If you (or a family member) receive a lump sum as a result of an injury, you could use a personal injury (or PI) trust to support your financial planning. Below we explain the key points.
The main attractions
Putting any payments related to the injury into a PI trust means they are not considered by the Department for Work and Pensions (DWP) and local authorities when they assess you for means-tested benefits or care contributions. Without a trust, you may be ineligible after the first year.
A PI trust can also help people who are young, old, vulnerable or financially inexperienced to manage their money or protect it from third parties.
The contents
Any funds received in connection with the injury can be held in the trust. This could include damages, insurance payments, charity and JustGiving donations and other compensation. But it is important not to mix other capital into the trust funds.
The timing
You can set up a PI trust at any time, but to work most effectively, it should be set up within 52 weeks of receiving the first payment due to the injury. Any payments held outside the PI trust after that 52 weeks may then be taken into account by the DWP or local authorities when they calculate benefits.
The people involved
Anyone who receives a personal injury payment can set up a PI trust. In the case of children or adults with incapacity, others will need to do this for them. In all cases, trustees need to be appointed.
The small print
PI trusts blend different areas of law, and the financial impacts of mistakes in setting them up or managing them could be serious. It’s important to seek support from lawyers who habitually work in this area, who can advise on whether a PI trust would be appropriate, what type you need, how to select trustees and how to maximise the trust’s effectiveness.
Sandy Lamb Partner, Private Client Services
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