1. What Is a Personal Injury Trust?
A personal injury trust is a legal arrangement that allows you to hold compensation from a personal injury claim in a separate trust account. Its main purpose is to protect your entitlement to means-tested state benefits and ensure long-term financial security.
2. Who Should Consider a Personal Injury Trust?
You should set up a personal injury trust if you:
- Receive means-tested benefits (e.g., Universal Credit, Housing Benefit)
- Have received or expect to receive personal injury compensation
- Want to protect your entitlement to benefits while accessing your funds Even small compensation amounts can affect your eligibility, so a trust helps you stay compliant.
3. Types of Personal Injury Trusts
There are several types of personal injury trusts, including:
- Bare Trusts: Most common; simple structure where the beneficiary (you) has full control.
- Discretionary Trusts: Trustees control how and when to distribute funds—ideal for vulnerable individuals.
- Life Interest Trusts: Provide income from the trust while preserving capital for future beneficiaries. The right choice depends on your personal needs and long-term goals.
4. How Does a Personal Injury Trust Work?
A personal injury trust requires:
- At least two trustees (one can be you)
- A separate trust bank account
- A formal trust deed outlining how funds will be managed Once set up, all compensation must be transferred into the trust account. You can then access the funds as needed, with trustee approval.
5. When Should You Set Up a Personal Injury Trust?
You should set up a personal injury trust as soon as possible after receiving compensation. You have a 52-week grace period to create a trust before your compensation is counted as part of your assets for benefits assessment.
6. Benefits of a Personal Injury Trust
Key advantages include:
- Protection of means-tested benefits
- Financial control and planning
- Ability to use compensation without penalty
- Safeguards for vulnerable individuals
- Clear legal separation of funds It offers peace of mind and allows for flexible yet protected access to your settlement.
7. What Can You Use the Trust Funds For?
Funds held in a personal injury trust can be used for:
- Home adaptations or improvements
- Medical treatments or equipment
- Travel and holidays
- Education or training
- General living expenses All spending should be carefully recorded to show proper use of the compensation.
8. Do You Need a Solicitor to Set Up a Trust?
Yes, it’s highly advisable to use a solicitor experienced in personal injury and trust law. They ensure your personal injury trust is valid, legally compliant, and properly tailored to your needs.
9. Costs of Setting Up a Personal Injury Trust
Solicitor fees typically range from £300 to £1,000 depending on complexity. While this is an upfront cost, the long-term benefit of protecting your compensation and benefits far outweighs the expense.
10. What Happens If You Don’t Set Up a Personal Injury Trust?
If you don’t create a trust and receive means-tested benefits, your compensation may be counted as personal capital. This could lead to:
- Immediate loss of benefits
- Overpayment recovery by DWP
- Long-term financial insecurity A personal injury trust helps avoid these issues and secures your financial wellbeing.
Frequently Asked Questions
Q1: Is a personal injury trust legally required?
No, but it’s strongly recommended if you receive benefits and want to protect your compensation.
Q2: Can I set up a trust after I’ve received my compensation?
Yes, but you must do so within 52 weeks to avoid affecting your benefits.
Q3: Who can be a trustee?
Anyone over 18 who is mentally capable. Many people choose a trusted friend, family member, or professional.
Q4: Can I still control my money in a personal injury trust?
Yes, especially with a bare trust. You can act as one of the trustees and help make spending decisions.
Q5: Does the DWP need to know about the trust?
Yes. You should notify the DWP and provide details of the trust to ensure transparency and compliance.
Q6: Can the trust invest money or earn interest?
Yes. The trustees can invest funds or hold them in an interest-bearing account, depending on the trust’s terms.
Conclusion
A personal injury trust is a smart financial tool for anyone receiving compensation due to injury or illness. It not only protects your means-tested benefits but also helps manage your funds responsibly over the long term. By setting up a trust within the 52-week window, you ensure legal compliance, financial security, and peace of mind for the future.
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