Following an accident, a person may receive substantial sums of money from a personal injury claim, personal accident insurance, charitable gifts, or other sources. The money may be awarded for specific purposes, such as to compensate for lost future income and to cover the costs of rehabilitation and home adaptations. It isn't necessarily intended to be spent as the person wishes.
The person may be unable to work and their family members may give up jobs to provide care. They will continue to have their regular living costs to meet, including providing maintenance costs for their children or other dependant relatives. All these requirements mean that the person may still need to access means tested benefits and funding for care services. It is therefore important to consider whether a personal injury trust could be used to ensure:
- That they are able to claim all of the state benefits and care funding that they may be entitled to, both now and in the future, and
- That they have a suitable structure in place to manage their funds in the future
This factsheet provides an overview of the rules relating to personal injury trusts in Scotland.
What is a Personal Injury Trust?
A personal injury trust is a legally binding arrangement for holding and managing funds received as a consequence of an injury. The trust must be managed according to specific rules. It is important that the right kind of trust is used, suitable for the person's circumstances.
A personal injury trust will be managed by two or more trustees or a trust corporation. The trustees should make decisions together about the management of the funds, including any payments made out of them.
The Benefits of a Personal Injury Trust
- Funds held in the trust are disregarded when assessing eligibility for some means tested state benefits and services. Therefore a person (and their partner if they claim benefits together) can continue to receive these benefits in the future.
- These means tested benefits include income support, income related employment and support allowance, income based job seekers allowance, housing benefit and council tax benefit. A trust will also protect entitlement to local authority funding for the costs of living in a residential care home and, depending on the local authority, care provided in a person's own home.
- A personal injury trust can protect the interests of very young, old, disabled or otherwise vulnerable people. The trustees must each authorise all transactions within the trust, providing protection against inappropriate use of funds.
- A person can benefit from the knowledge and experience of their trustees. Appropriate trustees can provide valuable advice and support when making important decisions. This can ensure that funds are managed appropriately to protect the person's long term interests.
- A personal injury trust helps to define and 'ring fence' the funds that have arisen from a personal injury, keeping them separate from other assets. This can assist if a person's circumstances change and they become entitled to means tested benefits and care services in the future.
What funds can qo into a Personal Injury Trust?
The benefits rules allow funds to be disregarded from affecting means tested benefits if they arise `as a consequence of a personal injury.
This means that personal injury trusts can be used to protect:
- A personal injury award
- Compensation received from the Criminal Injuries Compensation Authority (CICA) for injuries caused by an assault
- Compensation from the Motor Insurers' Bureau for injuries caused by an uninsured motorist
- An Armed Forces Compensation Scheme award
- Payments from other government compensation schemes
- Charitable or public donations following an accident
- Payments from accident or travel insurance
- Payments from a professional negligence claim paid to compensate for a previously undervalued personal injury claim
Setting up a Personal injury Trust
It is necessary to appoint trustees. There should be at least two trustees. They must each be over 18 years of age and mentally capable of fulfilling their responsibilities. The trustees should set up a bank or building society account to hold the trust funds, which must be kept separate from all other personal finances. All cheques and transactions will be signed and authorised by the trustees.
It is important to choose the right trustees, as they will have full control over the personal injury trust and the funds held within it. The trustees chosen must be able to work well together and act in the best interests of the person for whom the funds are held. It is often appropriate to appoint a professional trustee, such as a specialist solicitor, to handle trust funds.
It is important that a person receives legal advice from a specialist solicitor about the right kind of trust to put in place. The simplest type of trust is called a 'bare trust' and this is often the most appropriate for personal injury funds. In this type of trust, the money still belongs to the person with the injury and they can close the trust at any time if they wish. However, other types of trust may be appropriate so the person's specific circumstances should be considered. For example, the type of trust may affect the distribution of the person's estate when they pass away, so provisions for their family in the future should be taken into account.
Once the necessary decisions are made, a trust deed, setting out all rules and obligations, will need to be prepared by a specialist solicitor. It will need to be signed, witnessed, and dated. The personal injury trust will usually have a title, such as the 'David Smith Trust'.
The cost in setting up the trust can sometimes be included in a compensation settlement, but often people will have to pay the costs themselves. The specialist trustee will usually also charge a small annual fee to manage the trust.
When to set up a Personal Injury Trust
It is important that a personal injury trust is set up before a person receives their funds. This will ensure that the funds can be transferred in to the trust immediately and there will be no loss of benefits or care funding entitlement.
Some people may not be entitled to means tested benefits and services at the time they receive their funds, and so a personal injury trust may not seem immediately relevant.
However, careful consideration should be given to the possibility that the situation may change in the future, for example:
- If they move out of the family home to live on their own
- If they move to live in a care home
- If they are discharged from hospital or a care home
- If they divorce or separate from their partner
- If they reach a significant age for benefits purposes; such as 16, 18 or the age when they qualify for retirement benefits
- If they, or their partner, lose their job or retire
- If they, or their partner, lose their entitlement to another benefit or source of income
- If they, or their partner, find their health deteriorates and they become entitled to higher rates of disability benefits, which in turn have a knock-on effect for some means tested benefits
It is possible to create a trust after funds have been received and held by a person for some time. However, this does not allow the person to retrospectively claim for any benefits that they have missed out on before the trust was set up. There is also a risk that the injury funds may get mixed up with their other money, which can cause some complications. Therefore, it is always advisable to set up the trust as soon as possible and before the funds are received.
Personal Injury Trusts for children and people who are unable to make their own decisions
In most cases, the decision to set up a personal injury trust is one for the person to make for themselves, with advice from a specialist solicitor. However, if a person is unable to make their own decisions, it will be necessary to get approval to set up a trust for them.
Trusts for Children
In cases involving a child, the courts will need to approve the establishment of a personal injury trust to manage their funds until they reach 18 years of age. The court will need to be satisfied that a trust is suitable and is likely to be beneficial to the child, as well as approving the trustees and the type of trust that is to be used.
Children and incapable adults
If a person is unable to make their own decisions (a child for example or someone with a serious injury which adversely affects their mental capacity), it will be necessary to have a financial guardian appointed by the court. The Office of the Public Guardian (Scotland) will then need to approve any transactions.
It is possible for a guardian to be allowed to set up a personal injury trust. The courts and the OPG have authority to allow this, but are only likely to do so in exceptional circumstances.
This is because funds held in a trust no longer have the protection of OPG supervision and an insurance policy.
In cases involving a person under the age of 16, a parent or guardian can establish a personal injury trust to manage their funds. No approval is required from a court and such a trust can be set up even if the child will be an incapable adult at the age of 16.
Conclusion
After an accident or injury, some people are entitled to substantial sums of compensation. They may also receive money from insurance policies, charitable donations and other sources. Thought must be given to how this money can be used wisely so as not to affect entitlement to benefits and care services. Establishing a personal injury trust can often be the best way to do this.
This factsheet has provided an overview of how personal injury trusts work in Scotland however expert legal advice should always be sought and it is important to take legal advice before payments are received so that the trust can be set up ready to use.