Your guide to Personal Injury Trusts

A Personal Injury Trust (PIT) is a legal arrangement where compensation funds from a personal injury claim, such as a brain injury claim, are held in a separate Trust account and managed by appointed trustees.

In this guide, our Court of Protection solicitors explain how Personal Injury Trusts work and what the benefits are.

How do Personal Injury Trusts work?

Also known as a compensation trust, a PIT is a sensible way to ‘ring-fence’ compensation to keep it separate from other income and protect your eligibility for means-tested benefits such as Universal Credit.

If you are awarded compensation after an accident, you can pay it into a Trust account. It is recommended that you set up a PIT before receiving compensation to minimise the likelihood of you losing any benefits and Government funding. If you set up a PIT after receiving compensation, you will be unable to claim back any benefits you did not receive before the Trust was set up.

A PIT is managed by trustees, who are usually friends or family members. You cannot withdraw money from a PIT unless a trustee authorises it.

Benefits of a Personal Injury Trust

Added protection for vulnerable people

One of the main benefits of a PIT is that it protects those who are very young or otherwise physically or mentally vulnerable. Read more about Personal Injury Trusts for children here.

An important point to note is that, whilst it is a great tool for protecting the vulnerable, this is not to be confused with circumstances whereby the beneficiary has lost the capacity to manage their finances. If they have lost the capacity to manage their finances, they may, depending on their circumstances, require a Deputy instead. Read more about Deputyships here.

The ‘disregard’ rule

A significant benefit to placing your personal injury award into a Trust is the ‘disregard rule’. This particularly benefits those who are entitled to means-tested benefits or may be entitled to them in the future. The disregard rule also applies to personal injury award funds managed under a Deputyship.

The Care and Support (Charging and Assessment of Resources) Regulations 2014, along with accompanying statutory guidance, specify forms of capital that must be disregarded during financial assessments. This includes money derived from a personal injury award (compensation) that is held in a Personal Injury Trust or administered by a court.

This is further supported in case law, such as ZYN v Walsall Metropolitan Borough Council [2014] EWHC 1918 (Admin), where the High Court explicitly ruled that a local authority acted unlawfully by taking a personal injury compensation fund into account when conducting a financial assessment for community care services. The court determined that settlement funds held in a Personal Injury Trust or managed by a Court of Protection Deputy must be disregarded.

In short, the local authority should not include a personal injury award held in a PIT or managed under a Deputyship when assessing for care fee contribution or (means-tested) benefit entitlement. If you are a trustee or Deputy and you have received a care or benefits assessment for the Protected Party (P) that states otherwise, please get in touch with our Court of Protection lawyers, who will be happy to support you with the appeal process.

‘Clear evidence’

As well as being best practice, the ‘disregard rule’ is one of the main reasons why your settlement/PIT funds should be kept separate from your personal funds. Keeping them separate leaves a clear paper trail and means that, should the local authority or benefits agency query the funds, you can clearly evidence which funds belong in the PIT and which funds fall outside of the PIT, leaving less room for them to argue which funds originated from your settlement and therefore should be disregarded or included within their assessment.

The 52-week grace period

There is a 52-week grace period during which compensation is disregarded for benefits without a PIT being in place. This period runs from when the first payment is received. It is therefore worth getting advice on whether a PIT is appropriate, depending on the level of funds received and P’s intention for the funds. 

Choosing who to appoint as Trustees

Trustees are the individuals or organisations that manage assets, property or funds on behalf of an organisation or individual.

As part of setting up your PIT, you need to consider who you would want as your trustees.

A Trustee should:

• Be over the age of 18
• Not have had any financial difficulties themselves, such as a CCJ or bankruptcy
• Be people you trust to manage your compensation in your best interests
• Be confident and happy to take on the role and responsibilities
• Be organised and able to ensure accurate record-keeping
• Act in your best interests at all times
• Seek legal advice when appropriate
• Ensure all tax requirements are complied with

It is recommended that you appoint at least two trustees; however, it is not recommended that any more than four trustees be appointed, as this can cause delays and administrative issues, particularly if the trustees do not live locally to one another. It is therefore important that the trustees you appoint can work together, as decisions will, unless otherwise stated in the deed, need to be made unanimously. If your trustees cannot reach an agreement, this can lead to costly legal fees and/or Court applications for an ultimate decision to be made.

You, as the person receiving the compensation, can act as a trustee.

Professional trustees

One option, particularly if you are likely to receive a large compensation award, is to appoint a professional trustee. We cover professional trustees in more detail here.

Setting up the Trust

Once you have selected your trustees, a Deed is drawn up. This is a legally binding document that confirms who your trustees are, what funds are being placed into the trust and the terms of the Trust, to which the trustees need to adhere. Once the Deed is prepared, it needs to be signed by all proposed trustees.

Once in place, a bank account can be opened. The settlement funds themselves can be placed into bank accounts, property or investment accounts, all of which will be managed by your Trustees, but these funds must be kept separate from any personal funds.

If you are seeking to place a portion of the trust funds into a property that does not cover the entire purchase price, we would recommend seeking legal advice from a property solicitor, who will be able to assist in drawing up the appropriate paperwork to accurately reflect the share of the property held on trust.

Only personal injury settlement funds can be placed into a PIT. You cannot, for example, place a future lottery win into the trust.

Minor trusts

As stated above, PITs are for those who retain the capacity to manage their finances. However, it may be that it is too early to determine whether a child, following a brain injury, is likely to have the capacity to manage their finances upon turning 18 years. If it is anticipated that a child is likely to lack the capacity to manage their finances, then a deputyship application is needed.

If it is too early to determine whether a minor is anticipated to have the capacity to manage their finances upon turning 18, a PIT should be explored.

Read more about Personal Injury Trusts for minors here. 

How to remove a Trustee

If there are relevant legal grounds to do so, you can remove a trustee from your Personal Injury Trust. This is easier if all parties agree; however, if you have a trustee who is unwilling to step down, this can complicate matters. This is one of the reasons it is so important to have faith in the trustees you appoint, as it is trickier to remove a trustee than it is to appoint one. However, if you feel they are not acting in your best interests, there are ways to have them legally removed from the Trust.

If you are looking to remove or replace a trustee, please get in touch with a member of our Court of Protection team, who will be happy to provide tailored advice and prepare the relevant paperwork.

Ending the Trust

A Personal Injury Trust is generally revocable by the beneficiary, as it is often a ‘bare trust’, allowing the beneficiary to amend or break the trust at any time. There are a number of important considerations before bringing the Trust to an end, and we recommend seeking legal advice before doing so.

Contact our Court of Protection solicitors in Bristol and South Gloucestershire

Our professional trustees advise clients across the UK from our offices in Bedminster, Bishopston, Bristol city centre, Kingswood and Thornbury.

To speak to us about our professional trustee services, call 0117 325 2929 or complete our online enquiry form.