FAQs

Personal Injury Trust

A personal injury trust is a special kind of trust set up to enable you to retain your entitlement to claim means-tested state benefits.

What is a Personal Injury Trust?

There is only one mechanism for doing this though there are lots of names for it. You may hear people refer to a Special Needs Trust, Compensation Protection Trust or Plan, or a Benefits Protection Trust. They are all the same thing.

Trusts are not dodgy, nor do they have any great tax savings purposes. Your compensation is held on trust for you, for your benefit, by your Trustees.

Even if you are not on benefits now, you should still consider this advice carefully, as you may need to claim benefits in the future.

What are trustees?

A trustee is a person chosen by you. They have a duty to act in your best interests, and they will administer your money within the rules of the Trust.

Why should I have a Personal Injury Trust?

If you are in receipt of means tested state benefits, then you should consider setting up a personal injury trust sooner rather than later to ensure that your right to claim benefits is not affected by any interim payment or final settlement cheque.

If you receive a large award of which you are likely to retain part of in old age, you may wish to think about a trust even if you are not claiming benefits and have no intention of claiming benefits in the next few years.

Remember also that unexpected life events can affect your plans, and placing your money on trust now will mean that if you do need to claim benefits, your money is protected. What is a large award means different things to different people and really is a matter for you and how you manage your money.

What is a means-tested benefit?

Means-tested benefits are benefits which require you to have an income check before you are awarded them.

Means-tested benefits include:

  • Income Support
  • Housing Benefit
  • Council Tax Benefit
  • Working Families
  • Tax Credit
  • Disabled Person’s Tax Credit
  • Income Based Job Seekers Allowance
  • Income Based Employment and Support Allowance
  • Pension Credit

A commonly forgotten means-tested benefit is local authority care, either now or in the future or old age.

My partner receives benefits. Does that matter?

Yes. If your partner receives means-tested state benefits, their entitlement may also be affected by your receipt of your personal injury compensation.

How much money can I have before my benefits will be stopped?

Not all state benefits are means-tested. The basic rule is that you will not be entitled to benefits if you have over £16,000.00.

This includes your damages award and any savings you and your partner already have. The first £6,000 is ignored completely, and between £6000.01 and £16,000 is assessed on a tariff.

For pension credit, there is no upper capital limit and capital below £10,000 is ignored altogether. If you or your partner receives the guarantee credit of Pension Credit, along with Housing Benefit and Council Tax benefit, all of your capital is ignored. There are a number of specific rules in relation to Pension Credit, so if you are in receipt of Pension Credit you should let your solicitor know.

Means testing is complex and different rules apply for different benefits. Explaining the tests goes beyond what is necessary for you to be able to decide whether you need a personal injury trust or not. Generally, if you are in receipt of benefits and your award will mean you have over £6,000 in your bank account our advice will be that you should consider a personal injury trust.

Tax credits are not affected by savings or other capital but interest and income earned from savings or capital does count as income for the purposes of those credits. Therefore these may be affected by any interest on the personal injury award, whether on trust or not.

Can’t I just spend the money?

Generally the answer is no. There is a 52 week disregard applied to personal injury damages to allow you to spend some or all of the money before your benefits are affected.

However, you should be careful to avoid anything which may be seen as you deliberately getting rid of money in order to retain your right to claim benefits. If you are found to have done this (such as spending money on a large holiday, or paying off debts) your entitlement to benefits will be affected even if you spend the damages money. Any benefits received will be recalculated to take into account the damages money and may result in you having to return money to the government!

If you are in receipt of benefits, the easiest way to avoid any of these problems is to set up a personal injury trust.

Does having a Personal Injury Trust mean that I can’t get my money easily?

No. Your money is extremely easy to obtain. The money is yours! Your trustees have to act in your best interests, so if you ask for money, the trustees will need to understand why so they can ensure that it is being used for your benefit.

If you are an adult of sound mind then there is very little your trustees can do to disagree with you, but if that should happen, you have the power to remove a trustee and replace them with someone else. Likewise if at any time you want to bring the trust arrangement to an end, you will have the power to write to the trustees and ask that the trust be closed. The trustees have to abide by your wishes and will pay the money in accordance with your instructions.

There are higher duties on trustees dealing with adults who are Protected Persons and children. If this affects you your solicitor is likely to have discussed this with you before you received a leaflet with information about a trust. Depending on your circumstances a more complex trust where the trustees have a lot more powers to protect you or your family member or relative may be suggested.

