What happens when I take funds out of a Personal Injury Trust?
When money or assets are taken out of a Personal Injury Trust, they lose the protection that the trust provides. So, if, for example, money is paid out from the trust into your account, it can be included in assessments for mean-tested benefits.
The situation is the same if the money being transferred out is income generated from funds or assets held in the trust.
If you are making a large expenditure using trust fund money, it may be best to allow your trustees to pay the third-party directly. This way, the money will not pass into your account, where it could potentially be accounted for in a means-test.
What will happen to my Personal Injury Trust after I die?
This depends upon the type of trust that has been used for the Personal Injury Trust.
For example, with a bare trust, the death of the sole beneficiary means that the trust ceases and the trust property forms part of the beneficiary’s estate. If the beneficiary had made a Will, the Will determines who is ultimately to receive the property. If there is no valid Will, then the trust property will pass according to the intestacy rules.
By contrast, for life interest trusts where the deceased is the life tenant, the beneficiaries of the trust (as specified in the trust documents) will receive the trust property.
Are there any situations where I shouldn’t set up a Personal Injury Trust?
Even when compensation is paid from a personal injury claim, a Personal Injury Trust will not suit every situation.
Most of the advantages for Personal Injury Trusts relate to means-tested benefits, or other means-tests. Where these are not a consideration for your household, alternative ways of managing your compensation may be preferable.
As with any trust, there are costs associated with setting up a Personal Injury Trust. Administration fees will also be incurred during its lifespan. Any decision to create a Personal Injury Trust must look at whether the benefits of doing so outweigh the costs.
Where only a small amount of compensation has been awarded, it is unlikely to be worthwhile setting up a Personal Injury Trust in which to hold it. This is not just confined to situations where compensation is beneath the means-tested benefits thresholds. It can also apply to compensation which is likely to be exhausted within the 52 week ‘grace period’ mentioned above. Within that time, the compensation award is not counted in the means-test, so if it is likely to have been spent or invested in alternative assets within that time, then there is a good reason for not setting up a Personal Injury Trust. The costs of doing so would not be justified.
Other reasons against setting up a Personal Injury Trust include:
- A lack of suitable trustees
- An unwillingness to take on the potential complexity of a trust
- An alternative arrangement which may be preferable (see below)
Are there any alternatives to setting up a Personal Injury Trust?
There are other arrangements which are similarly exempt from means-tested benefits assessments. Some of these include:
- Investing in property or in your home
- Investing in a business
- Investing in an annuity
- Putting money into a Deputyship account. This option would be open to injured people who lack mental capacity. Court-appointed Deputies have accounts where funds are held on behalf of the injured person. Our factsheets on the Court of Protection and Deputies explain more about acting as a Deputy.
Many of these alternatives also have the added benefit of restricting access to compensation funds if this is a consideration.
Where can I get more information?
It is the duty of the legal representatives acting in your personal injury claim to make you aware of the potential risks compensation could pose to any means-tested benefits.
You should give full details of your background and any benefits which you, or members of your household, receive. That way, you can be sure you are receiving the right advice for your situation.
However, trusts can be complicated. Legal advisers who deal with personal injury claims are unlikely to have the necessary expertise to advise you fully in this respect. Therefore, when looking to set up a Personal Injury Trust, you should consult a solicitor who specialises in dealing with trusts. Roche Legal has this required expertise and would be happy to discuss your situation with you.