Receiving compensation following a personal injury can bring relief but also complex challenges—especially when it comes to protecting your entitlement to means-tested benefits and managing your award responsibly. One of the best ways to safeguard your compensation is by setting up a Personal Injury Trust (PIT). This guide explains what a personal injury trust is, why it’s important, and how you can open one in the UK.
How to Open a Personal Injury Trust: A Comprehensive Guide for UK Claimants
A personal injury trust is a special legal arrangement designed to hold compensation money awarded after a personal injury claim. This could result from an accident, medical negligence, abuse, or criminal injury compensation. The trust holds your compensation separately from your personal assets, which helps protect your entitlement to means-tested benefits such as local authority care funding or disability-related support.
Unlike simply holding the money in your own name, placing your compensation into a personal injury trust means the funds are not counted as your assets for benefit assessments. This can be crucial if you currently receive benefits or may need to in the future.
Why Should You Consider Setting Up a Personal Injury Trust?
Protect Your Benefits
If you receive means-tested benefits, your compensation could affect your eligibility. For example, local authority care funding has a capital threshold (currently around £23,250). If your compensation is held personally, it may push you above this limit, causing you to lose essential support. A personal injury trust legally excludes this money from means testing.
Safeguard Your Compensation
A personal injury trust ensures your compensation is managed carefully and cannot be used by others, including family members, without your consent. This is especially important for vulnerable individuals who may need help managing their finances.
Plan for the Future
Even if you don’t currently claim benefits, circumstances can change. Having a personal injury trust in place protects your compensation from affecting future claims.
How to Open a Personal Injury Trust: Step-by-Step
1. Act Within the Time Limit
You should set up a personal injury trust within 52 weeks (one year) of receiving your first compensation payment or interim payment. This is known as the “one year disregard” period. Setting up the trust within this timeframe ensures your compensation is disregarded for means-tested benefit assessments.
2. Choose Your Trustees
A personal injury trust must have at least two trustees. You can be one trustee yourself, and the others are usually trusted family members, friends, or professionals such as solicitors or trust companies. For larger settlements or complex needs, including a professional trustee is advisable to provide expertise and impartial management.
Trustees must be over 18, financially responsible, and willing to act in your best interests. They will manage the trust funds, make payments on your behalf, and keep detailed records.
3. Draft the Trust Deed
A legal document called a trust deed sets out the terms of the trust, including how the funds will be managed and used, who benefits, and the powers and duties of the trustees. This document must be carefully drafted by a solicitor experienced in personal injury trusts to ensure it complies with legal requirements.
4. Set Up a Separate Bank Account
Trustees must open a dedicated bank or building society account in the name of the trust. This account is separate from any personal accounts and is used solely for the trust funds. All transactions require trustee approval, ensuring transparency and control.
5. Transfer the Compensation Funds
Once the trust deed is signed and the bank account is open, your compensation money is transferred into the trust account. From this point, the money legally belongs to the trust, not to you personally.
6. Ongoing Management and Reporting
Trustees are responsible for managing the funds prudently and making payments for your care, living expenses, or rehabilitation as needed. They must keep accurate records and may need to report to relevant authorities or to you, depending on the trust terms.
Who Can Help You Set Up a Personal Injury Trust?
Setting up a personal injury trust involves legal and financial complexities. It is highly recommended to seek specialist advice from solicitors experienced in personal injury and trust law. They can:
- Advise if a personal injury trust is suitable for your circumstances.
- Help choose appropriate trustees.
- Draft and execute the trust deed.
- Assist with transferring funds and setting up the trust account.
- Provide ongoing support to trustees.
Professional trustees, such as solicitors, bring expertise and impartiality, especially for larger trusts.
Common Questions About Personal Injury Trusts
Can I set up a trust after 52 weeks?
Yes, but you may lose the benefit of disregarding your compensation during the period before the trust was set up.
Is there a minimum amount required to set up a trust?
There’s no strict minimum, but it’s usually practical to set up a trust if your compensation exceeds the thresholds for means-tested benefits (typically between £6,000 and £16,000).
Can I be a trustee myself?
Yes, you can be one of the trustees, but you must appoint at least one other trustee.
What types of trusts are used?
The most common is a ‘bare trust,’ which is straightforward and often suitable for personal injury funds.
Protect Your Compensation with a Personal Injury Trust
Opening a personal injury trust is a powerful way to protect your compensation award and your entitlement to vital benefits. By acting promptly and working with expert legal advisors, you can ensure your compensation is managed safely and effectively, giving you peace of mind now and in the future.
If you’ve recently received a personal injury settlement or are about to, consider setting up a personal injury trust as part of your financial planning. Specialist solicitors can guide you through the process, helping you choose trustees, draft the trust, and manage the funds responsibly.