How easy your money is to obtain will depend on the investment choices, if any, you make for your money. If you are likely to regularly need money quickly, then you may wish to discuss having some instant access investments or accounts with your financial advisor.

Who should be my Trustees?

A trustee can be anybody over the age of 18. There is no minimum or maximum number of trustees, but we would generally advise that you have two trustees.

If you want more than two, remember that all trustees will need to agree before the money is released and this will make any decisions regarding your money take longer on an administrative level.

Trustees should be people you trust, such as your partner, close family or friends. However we would generally advise against your partner becoming a trustee as the money will be legally held by them and therefore the money on trust may not be disregarded for the benefits rules, though this risk is minimal.

Most trusts we set up have two partners of White Dalton Solicitors acting as trustees. As solicitors we have to act in accordance with our Code of Conduct at all times and this may protect you if things go wrong, however, we will charge for our work carried out as trustees.

Can I spend my money on anything?

Generally, yes, as long as the money is used for your benefit (as your trustees will have the duty to ensure that it is).

You will need to explain what you want the money for so that if there are any concerns that this may affect your benefits entitlement these can be discussed.

Should I invest my money?

This is a matter for you. As solicitors we are unable to provide financial advice but on cases where we act as trustees we take financial advice from outside companies who we are happy to put you in contact with. We do not get any benefits or referral fees from these companies.

Should you wish to obtain your own financial advice from your own preferred company, we would prefer not to be trustees as we have experienced problems with this in the past. The companies we use are able to satisfy our high requirements in order that we can perform our duties as solicitor trustees.

I have other savings. Can I put these into the trust?

No. No other money should be paid into the trust fund.

How much will a Trust Cost?

All trusts are different, and you should speak to the person dealing with your case as to the likely fees involved. In certain circumstances it may be that there is no charge at all.

If you have partners of White Dalton running the trust then there may be a charge for each transaction on the trust, so you should bear this in mind when thinking how often you may need money from the trust. You will be sent details of our current hourly rates before you enter into the trust.

Can I get someone else to prepare the Trust?

You do not need to instruct White Dalton to prepare the trust. You can seek advice elsewhere, e.g. from a local high street solicitor in relation to setting up and administering the trust if you prefer.

There are lots of people and companies who would be able to set this up for you, but you should ensure that this is done before you are in receipt of your final damages cheque where possible. We would not be able to advise you on their costs or whether or not it would be better to use them or us. We would simply send on the money in accordance with your instructions at the end of your personal injury case.

Will I get any Tax Benefits?

Generally, no. You will need to disclose any income (such as interest) generated by the trust on your tax return and will be liable for tax on it.

Your local tax office will need to be notified of the establishment of the trust and you will have tax responsibilities for the money even though it is on trust.

Do I need a Personal Injury Trust?

You don’t have to have a personal injury trust and there may be lots of other things that you want to do with your money instead of putting it on trust.

If you are not in receipt of benefits now, and the sum of money is likely to be spent before you are likely to need to claim benefits, then you really are unlikely to need a trust. If you’re unsure, you can set up a trust, but then call it in once you have decided what to do with the money. But you cannot come back and set up a trust once your case has concluded and you have spent the cheque.

You should also remember the 52 week allowance to get rid of the money, though this varies from benefits agency to benefits agency.

I don’t want a Personal Injury Trust. Do I need to do anything else?

No, other than instruct your solicitor that you do not wish to set up a personal injury trust.

You can change your mind at any time up to receiving and cashing the final settlement cheque and if you do change your mind, you should let your solicitor know.

I think a Personal Injury Trust is a good idea. What do I do now?

You should let your solicitor know that you would like to set up a personal injury trust. You need to provide a release form confirming that any damages in your case should be made payable to White Dalton Solicitors so we can place the money into the trust fund for you.

You need to decide who your trustees will be, and let your solicitor know. You will then be sent another client care letter setting out the terms and conditions of our setting up (and managing, if you choose White Dalton partners to be trustees) the trust and how we will be paid for that work, once that is signed and returned you will be sent the trust document to sign.

If you would like trustees who are not partners at White Dalton, you will need to provide us with further information; your solicitor will discuss this with you.

Once your trust deed is drawn up, you will need to notify your local benefits agency and provide them with a copy of the trust, as well as your national insurance number.

Related FAQS