What is a Personal Injury Trust?
A Personal Injury Trust (PI Trust) is a Trust that contains money received as a consequence of personal injury. They are sometimes referred to as Special Needs Trusts.
These Trusts are established for working-age adults or some children who want to retain their entitlement to means tested benefits, now or in the future, such as:
- Income Support
- Housing Benefit
- Working Families Tax Credit
- Disabled Person’s Tax Credit
- Income Based Jobseeker’s Allowance
- Employment & Support Allowance
- Some care at home/in residential care
- Council Tax Support (for those of Pension age)
Under the current rules – if you have over £6,000 capital you are at risk of having some or all of your benefits reduced. If you have over £16,000 then you are at risk of losing them all entirely. If your compensation is paid to you directly, rather than put into a trust, then you will be classed as having this money as your disposable capital.
If you are expecting to receive more than £6,000 in compensation for your personal injury, then you should consider setting up a Trust of this type. Even if you are expecting to receive less than £10,000 in compensation for your personal injury, you should still seek advise on whether to establish a PI Trust as it still may prove cost effective.
There are other considerations. If you think you may need to go into residential care at some point in the future, then establishing this sort of Trust will protect your compensation from being taken away by the Local Authority in order to pay for your care fees.
PI Trusts can also be just as relevant in the context of older clients.
The trust can be a discretionary or life interest trust, but the most common trust arrangement these days is a bare trust. This is the simplest type of trust for the injured person to understand. Under its terms, the only person who can benefit is the injured person. Income Tax, Capital Gains Tax and Inheritance Tax are assessed on the injured person themselves, rather than on a tax return issued to the trustees. All the injured person’s own tax exemptions can therefore be utilised.
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