Personal injury trust

A personal injury trust is a legal term of art in the modern English law of trusts and is also applicable, where relevant, to Wales, Scotland and Northern Ireland.
A personal injury trust is a form of trust, a legally binding arrangement, in which funds are held by persons, called trustees, for the benefit of others upon the terms of a document, called a trust deed.
Special characteristics.
A personal injury trust has several special characteristics:
These are important because it means that a trust does not need to have a generic title or label or be one particular type of trust or another at English law to be considered a personal injury trust. It is or is not a personal injury trust on account of its source and the involvement of the injured settlor.
Types of trust.
A personal injury trust can be:
The needs of the settlor, their family circumstances and tax or other relevant law should dictate the type of trust used. But whatever the legal type of the trust, if it is funded by an award of compensation for a personal injury then it will be a personal injury trust.
Personal injury trusts are sometimes referred to as "special needs trusts" but that expression is more general and can create confusion with certain trusts in other jurisdictions. A more accurate and informative alternative description might be "compensation protection trust" as that alludes to its actual purpose under English law.
Role and practice.
The role and practice of personal injury trusts under English law.
(1) Basic advantages
The existence of a personal injury trust can enable the injured party to obtain certain means-tested State benefits entitlements and to make the best use of the award under English law but there are also other potential advantages.
(2) When advice should be given/sought.
Advice on personal injury trusts is usually given by lawyers involved in all injury related cases concerning:
That is irrespective of whether or not the harm caused was physical or mental. It is irrespective of where the injury occurred. It may have occurred in the UK or abroad. It is also irrespective of the size of the payment made.
(3) Means-tested benefits advantages.
A personal injury trust is also considered relevant even if a person is not currently in receipt of means-tested benefits. That is because they might potentially have access to them in the future if their "assessable capital" for means-testing purposes is low enough. Long term care provision in England and Wales, either at home or in a care home, is a means-tested benefit provided by or through local authorities.
(4) Other practical advantages of a personal injury trust.
There are also other potential advantages of personal injury trusts apart from the retention of means-tested benefits. That is particularly in the case of older, very young, mentally incapable or other vulnerable persons:
(5) Further points of note.
Under English law:
(6) Tax issues.
Personal injury trusts usually carry no UK tax advantages. Compensated people need access to their award via their chosen trustees. Thus it is essential that they retain an interest as a named beneficiary in the award which they settle to form the trust fund.
The UK taxation anti-avoidance rules prevent tax advantages being given to such "settlor interested" trusts. They apply to settlor interested personal injury trusts in the same way as they apply to trusts founded from non-personal injury related funds.
Personal injury trusts can create adverse tax consequences under UK tax law if the wrong sort is chosen. For example if an award of more than the "nil rate band" for inheritance tax is placed in a discretionary trust or (since 21 March 2006) an ordinary life interest trust, an inheritance tax charge on the surplus becomes due immediately. The limit is £325,000 for the 2009-10 tax year. Above that a 20% charge at the inheritance tax lifetime rate will apply to the surplus.
Importantly the above adverse tax consequences do not apply to bare trusts and certain other highly specialised types of trust arrangement.
(7) Investment of personal injury awards.
UK trustees will wish to comply with the Trustee Act 2000 and the general law on trustee investment. This is a complex technical field.