What’s a personal injury trust and why are they useful?04 December 2014
A personal injury trust is a term used to describe a trust that exclusively comprises an award for a personal injury. The trust can be set up at any time, but the proceeds have to be ring-fenced and kept separate from the claimant’s other assets. The trust can be in the form of a bare trust, interest in possession trust or discretionary trust.
By placing the proceeds of a personal injury claim in trust, this protects the claimant’s eligibility to means tested benefits whilst allowing them to benefit from the compensation payment.
As the claimant is also a beneficiary of the trust, the trust will be a settlor-interested trust for tax purposes. As the settlor is a beneficiary the gift to trust falls within the gift with reservation of benefit rules. This means that the value of the trust on death is treated as forming part of the claimant’s estate.