How can a personal injury trust help protect your compensation?

Dealing with a personal injury is never easy, and the last thing you need is the stress of managing your compensation alone. We understand the challenges you face and want to help you protect your hard-earned settlement. Keep on reading to learn more about personal injury trusts, a powerful legal tool that can safeguard your hard-won funds and preserve your eligibility for essential benefits. We also provide a list of trusted solicitors who specialize in creating secure personal injury trusts. Explore our resources today and take the first step towards securing your financial future.

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Read on to learn how trusts can safeguard your funds and secure your future.

What is a personal injury trust?

A personal injury trust, also called a compensation protection trust, is a legal arrangement that helps protect the money you receive as compensation for a personal injury or medical negligence case. The trust keeps this money separate from your personal finances, which is important because having the compensation money mixed in with your own money could affect your eligibility for government benefits or support from social services. By keeping the compensation funds in a separate trust, you can make sure you still qualify for the assistance you need while also having access to the money that’s meant to help you after your injury.

Did you know that?

Special needs personal injury trusts are a type of personal injury trust designed specifically for individuals with disabilities or special needs. They allow others to manage the trust, ensure the beneficiary benefits from tax laws for disabled persons, and provide additional legal and financial protections tailored to their unique requirements.

When should I set up a personal injury trust?

A personal injury trust should be set up as soon as possible after receiving the first compensation payment. It is advisable to establish the trust within the 52-week grace period, which is the first year after receiving the initial compensation payment.

Good to know:

During this grace period, the compensation amount is disregarded when assessing eligibility for means-tested benefits and care funding. Setting up the trust within this timeframe ensures that any subsequent compensation payments are immediately placed into the trust, protecting the entire compensation amount from impacting benefit entitlements and care funding assessments after the grace period ends.

At what compensation amount should I explore setting up a personal injury trust?

You should consider setting up a personal injury trust if you receive a compensation award of more than £6,000, or if you already have existing savings nearing that amount.

Caution:

Any lump sum over £6,000, when combined with other capital assets, could potentially affect your eligibility for means-tested benefits or require you to contribute more towards the cost of care services provided by the local authority.

What are the key advantages of establishing a personal injury trust?

Creating a personal injury trust provides numerous advantages and protections:

It can protect your funds from third-party claims by requiring trustee approval for transactions.
It provides a structure to manage your funds responsibly, protecting them from potential mismanagement or misuse.
It ensures that the funds are used for your benefit, such as paying for medical expenses or improving your quality of life.
It offers financial management assistance if you have difficulties managing your money due to age, disability, or vulnerability.
It protects your compensation from being considered an asset that affects your eligibility for means-tested benefits or care funding assessments.

Important:

When it comes to managing the income and distributions from your personal injury trust, it’s crucial to maintain a clear separation between the trust funds and your personal finances. Commingling or mixing the trust assets with your individual accounts can potentially jeopardize the protections and benefits provided by the trust structure. To ensure the trust remains effective and compliant, it’s essential to follow proper fund management practices.

What are the steps involved in creating a personal injury trust?

To set up a personal injury trust, follow these steps:

Choose your trustees: Appoint between 2 and 4 trustees who are over 18, trustworthy, and capable of managing your funds. They can be family members, friends, or professional trustees such as solicitors or accountants.
Draft a trust deed: Work with a solicitor to draft a legally binding trust deed, which outlines the rules and obligations of the trust.
Set up a trust account: Open a dedicated bank or building society account in the name of the trust, separate from your personal finances.
Transfer your compensation: Transfer your personal injury compensation into the trust account.
Register the trust: Register the trust with the HM Revenue & Customs (HMRC) and seek advice on tax implications.

Important:

Trustees play a crucial role in controlling access to the trust funds, approving withdrawals and transactions for the beneficiary’s benefit. They are legally obligated to act in the best interests of the beneficiary and ensure the proper management and distribution of the trust assets according to the trust deed.

How can I use the funds in my personal injury trust?

You can spend the money in your personal injury trust on anything that benefits you. This includes:

Daily living expenses.
In-home nursing care.
Psychological support.
Vehicles or transportation.
Holidays or leisure activities.
Specialist rehabilitation care.
Mobility equipment or prosthetics.
Physiotherapy and medical treatments.
Home adaptations or accessible housing.

You can access the funds in your personal injury trust by requesting withdrawals from your trustees. All trustees must approve and authorize the release of funds for any purpose.

