Personal Injury Trusts.

Many people will not be aware of what a personal injury trust (PI trust) is, but the benefits of having one in place could be invaluable. Whilst a PI trust may not be suitable for everyone, it is something to consider if you are pursuing a claim due to sustaining an injury. 

What is a PI Trust? 

A PI trust is a type of trust which holds compensation following a successful personal injury claim or insurance policy pay out. It allows the settlor to transfer funds into the trust for the trustees to hold and manage in a way which is suitable for the beneficiary. It is another mechanism which helps people, who have been injured as a result of an accident that wasn’t their fault, to try and put them in as similar position as possible had the injury not occurred. 

What is a Settlor? 

The settlor is the injured person who is transferring their award into a PI trust. 

What is a Beneficiary? 

A beneficiary is someone who is entitled to benefit from the assets held within the PI trust. Beneficiaries can vary depending on the type of PI trust you create. 

What is a Trustee? 

Trustees are individuals who are the legal owners of the assets held within a PI trust. Depending on the type of trust you create, a trustee could also be a beneficiary. 

Why Should I Set Up a PI Trust? 

When an individual is means tested, for the purposes of means tested benefits or local authority support, their capital is considered which, after a 52 week disregard period, can include compensation from a personal injury award, with some specific exceptions (such as if personal injury funds are managed by a deputy or held within a PI trust). If the award is held within a PI trust then the funds are disregarded by the DWP and local authority, meaning you will be as eligible for means tested benefits or local authority support as you would be without the PI trust. 

You do not have to be in receipt of means tested benefits or support at the time of creating your PI trust, but it does mean that should you need them in the future the assets held in the trust, and income arising, can be disregarded. 

What Funds can be Paid in? 

A PI trust can only hold funds which have been awarded following a personal injury. This could be interim payments which are payments made before a claim has settled, the final award, which is usually a lump sum upon settling the claim, or periodical payments which are payments made by the defendant on a periodical basis for either a set duration of time or for the injured person’s life time. 

It is essential that only funds received from a claim for personal injury make up the trust funds as ‘mixing’ can render the PI trust ineffective. This means that, for example, if you inherited money from a relative you could not transfer that into the trust. 

Who Should my Trustees be? 

In order to effect a trust there must be a minimum of two trustees. A trustee must be over the age of 18, have the relevant mental capacity to act as a trustee and be willing to act as trustee. Depending on the type of trust that you wish to create, the settlor may wish to be a trustee along with a family member or close friend. We always recommend that you appoint someone you trust. 

If you do not have someone whom you trust who would be willing to be a trustee, or your affairs are complex, you could also consider appointing a professional trustee. 

Trusts are a complex area of law and we always recommend seeking expert legal advice. If you would like to know more about PI trusts and whether you may benefit from creating one, contact our Court of Protection Team who would be happy to assist you.