Personal injury trust
Encyclopedia
The expression personal injury trust is a legal term of art found in the context of the modern English
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

 law of trusts (also applicable, where relevant, to Wales
Wales
Wales is a country that is part of the United Kingdom and the island of Great Britain, bordered by England to its east and the Atlantic Ocean and Irish Sea to its west. It has a population of three million, and a total area of 20,779 km²...

, Scotland
Scotland
Scotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...

 and Northern Ireland
Northern Ireland
Northern Ireland is one of the four countries of the United Kingdom. Situated in the north-east of the island of Ireland, it shares a border with the Republic of Ireland to the south and west...

).

A personal injury
Personal injury
Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. The term is most commonly used to refer to a type of tort lawsuit alleging that the plaintiff's injury has been caused by the negligence of another, but also arises in defamation...

 trust is a form of trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

, a legally binding arrangement, where funds are held by persons called trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...

s for the benefit of another or others upon the terms of a document called a trust deed
Trust instrument
A trust instrument is an instrument in writing executed by a settlor used to constitute a trust...

.
"A trust does not need to have a specific generic title or be one sort of trust or another at law to be a personal injury trust. It is the source of the trust fund which determines the trust's nature ... needs ... relevant circumstances and the relevant law should dictate the type of trust. But whatever legal type of trust it is, if it is funded by an award of compensation for a personal injury then it will be a personal injury trust."

Special characteristics

A personal injury trust has several special characteristics:
  • It is constituted exclusively by funds derived from a payment (or payments) made in consequence of a personal injury e.g. compensation for a road traffic accident.
  • The person founding the trust (called the settlor
    Settlor
    In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...

    ) will be the injured party (that is except in limited circumstances involving an official compensatory body such as the Criminal Injuries Compensation Authority
    Criminal Injuries Compensation Authority
    The Criminal Injuries Compensation Authority is a non-departmental public body in the United Kingdom. The Authority administers a compensation scheme for injuries caused to victims of violent crime in Great Britain and is funded by the Ministry of Justice in England and Wales and the devolved...

    ).
  • The person founding the trust from their payment must also be the sole beneficiary
    Beneficiary
    A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example: The beneficiary of a life insurance policy, is the person who receives the payment of the amount of insurance after the death of the insured...

     or at least one of the potential beneficiaries of the trust.


These are important because it means that a trust does not need to have a generic title or label or be one particular type of trust or another at English law
English law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...

 to be considered a personal injury trust. It is or is not a personal injury trust on account of its source and the involvement of the injured settlor.

Types of trust

A personal injury trust can be:
  • a bare trust
    Bare trust
    A bare trust is a trust in which the beneficiary has a right to both income and capital and may call for both to be remitted into his own name. He is also entitled to take actual ownership and control of the trust property...

     where the money involved, the trust fund
    Trust law
    In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

    , is held for the injured party outright with administrative powers being given to the trustees. Upon the death of that person it forms part of their estate and passes under their will or under the law of intestacy which operates when there is no will.

  • a life interest
    Life interest
    A life interest is some form of right, usually under a trust, which lasts only for the lifetime of the person benefiting from that right. A person with a life interest is known as a life tenant....

    trust where the trust fund is held by the trustees for the life of the injured party for their benefit and then after their death it passes to others under the terms of the trust.

  • a discretionary trust
    Discretionary trust
    In British and Canadian law, a discretionary trust is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by the settlor. It is sometimes referred to as a family trust in Australia...

     where the trust fund is held by the trustees for the benefit of the injured party and potentially others at the discretion of the trustees. The trust may continue or be wound up when the injured party dies.

  • a hybrid trust such as a flexible life interest combining features of the life and discretionary trust as desired.


The needs of the settlor, their family circumstances and tax or other relevant law should dictate the type of trust used. But whatever the legal type of the trust, if it is funded by an award of compensation for a personal injury then it will be a personal injury trust.

Personal injury trusts are sometimes referred to as special needs trusts but that expression is more general and can create confusion with certain trusts in other jurisdictions. A more accurate and informative alternative description might be compensation protection trust as that alludes to its actual purpose under English law.

Role and practice

The role and practice of personal injury trusts under English law.

(1) Basic advantages

The existence of a personal injury trust can enable the injured party to obtain certain means-tested State benefits
Social security
Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...

 entitlements and to make the best use of the award under English law but there are also other potential advantages.

(2) When advice should be given/sought.

