After suffering a significant personal injury caused by someone else, successful settlement of a claim can be a huge relief for an injured person and their family. It is then so important to ensure that the award is managed in the best way possible to protect the money so that it can be used to fund the injured person’s needs.
One of the key factors to consider is entitlement to state benefits or state funded care. This is often an essential source of security that needs to be kept in place for the long-term. But owning a lump sum of money can put benefits in jeopardy.
There is a solution – the Income Support (General) Regulations 1987 Sch.10 para.12 allow a compensation award to be ignored from a benefits perspective, so long as the money is held within a Personal Injury Trust.
As soon as you know that there is money on the way in your case, you should consider setting up a trust. There are different types of trust which your lawyer should advise upon. For many people a “bare trust” is suitable, giving them control of the money and the choice of trustees. An alternative is a “discretionary trust” which might be better if a person is more vulnerable, as the decisions rest with trustees. They would decide how to manage the fund, and when and how to spend from the trust. Discretionary trusts can be more complex in terms of tax, so it is essential to take advice on the right sort of trust for your award and circumstances.
To create the trust your lawyer will prepare documentation tailored to your needs. You choose two or three Trustees to be responsible for running the Trust. You can be a Trustee if you wish. Trustees should be responsible people, over 18, who will always act in your best interests. Choice of Trustees is perhaps the most important consideration and something that your lawyer should discuss fully with you. You might choose reliable family members or friends, or you may wish to appoint professional trustees if the award is large needing careful management.
Once the trust documents have been completed the compensation money is held in an account or investments in the name of the Trust (e.g. The Charles Watson PI Trust 2024).
It is essential that there is a clear line of payment from the claim to the trust account(s) so there is no confusion over the source of the money from DWP’s point of view. DWP should be told that you have a Personal Injury Trust to make matters clear and transparent from the outset. Your current and future welfare benefits will then be unaffected by the compensation money.
The situation is different if the injured person is a child, or if they lack “capacity” (capacity is broadly the ability to make decisions and is tested differently depending on which decisions need to be made). Where this is the case a Deputyship may be a more suitable solution. This requires an application to the Court of Protection for appointment of a person (the “Deputy”) to be responsible for managing the injured person’s money.
At Talbots Law, we have a large Trusts and Estates Department spread across eleven offices. We have specialists in Trusts, and in Deputyships. Our accreditations include STEP (the Society of Trust and Estate Practitioners), the Association of Lifetime Lawyers and WIQS (Wills and Inheritance Quality Scheme) so you can be reassured that you are getting the very best support at a crucial time.
Call 0800 118 1500 or fill out our contact form.