Litigation: Personal Injury Trusts

Most of us are familiar with the concept of a right to compensation following a personal injury caused by the fault and negligence of another - an obvious example arises in the context of a road traffic accident, where the party at fault (or, in reality, his insurer) pays a sum in compensation for the injuries suffered by another.

But there is often more to a successful claim than that, and this is where the advice of a solicitor with expertise in the handling of personal injury claims can prove invaluable.

Personal injury awards can arise in one of two ways - either through direct negotiation with the defender leading to an agreed settlement, or through litigation in court, where the judge will determine the appropriate compensation to be paid.  Either way, the successful claimant will be found entitled to payment of a sum of money based on the severity of the injuries sustained, any loss of earnings (past and future) and any direct financial loss occurring as a result of the injury.   Each case is, of course, fact specific, so the sums involved in any given settlement can range from a few hundred pounds to many millions in exceptional cases. 

But the handing over of the settlement cheque is, in many cases, far from the end of the matter.  Compensation usually takes the form of a one-off capital payment to the victim, but ironically, and without proper advice, the payment of compensation can have unforeseen adverse consequences.  If the injured party is in receipt of means tested state or local authority benefits - for example, income support or job seekers allowance - then any compensation award which takes the recipient's total capital to a figure over £6,000 will automatically lead to a reduction in benefits payable.  If the compensation is in itself more than £16,000 (the upper limit) or combined with existing capital, exceeds that figure, then benefits will cease altogether until such time as capital falls below this threshold.   That can effectively completely negate the value of the award of compensation.

It is, thankfully, possible to avoid this situation occurring, but it does require expert legal advice and advance planning.  The means by which benefit entitlement can be preserved is through the creation of a Personal Injury Trust, with the claimant as the beneficiary of the Trust.  As the compensation is paid into the trust and not directly to the claimant, entitlement to benefits is not affected and discretionary payments can be made to the claimant by the trustees without resulting in his or her benefits being stopped.  It may sound complex but, in reality, many simple trusts are administered by a family member and a solicitor.

It makes sense to consider a personal injury trust sooner rather than later in the litigation process, but the law allows a 52 week period from the date of receipt of the first payment of any money in respect of the injury to the setting up of the trust, before the benefits cuts bite.

The answer is to take advice at an early stage so as to ensure your benefits are protected notwithstanding the award of compensation.

Drummond Miller has a dedicated team of personal injury experts and would be happy to offer advice on the whole compensation process - please call for a no-obligation preliminary discussion. We also have a private client team experienced in the setting up and running of personal injury trusts who will also be able to provide you with advice.