A payment made in respect of a personal injury does not just apply to awards of damages for personal injury. Personal injury trusts can also be used for accident insurance policies and charitable donations.

A personal injury trust may not be appropriate for every successful claim but a trust certainly should be considered in any case where you or your partner are in receipt of means tested benefits (or are likely to claim means tested benefits in the future) and when you are likely to recover more than £3,000 by way of damages. Otherwise your award might quickly be eroded by living expenses incurred which must be funded from your capital because your benefits and other entitlements have been foregone.

Some claimants prefer to have control of their money despite the loss of benefits. In other cases the cost of setting up and maintaining the trust outweighs the likely loss of benefits (especially in cases where the claimant is likely to improve, get back to work etc. in the foreseeable future).

Some benefits are not means tested and it may be possible to avoid loss of benefit by spending your award on certain exempted items (such as the purchase of the house in which you live) whereby the capital will be disregarded, but it is not possible just to give the money away to a relative or spend it on non-exempted items. Such actions would be deemed by the authorities as "deprivation of capital" and your benefits would still be lost. For you to benefit without risk a proper trust deed must be drawn up.

• A Personal Injury Trust should be in the form of a 'Bare Trust' with two trustees and the claimant as beneficiary.
  
• A trust deed is required which must be supplied to the relevant benefits agency.
  
• It is important that the benefit agency regard the trust as genuine and not a sham otherwise they may refuse to recognise it. Therefore, it is advisable to have the trust deed in place before any settlement is made.
  

Once the trust is in place it is important that any money received by way of damages should be paid directly into the trust and must not pass through the claimant's hands. Similarly, once the trust is in place and the damages have been paid into it, any payments out of the trust for capital amounts for purchases should be paid from the trust straight to the vendor and not via the claimant.

It is possible for sums to be paid out to the claimant from the trust but when doing this it is necessary to avoid the appearance of regular payments, otherwise these sums may be categorised as 'income' by the agency, leading to a loss of benefit. You must avoid monthly payments out to the claimant of a regular sum.

Your solicitor will advise you on the establishment of a persoanl injury trust. Contact our Claims Support Team on 0800 066 99 07 if you require further assistance.