Putting compensation in trust - how to keep your compensation and not lose your benefits

Shelley Faulkner, Solicitor at AMD Solicitors, Bristol

Shelley Faulkner from AMD Solicitors explains the basic facts behind personal injury trusts.

What is a personal injury trust?

In a nutshell, if funds you have received in compensation for a personal injury are placed into a ‘Personal Injury Trust’, they will be ignored in calculating your entitlement to most state benefits.  Setting up a personal injury trust is in no way improper or unethical. The law has been deliberately set up to allow those who have been awarded compensation for a personal injury to preserve that money to meet their future needs by setting up a trust.

Personal injury

Compensation which can be put into a personal injury trust includes compensation awarded following injury, for example in a road traffic accident, or an injury at work.  It also includes compensation for medical negligence, such as a misdiagnosis, or injury caused through a mishap in the course of an operation.

What is a trust?

A trust is a vehicle under which money is held by one or more persons for somebody (or bodies) else.  The ‘trustees’ are responsible for making decisions about the money held, and the ‘beneficiaries’ are those for whom money is held, and to whom distributions from the trust funds can be made.

Preserving your entitlement to benefits

To give an example, say you are awarded a large sum in compensation for an injury you have suffered in a road traffic accident.  Owning this sum will, if simply banked, mean that you are ineligible to receive most means-tested benefits.  If you use the funds to meet all of your living expenses, however, they may not last for long.  The answer is to place the money into a personal injury trust.  Your financial position will then, for the purposes of most benefits calculations, be determined as if you had not received the compensation payment, so that you will not lose out on income as a result of receiving it.

Setting up the trust

To set up a personal injury trust you will first need to choose the trustees who will take charge of the trust funds. The combination of a relative or close friend together with a professional trustee (such as a specialist solicitor) often works well.   Financial advice should be sought, as to how the trust funds can be best invested.

A trust deed sets out the powers and duties of the trustees.  Once this is completed, the compensation monies are transferred to a trust bank account, from where they will be invested, and distributions paid out to you.

Choosing a trust

While different types of trusts can be used for preserving compensation payments, the most straight-forward type of trust, called a ‘bare trust’, is often the sensible choice.  Under a bare trust, the funds remain essentially within the control of the compensated person, since they can choose to change the trustees, or to wind up the trust and recover the funds, should they wish to do so. 

There are significant differences in the way that different types of trusts are taxed, and specialist advice is essential to ensure that the type of trust which is chosen is the right choice for you.

AMD’s team of specialist private client solicitors in Bristol can advise you about the options available, and guide you through the process of setting up a personal injury trust, so that the compensation you have received can be preserved, as was intended when the award was made, to meet your needs for the future.

For advice on Personal Injury Trusts contact Shelley Faulkner or Florence Pearce of AMD Solicitors on 0117 9621205, or email shelleyfaulkner@amdsolicitors.com.

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