How to Set Up a Personal Injury Trust

Setting up a personal injury trust could be your answer. Not only can it protect your compensation from being counted as assets for means-tested benefits, but it also ensures that the money is managed effectively for your long-term needs.

What Is a Personal Injury Trust?

At its core, a personal injury trust is a legal arrangement where compensation from a personal injury claim is held by trustees on behalf of the injured person. The primary purpose of this trust is to keep the compensation separate from your other assets, ensuring that it doesn’t affect your entitlement to means-tested benefits.

Why You Need a Personal Injury Trust

Without a trust, the compensation could be treated as capital by authorities assessing your eligibility for means-tested benefits, like housing benefit, Universal Credit, or Council Tax support. This means that your compensation could disqualify you from receiving these benefits. A personal injury trust prevents this by keeping the compensation separate from your other assets.

Step-by-Step Guide to Setting Up a Personal Injury Trust

1. Decide on the Type of Trust

There are three main types of personal injury trusts: Bare trusts, Discretionary trusts, and Life interest trusts.

• Bare Trusts: The simplest form of trust, where the injured person (beneficiary) has an absolute right to the capital and income.
• Discretionary Trusts: Here, the trustees have the discretion to decide how and when to distribute the funds.
• Life Interest Trusts: The beneficiary has the right to receive income from the trust during their lifetime, with the capital passing to other beneficiaries after their death.

Most people opt for Bare Trusts because of their simplicity and the direct control they offer to the beneficiary. However, the choice depends on individual circumstances, so it’s important to seek legal advice.

2. Appoint Trustees

You need to choose at least two trustees, though having three is often recommended. Trustees can be family members, close friends, or professionals like solicitors. Trustees play a crucial role in managing the trust, so choose people you trust implicitly and who have your best interests at heart.

3. Draft a Trust Deed

A trust deed is a legal document that outlines the terms of the trust, the roles of the trustees, and how the funds will be managed and distributed. Working with a solicitor experienced in personal injury trusts is essential here, as they can ensure the deed meets all legal requirements.

4. Set Up a Separate Bank Account

The compensation must be kept separate from your other finances, so a dedicated bank account is necessary. Only the trustees should have access to this account, and they must use it solely for managing the trust funds.

5. Transfer the Compensation

Once the trust deed is in place and the bank account is set up, the compensation money is transferred into the trust account. From this point on, the funds are managed by the trustees according to the terms of the trust.

6. Notify Relevant Authorities

If you are receiving means-tested benefits, you must inform the relevant authorities about the trust. Provide them with a copy of the trust deed and details of the trust bank account to ensure your benefits are not affected.

Key Considerations

- Choosing the Right Trustees

The success of your trust largely depends on the trustees you appoint. Trustees should be reliable, trustworthy, and capable of managing finances. Consider appointing at least one professional trustee, such as a solicitor, to bring legal expertise into the mix.

- Tax Implications

Although personal injury trusts are usually tax-efficient, they’re not completely exempt from taxes. Income generated by the trust might be subject to income tax, and depending on the trust’s structure, there could be implications for capital gains tax and inheritance tax. It’s advisable to seek tax advice from a professional to understand the full implications.

- Reviewing the Trust Regularly

Your circumstances might change, and so might your needs. Regularly reviewing your trust with your trustees and legal advisors ensures it remains aligned with your current situation and future goals.

Frequently Asked Questions

1. Can I set up the trust myself?

Technically, yes, but it’s not recommended. The legal complexities involved make it advisable to use a solicitor with experience in personal injury trusts.

2. How long does it take to set up a personal injury trust?

Setting up a trust can take anywhere from a few weeks to a few months, depending on the complexity of your case and the availability of your trustees and solicitor.

3. What happens if I don’t set up a trust?

If you don’t set up a trust, your compensation could be considered part of your capital, potentially disqualifying you from means-tested benefits. Setting up a trust safeguards your financial future by protecting your eligibility for these benefits.

Conclusion

A personal injury trust is not just a legal requirement; it’s a powerful tool for protecting your financial future. By following these steps and working with experienced professionals, you can ensure that your compensation is managed effectively, safeguarding your long-term well-being.

Remember: setting up a personal injury trust is a significant decision. Take the time to understand your options, seek professional advice, and choose the right trustees to ensure that your trust works in your best interest.