Personal injury trusts: winning damages doesn’t mean losing benefits

A car accident, a medical negligence case, a crime: they can all result in substantial financial damages. Personal injury payouts can make a massive difference to someone’s life, but they can also impact their eligibility for means-tested state benefits.

A personal injury trust enables people to ring-fence their compensation funds, but the set-up process can be complicated. Our personal injury trust specialists are ready to support you and your loved ones at every step of the way.

How do personal injury trusts work?

A personal injury trust involves opening a separate bank account for the damages paid to a beneficiary as part of a settlement or court award. Between two and four trustees are appointed to manage the account, which can include loved ones, a solicitor and the beneficiary – if they have mental capacity and are aged over 18.

The trustees make decisions about how the money should be used in the best interests of the beneficiary. For example, the funds could pay for prosthetics following the loss of a limb, nursing care after a brain injury, or psychological support for a crime victim.

There are different trusts for different circumstances: the simplest is called a bare trust but a discretionary trust is also a popular choice. Selecting the right trust from the outset is important as it can impact how the beneficiary’s estate is distributed when they pass away as well as inheritance tax obligations.

What are the benefits?

A personal injury trust can make it easier to manage large sums of money and safeguard the long-term financial security of the beneficiary and their dependents.

Physical and psychological injuries might prevent the beneficiary and/or loved ones from working while also increasing their living costs. If a beneficiary is already claiming benefits, funds held in a personal injury trust will not impact their existing eligibility or any future assessments for means-tested benefits. A personal injury trust will also protect the beneficiary’s entitlement to claim for financial support if they need to move to a residential care home at a later date.

Setting up a personal injury trust not only helps to ring-fence compensation payouts but also protect the money from potential misuse – this is particularly important if the beneficiary is vulnerable due to their health or age.

How can Attwaters help?

Personal injury trust funds are subject to specific rules and obligations, which are usually outlined in a trust deed. The Wills, Trusts and Probate team at Attwaters has extensive experience of setting up personal injury trusts and preparing trust deeds. Our team will help you select the right type of trust and ensure your account is opened in a timely manner.

Ideally a personal injury trust should be created prior to damages being received to prevent issues with claiming state benefits. When this is not possible, there’s a 52-week grace period. As long as the trust is set up within a year of any compensation being received – this includes interim payments made prior to the full settlement – the funds will be excluded from benefits assessments.

Get in touch with our team on enquiries@attwaters.co.uk or 0330 221 8855 to learn more about how we can help with personal injury trusts.