Personal injury compensation can range from relatively small sums, up to million pound settlements. Therefore, it is vital that you think carefully about what to do with your settlement money. While we cannot advise you on how to invest your money, an option available to people who have settled PI claims is to set up a Personal Injury Trust. So what are the advantages of setting up a Personal Injury Trust?
First things first: What is a Personal Injury Trust?
A Personal Injury Trust is a way of you holding your damages after settlement. Instead of keeping the money in your name, you put it into a trust held for your benefit.
Trusts solicitors usually use one of three types of Trust here:
These are the simplest Trusts. Only the injured person has any interest in the money held in the Trust.
These trusts give the injured person a right to access to the Trust Fund for their lifetime. After they die, the money passes to other beneficiaries named in the Trust.
Discretionary Trusts have several beneficiaries. The trustees can be flexible and decide which of the beneficiaries benefits from the fund, and at what time.
What are the advantages of Personal Injury Trusts?
Your entitlement to some state benefits (including Housing Benefit, Income-based Jobseeker’s Allowance, Council Tax Support, Universal Credit and Pension Credit) depends on your means.
If you receive any Means-Tested Benefits (‘MTBs’), and then receive a payment which means you now have £6,000 to your name, your MTBs are likely to be cut down. If the money received increases your money to over £16,000, your MTBs are likely to be cut out totally.
Unfortunately, this means that people who receive benefits and then make a successful Personal Injury claim may have their benefits reduced or cut entirely.
However, if you were to put your money into a Personal Injury Trust (rather than keep it in your own name), the money in the Trust will not be counted when looking at MTBs. If the Trust generates any income, this will also not be included in the MTB calculations. While the Trust protects the funds, you can still access the money if you need to.
Other people in your household may also benefit if you put your compensation into a Personal Injury Trust. This is because MTBs are calculated by ‘household’. Therefore, if someone you live with receives MTBs, your compensation might affect their ability to claim benefits.
Even is there is no one in your household that currently receives MTBs, they may be entitled to receive them at some point later on. Therefore, even if it doesn’t seem it now, if you put your compensation in a Personal Injury Trust, you may reap the benefits in the future.
Other benefits to setting up a Personal Injury Trust include:
- If you are not able to deal with your own finances, the Trustees can deal with the money for you;
- Ensuring that you do not lose your damages should you later divorce or become bankrupt; and
- Ensuring that any greedy family or friends do not take advantage of the compensation you have received.