Does Personal Injury Compensation Affect Benefits?
Understanding the potential impact of personal injury compensation on your benefits is crucial, especially if you’ve suffered harm and financial losses due to someone else’s…
Read moreWhat is a personal injury trust?
If you receive means-tested benefits, a personal injury trust can protect your compensation and ensure your benefits entitlement is not affected.
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What is a Personal Injury Trust and How Does it Work?
If you receive personal injury compensation, you can choose to have it paid into your bank account or place it in a personal injury trust. A trust is particularly useful if you receive, or might in future receive, means-tested benefits or local-authority-funded care.
This guide details what a personal injury trust is, how it works, its key benefits and the different types of trusts you can set up. We also explain the role of trustees and the various ways in which you can use your personal injury trust money.
By submitting this form you agree to be contacted by our partners. Find out how we handle your data in our privacy policy. With no win no fee you typically pay 25% of your compensation if your claim is successful, but the fee can vary. Termination fees may apply if you fail to co-operate with your solicitor.
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What is a personal injury trust?
A personal injury trust is a legally binding arrangement that allows the compensation awarded for an accident or illness to be held in a separate account managed by trustees.
Its main purpose is to ensure that the payout is not counted when assessing eligibility for means-tested benefits, such as Universal Credit, Jobseeker’s Allowance and Housing Benefit.
The key characteristics of a personal injury trust are:
- It is designed exclusively to manage funds received for a personal injury.
- The trust deed outlines the rules for managing the funds and is legally binding on the parties involved.
- The person establishing the trust (the settlor) is the injured party (with a few exceptions).
- The settlor is the sole beneficiary or, in some cases, at least one of the potential beneficiaries of the trust.
- The compensation money placed in the trust is separated from the settlor’s personal finances.
- There are usually at least two trustees (commonly no more than four)
- The funds held in the trust are intended for expenses related to the injury and to improve the settlor’s quality of life.
What are the key benefits of a personal injury trust?
There are several benefits to setting up a personal injury trust, including:
- It ring-fences your compensation for benefits means-testing (when set up correctly), helping protect eligibility for Universal Credit and similar support.
- It ensures the funds remain available for long-term care, treatment and future support.
- It can prevent local authorities from considering your compensation payment when assessing contributions you may need to make towards care fees.
- The trustees will ensure the funds are managed responsibly and are not overspent.
- It helps protect the best interests of vulnerable individuals such as children and those with limited mental capacity.
Note: A personal injury trust does not automatically shield assets from creditors, bankruptcy challenges or divorce financial orders. The courts and insolvency law can look through these financial arrangements in some circumstances.
Who can set up a personal injury trust fund?
Anyone who was awarded compensation for a personal injury can set up a personal injury trust. If the claimant is a minor or an adult who lacks mental capacity, a trust can be set up by their litigation friend, a family member, their appointed deputy or their solicitor.
The person who sets up the trust is known as the settlor, and they can also be one of the trustees if they are over 18 and mentally capable. A personal injury trust can be set up to manage the compensation awarded for various types of claims, including:
- Road traffic accident claims.
- Accident at work claims.
- Medical negligence claims.
- Public place accident claims.
- Criminal injury claims.
- Industrial disease claims.
When and why should you set up a personal injury trust?
The compensation received for a personal injury is meant to restore you, as far as possible, to the position you would have been in had your accident not occurred.
While it does not represent a profit or income, it will be considered when assessing your entitlement to benefits if it is more than £6,000. As mentioned above, having it deposited in a personal injury trust offers many benefits, including being excluded when assessing benefits.
If possible, it is advised to set up a trust before you receive any funds. However, there is a 52-week period during which the Department of Work and Pensions (DWP) will disregard the compensation you receive for financial assessment purposes.
This means that during the first year, your settlement will not be factored into care needs and benefits. This gives you 52 weeks to set up a trust to protect it. A specialist solicitor can guide you through the process and ensure the trust is set up correctly.
What types of personal injury trusts can you set up?
There are two main ways in which you can set up a personal injury trust:
Bare trusts
Bare trusts are the most common form of trust. These are simple to set up and usually the best choice for most claimants, who are the sole beneficiary of the trust and any income generated by it. The injured party can access the funds at any time and decide on how to use them.
