from your personal injury trust account can be invested, as long as each of your trustees approves the investment. Your trustees can also invest money on your behalf, and have a legal responsibility to avoid highly risky investments, as this could lead to losses that will have a negative impact on you as the beneficiary. 

Although all investments do carry some level of risk, your appointed trustees should exercise good judgement when approving or choosing investments, and seek financial advice where necessary. There have been cases where trustees have acted irresponsibly with personal injury trust funds, but thankfully, there is legal recourse available to you in the event that this happens. To find out more, you can visit our losses caused by trustees advice page.

Can I remove a trustee from my personal injury trust?

It is possible to remove a trustee from your personal injury trust, if there are relevant legal grounds to do so. This is one of the reasons it’s so important to have faith in the trustees that you appoint, as it is much trickier to remove a trustee than it is to appoint one. However, if you feel they aren’t acting in the best interests of either yourself, or a loved one, there are ways to have them legally removed from the trust. 

To find out more about the process of removing trustees, feel free to visit our advice page on the topic.

Can I still claim universal credit if I have a personal injury trust?

Funds placed within a personal injury trust should be disregarded when deciding whether you are entitled to receive certain state benefits, like universal credit in the UK. When you are assessed for your eligibility, standard savings accounts will often form a part of your overall net worth, which assessors typically include in their decision-making.

However, a personal injury trust consists of compensation you have received to support you in the aftermath of a life-changing event which was not your fault. Because of this, it shouldn’t affect your universal credit entitlements, as the money is to address things such as medical care and support, rather than day-to-day expenses. Although, how you choose to spend your compensation is a matter between yourself and your trustees.

If you are considering setting up a personal injury trust to protect benefit entitlements, there is a 52 week “grace period” during which the Trust must be created. That time starts to run from the first payment on account of a damages award, which could be an insurance pay-out or an interim payment. 

To prevent your compensation funds being counted as standard savings, we highly recommend arranging a personal injury trust to protect your money. Even if you currently have no plan to claim universal credit or other means-tested benefits, if your circumstances change, and you haven’t set up a trust, your compensation money could be counted as part of a future benefits assessment.

Can I add any of my own money to a personal injury trust fund?

It is essential that only the funds from the compensation payment are deposited within the Personal Injury Trust, as mixing Trust monies with other funds (derived outside of the compensation award) could render the trust ineffective; removing the ringfencing for welfare benefits purposes, that would otherwise exist. 

It’s best practice to keep money from other streams of income separate, and your personal injury trust fund distinct from any other savings or trust accounts you may have.

How can I find a Personal injury trust solicitor to advise me?

Our Court of Protection department at Anthony Gold has extensive experience in managing Personal Injury trusts, deputyships, and Lasting Powers of Attorney. We can help advise you on whether you or a loved one would benefit from a personal trust, as well as how to create and manage one.

We act as professional trustees on many complex trusteeship and deputyship matters. If you require advice on what to do with compensation money, or you need advice on how to manage trust money for a vulnerable individual, you can contact our Court of Protection Team via our Contact page. A member of the team will be in touch shortly to discuss your options. 

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.