By setting up a personal injury trust to hold your compensation payment, you ensure your award is protected for your benefit and held separately from the rest of your estate. Obtaining bespoke advice on the most appropriate structure, timescales and the appointment of trustees is essential to ensure your personal injury trust works for you.
1. Choose the right trust structure for you
A personal injury trust is special only by virtue of how it is funded, so any type of trust structure can be used. The most appropriate type of trust will depend on your own personal circumstances and the unique facts of your case. There is no "one size fits all" approach. Different trust structures will have different tax consequences. Taking expert advice from a trust specialist is vital to ensure that negative tax pitfalls are avoided!
2. Be aware of timescales
There is no time limit on when a trust can be set up to protect a compensation payment. However, it is important to be aware that you will have a period of 52 weeks from the date of your first interim payment to decide whether to set up a set before your means tested benefits are affected. This grace period is known as the "52-week disregard" and during that time, any payments made in compensation for injury are ignored in means tested benefits assessments. After the expiry of 52 weeks from your first payment, your award will be taken into consideration when determining your eligibility for means tested benefits. If you subsequently decide to create a personal injury trust having lost means tested benefits in the meantime, you will have to reapply for these after the trust is created.
Taking advice as early as possible to minimise disruption to valuable income streams you may have come to rely on is essential. Creating a trust as soon as possible also mitigates against the risk of your compensation award becoming mixed with your other funds. A personal injury trust is special because it is funded only from compensation paid in consequence of personal injury, so it is important that the trust is created only with your award and nothing else.
3. Appoint the right trustees
One of the most important points to consider when setting up a personal injury trust is the appointment of your trustees. The role of the trustees is to administer the assets in trust for your benefit.
It is so important to choose trusted individuals you know will work well together and in your best interests. It is often helpful to appoint an odd number of trustees to ensure that there is never a 'deadlock' and that decisions can be made by majority.
Consideration should also be given as to whether it is appropriate to appoint a professional trustee, who can provide impartial guidance in the decision-making process.
If you think that you or someone you know would benefit from a discussion about personal injury trusts, please get in touch.
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