Discretionary trusts
In this type of trust, the claimant does not have an automatic right to the funds. They can select more potential beneficiaries, and the trustees have discretion over how the funds are distributed and to which beneficiary, based on their needs and the terms of the trust.
What is a trust for a vulnerable person?
A trust for a vulnerable beneficiary, as the name suggests, is a type of trust set up to hold and manage the funds for someone who has a disability or special need. This includes minors and adults who are mentally or physically disabled.
This ensures protection from financial abuse and continued eligibility for means-tested state benefits. Trustees manage the funds and decide how they are used in the beneficiary’s interests.
Trusts for vulnerable individuals also benefit from special tax treatment for Income Tax, Capital Gains Tax and Inheritance Tax. For example, the tax-free allowance for Capital Gains Tax is £3,000 for the 2025 to 2026 tax year.
Who should you appoint as a trustee, and what is their role?
A personal injury trust needs to have at least two trustees (and up to four). If you are mentally capable and over 18, you can be one of them. The other one can be a friend, family member, solicitor or a professional trustee.
The trustees must reside in the UK and not have a criminal record or any personal financial problems. Their primary duties include:
- Act in the best interests of the beneficiaries according to the terms set out in the trust deed.
- Act with honesty, integrity and impartiality at all times.
- Manage the trust and make informed decisions about how to invest the funds.
- Arrange regular payments and authorise one-off payments for the beneficiary.
- Pay any taxes that are due on revenue from the trust on time.
- Maintain clear, accurate, and detailed accounts of all trust transactions and distributions.
If you are unhappy with how a trustee is managing your funds, you can remove them and appoint another one.
What can I spend my trust money on?
It is up to you how you choose to spend your money, but you will need the agreement of all trustees to make a withdrawal or a purchase. Some examples of what you can reasonably spend your trust funds on include:
- Medical care and rehabilitation, including physiotherapy, mobility aids and other treatments.
- Daily living expenses, such as food, clothing and utility bills.
- The cost of a visiting or live-in carer.
- Paying other professionals for help and assistance with daily tasks, such as a cleaner.
- Education, such as tuition, school fees or training courses.
- Housing needs like rent, home repairs, home adaptations or mortgage payments.
- Hobbies and activities that improve your quality of life.
Can a personal injury trust be used for investments?
Yes, you can invest your trust funds in various assets, as long as each of the trustees approves the investment. This will continue to prevent the compensation from being considered for means-tested benefits and can generate income to provide long-term financial stability.
The trustees should exercise good judgment to avoid excessive risk and seek financial advice if necessary. You can invest in almost any asset, including bonds, mutual funds, OEICs and National Savings products.
However, Individual Savings Accounts (ISAs) can’t be owned by trustees and are not a suitable investment. If trustees make irresponsible investments with your funds, you can thankfully take legal recourse.
Any returns generated by your investments are usually subject to tax and should be declared to HMRC.
Will my solicitor help me create a personal injury trust?
Yes, your personal injury solicitor can set up the trust on your behalf or on behalf of a loved one you are representing as a litigation friend. You may also be able to appoint them as one of the trustees. Your solicitor will:
- Explain whether and why a trust is appropriate for you.
- Ensure the trust deed is drafted according to legal requirements.
- Make sure the trust is tailored to your specific needs and circumstances.
- Ensure your entitlement to benefits is protected.
- Offer you advice on who to appoint as trustees and explain their legal duties.
Key takeaways on personal injury trusts
A personal injury trust is a legal way of protecting the compensation awarded for an injury or illness from third parties. It also ensures that your settlement does not affect your eligibility for means-tested state benefits.
A trust will usually have at least two trustees, and you can be one of them if you are over 18 and mentally capable. Their role is to ensure the money is managed and invested responsibly on behalf of the beneficiary. You can use the trust funds to cover various expenses, such as medical treatment, housing and education.
For further legal advice on personal injury trusts or to find out if you can make a claim for compensation, call 0800 470 0474 today for a free consultation or request a call back. Our team of solicitors can help you set up your trust and ensure your rights are protected.
By submitting this form you agree to be contacted by our partners. Find out how we handle your data in our privacy policy.
By submitting this form you agree to be contacted by our partners. Find out how we handle your data in our privacy policy.
