There are a wide range of reasons why trusts are still used in modern society (and not all of them have to do with tax). One particularly useful, and often overlooked, type of trust is a personal injury trust.

This is a trust which is specifically set up to receive damages received from a personal injury claim.

Personal injury trusts are generally treated as bare trusts or fall under the category of disabled persons trusts, which mean that they do not suffer the higher rates of income tax or capital gains tax associated with some other forms of trust. For tax purposes, the assets are treated as though they belong to the beneficiary (i.e. the person who suffered the injury) and so are taxed as their personal assets. Similarly, for inheritance tax purposes, the trust is treated as a bare trust, and so funds form part of the estate of the beneficiary and pass under the terms of their Will.

The main advantage of these trusts is that, if correctly put in place, the funds are ringfenced and so are not taken into account when the beneficiary is assessed for means tested benefits. The reason for this is that it was deemed unfair for an injured person to receive an award, designed to compensate them for the loss suffered and to assist them with coping with their injuries, for this amount to then deprive them of assistance they would otherwise have been entitled to. The intention is for award funds to be used towards the things that were considered when the award was made, such as modifications to a property, treatment or therapy (to name a few examples) and not the costs of day to day care.

If there are concerns that a person may require means tested benefits following an accident then steps should be taken to put in place a personal injury trust at the same time as the personal injury claim. In some cases the cost of setting up the personal injury trust can be included in the claim. It is also important that the beneficiary does not mix the personal injury award with their own funds. If they do then the protection for the funds can be lost and the whole value will be taken into account during any assessment.

If the injured person lacks mental capacity then an application can be made to the Court of Protection to manage their finances and to put a personal injury trust in place on their behalf.

For this reason, our Personal Injury Team works closely with our Wealth Management Team to ensure that our clients’ awards are protected from the outset.

Please contact Richard Harriman on 01494 893563 if you have any questions about a potential personal injury claim or Ashley Minott on 01494893518 if you wish to discuss establishing a personal injury trust.