Caution:

You cannot make personal investments or buy property directly with the trust money, as the funds legally belong to the trust, not you. The property must be purchased and owned by the trust itself, not you individually. The trustees have discretion to invest the funds per the trust deed, but you cannot treat the trust assets as your personal investments or property.

What other types of trusts can be used instead of a personal injury trust?

While personal injury trusts are specifically designed to protect compensation funds and preserve benefit eligibility, there are other types of trusts that can be considered as options in certain situations. Here are some alternatives and their benefits:

Bare trust: A bare trust has a simple structure where the beneficiary has full ownership of the trust assets, offering no tax advantages but making it easier to manage and less expensive.
Discretionary trust: In a discretionary trust, trustees have full discretion over distributions to beneficiaries, offering asset protection from creditors and divorce claims, and potential tax benefits, although it is more complex to manage.
Life interest trust: A life interest trust allows the beneficiary to receive income from the trust during their lifetime, while the capital passes to other beneficiaries after their death, potentially providing inheritance tax advantages.
Disabled persons’ trust: Designed specifically for individuals with disabilities, a disabled persons’ trust offers tax advantages and protection of means-tested benefits, but has strict eligibility criteria based on the disability.

Remember:

Personal injury trusts remain the most straightforward option for protecting compensation funds and preserving benefit eligibility for personal injury claimants.

Do I need a solicitor to create a personal injury trust?

While it is possible to create a personal injury trust without a solicitor, it is highly recommended to seek legal advice and assistance from a solicitor specializing in personal injury trusts. The legal complexities involved in drafting a valid trust deed and ensuring compliance with regulations make it advisable to work with an experienced professional.

Protect your compensation with our trusted solicitors. The solicitors we recommend are experienced in creating secure personal injury trusts alongside their other areas of expertise, helping to safeguard your compensation funds and preserve your eligibility for benefits.

FAQs

What happens to the personal injury trust if I pass away?

The fate of the trust upon your death depends on the provisions outlined in the trust deed. The remaining funds may be distributed to other beneficiaries or included in your estate for distribution through your will.

Can I make changes to the personal injury trust?

Under certain circumstances, it is possible to make changes to the trust, such as appointing or removing trustees, with the agreement of all trustees and beneficiaries.

Do I need a personal injury trust if I’m not currently receiving benefits?

It is recommended to set up a PI trust regardless of your current situation, as circumstances may change in the future, making you eligible for means-tested benefits.

Can I add other funds to my personal trust?

No, the trust fund can only consist of the compensation received from your personal injury claim. Adding other money can invalidate the trust’s protections.

Can any bank account be used as a trust account?

No, a dedicated trust account must be opened specifically for the personal injury trust, separate from your personal accounts.

Are there costs involved in setting up a personal injury trust?

Yes, there are legal costs for drafting the trust deed, registering the trust, and potential ongoing costs for professional trustees or advice.

Can a personal injury trust be revoked?

It is possible to revoke a personal injury trust, but it is a complex process that requires careful consideration and professional guidance from a solicitor experienced in trust law.

Will I have to pay taxes on a personal injury trust?

The tax implications of a personal injury trust, such as income tax, capital gains tax, and inheritance tax, depend on the specific circumstances and should be discussed with a solicitor when setting up the trust.

Securing your personal injury compensation through a robust trust is crucial for safeguarding your financial future and maintaining access to vital benefits. By consulting our trusted solicitors, you’ll benefit from their expertise in crafting airtight personal injury trusts tailored to your unique needs. Protect your hard-won settlement, preserve your eligibility for assistance programs, and gain peace of mind knowing your funds are managed responsibly. Don’t leave your compensation vulnerable – let our legal professionals ensure your interests are fully protected through an ironclad trust structure.

KEY TAKEAWAYS

A personal injury trust is a legal arrangement that separates your compensation from your personal finances, protecting it from affecting your eligibility for means-tested benefits and care funding assessments.
Set up the trust as soon as possible, ideally within the 52-week grace period after receiving the first compensation payment.
Consider a trust if your compensation exceeds £6,000 or your existing savings are nearing that amount.
Benefits of setting up a personal injury trust include asset protection, responsible fund management, preserving benefit eligibility, and financial assistance if needed.
The steps to create a personal injury trust include working with solicitors to draft the trust deed, appointing 2-4 trustees, setting up the trust account, and ensuring compliance with regulations.
Seek legal advice from specialized solicitors when creating a personal injury trust to avoid complications.