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Personal Injury Trusts – a quick guide
A structured solution to ensure a recipient can manage their inheritance properly is to put it into a trust. They are commonly used for larger sums that are passed down to younger recipients, this method can distribute money in such a way to avoid it being squandered before it is most needed (for example, when to cover the cost of going to university or getting married). It can also prevent a child or vulnerable person from inheriting a large amount too soon and being subject to unscrupulous relatives who may try to extract the money from them.
A lesser known form of trust is the personal injury trust which can be established for anyone who has suffered an injury, regardless of its severity or the age of the person involved. Sometimes referred to as Trusts for Disabled People or Special Needs Trusts, these are usually sourced by a personal injury compensation award. For example, if a person suffered an injury in a road traffic accident and the fault was designated to a third party, the money paid in compensation for their injuries could then be placed into a trust.
The intention of a personal injury trust is to pay for the care required to give the person affected a better quality of life and pay for ongoing treatment, special adaptations in the home, or carer provision as necessary.
Where children are awarded compensation, but will have mental capacity at age 18, any award usually needs to be paid into the Court Funds Office until they come of age. That said, personal injury trusts can be set up for minors but require Court approval.
PIP and benefits
An important consideration when setting up a personal injury trust is ensuring that the claimant will not be penalised by the benefits system and can continue to receive appropriate support such as mobility allowance and carer’s allowance. These benefits still should apply, regardless of the extent of the award, and they can be hugely important to disabled people or their families who may not have access to trust funds at the start of the process.
If you’re concerned that a recipient may have been penalised, then it’s important to seek legal assistance.
Personal injury awards can be given in cases ranging from relatively mild whiplash to gross medical negligence resulting in life-changing injuries. It can stem from injury caused by poor primary care at birth, vaccinations, accidents, military service, disasters, or a be a lump sum from an accident insurance policy.
A personal injury trust can be set up within 52 weeks of the first compensation award. This means that in larger cases where interim payments have been made along the life of the case, the personal injury trust must be in place within 12 months of the first interim, as opposed to within 12 months of the overall settlement.
It’s often best to have the arrangements in place as quickly as possible so that any benefit entitlements are not affected. Trustees (those who manage the trust) must be people that the recipient can trust. They can be a solicitor or friends and family members. Trustees must be at least 18 years old and it’s often advisable to have two trustees managing the trust together.
The role of trustees is to ensure that provision such as home adaptations, special transport or ongoing care are paid for from the trust fund. They cannot benefit personally from the money as the sole purpose of the trust is to make life better for the injured or disabled beneficiary.
Trusts are normally set up as a standalone bank account separate from any other financial streams. Trustees are permitted access to the account and can sign cheques or make payments on behalf of the beneficiary.
Apart from rare exceptions, personal injury trusts are subject to the same taxation rules as any other financial income.
Does it cost anything to set up a trust?
Solicitors who deal with trusts may charge a fee to cover their administration and paperwork involved in setting it up. However, there shouldn’t be any ongoing costs beyond that.
If you’ve been asked to be a trustee or you have received a substantial compensation award, then we can assist in helping you to decide what kind of trust is best for your circumstances.