Advice on personal injury trusts is usually given by lawyers involved in all injury related cases concerning:
  • Accidental injuries
  • Criminal injuries
  • Clinical and other medical negligence causing injury
  • Compensation given for any disease or injury caused as a result of a disease


That is irrespective of whether or not the harm caused was physical or mental. It is irrespective of where the injury occurred. It may have occurred in the UK or abroad. It is also irrespective of the size of the payment made.

(3) Means-tested benefits advantages.

A personal injury trust is also considered relevant even if a person is not currently in receipt of means-tested benefits. That is because they might potentially have access to them in the future if their "assessable capital" for means-testing
Means test
A means test is a determination of whether an individual or family is eligible for help from the government.- Canada :In Canada means tests are used for student finance , and "welfare" . They are not generally used for primary education and secondary education which are tax-funded...

 purposes is low enough. Long term care
Long-term care
Long-term care is a variety of services which help meet both the medical and non-medical need of people with a chronic illness or disability who cannot care for themselves for long periods of time....

 provision in England and Wales
England and Wales
England and Wales is a jurisdiction within the United Kingdom. It consists of England and Wales, two of the four countries of the United Kingdom...

, either at home or in a care home
Nursing home
A nursing home, convalescent home, skilled nursing unit , care home, rest home, or old people's home provides a type of care of residents: it is a place of residence for people who require constant nursing care and have significant deficiencies with activities of daily living...

, is a means-tested benefit provided by or through local authorities.

(4) Other practical advantages of a personal injury trust.

There are also other potential advantages of personal injury trusts apart from the retention of means-tested benefits. That is particularly in the case of older, very young, mentally incapable or other vulnerable persons:
  • They may have no experience of handling a large sum of money.
  • They may want the protection which trustees can offer against grasping relatives.
  • They may have unstable mental conditions which renders the use of trustees helpful.
  • They may just want to get on with their lives without having to concern themselves with financial administration.
  • They may fear the impact of divorce and separation on their finances and want to try and ring-fence
    Hypothecation (taxation)
    The hypothecation of a tax is the dedication of the revenue from a specific tax for a particular expenditure purpose. Hypothecation is the pledging of assets....

    their resources in some way.


(5) Further points of note.

Under English law:
  • The award placed in the personal injury trust may be negotiated or mediated and no court order
    Court order
    A court order is an official proclamation by a judge that defines the legal relationships between the parties to a hearing, a trial, an appeal or other court proceedings. Such ruling requires or authorizes the carrying out of certain steps by one or more parties to a case...

     making an award is required to facilitate a personal injury trust unless the compensated person is either a minor or mentally incapable of managing their own affairs.
  • Cases involving minors will involve the High Court agreeing to the foundation of a personal injury trust.
  • Cases involving mentally incapable persons will involve the Court of Protection
    Court of Protection
    The Court of Protection in English law is a superior court of record created under the Mental Capacity Act 2005. It has jurisdiction over the property, financial affairs and personal welfare of people who lack mental capacity to make decisions for themselves...

     agreeing to the foundation of a personal injury trust.


(6) Tax issues.

Personal injury trusts usually carry no UK tax advantages. Compensated people need access to their award via their chosen trustees. Thus it is essential that they retain an interest as a named beneficiary in the award which they settle to form the trust fund.

The UK taxation anti-avoidance rules prevent tax advantages being given to such settlor interested trusts. They apply to settlor interested personal injury trusts in the same way as they apply to trusts founded from non-personal injury related funds.

Personal injury trusts can create adverse tax consequences under UK tax law
Tax law
Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...

 if the wrong sort is chosen. For example if an award of more than the nil rate band for inheritance tax
Inheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...

 is placed in a discretionary trust or (since March 21, 2006) an ordinary life interest trust, an inheritance tax charge on the surplus becomes due immediately. The limit is £325,000 for the 2009-10 tax year. Above that a 20% charge at the inheritance tax lifetime rate will apply to the surplus.

Importantly the above adverse tax consequences do not apply to bare trust
Bare trust
A bare trust is a trust in which the beneficiary has a right to both income and capital and may call for both to be remitted into his own name. He is also entitled to take actual ownership and control of the trust property...

s and certain other highly specialised types of trust arrangement.

(7) Investment of personal injury awards.
UK trustees will wish to comply with the Trustee Act 2000
Trustee Act 2000
The Trustee Act 2000 is an Act of the Parliament of the United Kingdom that regulates the duties of trustees in English trust law. Reform in these areas had been advised as early as 1982, and finally came about through the Trustee Bill 2000, based on the Law Commission's 1999 report "Trustees'...

and the general law on trustee investment. This is a complex technical field.
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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