Personal Injury Trust (PIT) – what is it and how does it work?

Personal Injury Trust (PIT) – what is it and how does it work?


 If you have received a payment of compensation for a physical or mental injury you have suffered, you may cease to be entitled to state benefits.  A rough guide is that someone with more than £6,000 in savings is at risk of losing means-tested benefits and where they have £16,000 or more, they will lose means-tested benefits. However, benefits are in transition at the moment, and it is important not to rely on these figures when making a decision – you need to take advice on your own position.  If the compensation in placed in a trust, the value of your award will be disregarded when you make benefits claims, and you can also protect it and yourself from the influence of family, friends and rash and hasty decisions.

A Personal Injury Trust (PIT) can protect entitlement to benefits if it is set up within 52 weeks after receiving money towards or in full settlement of your claim. It is best to set the trust up as soon as possible, ideally before your compensation payment has been made.

That payment may be an interim or final payment from an insurance company or in some circumstances it may be a payment from another source. It is important to act promptly when you know a payment is due to be made.

As the Trustees of the PIT are the legal owners of the money and thereby control it, choosing them carefully is important.   The money (or investments and property which represent it) in the PIT is also known as the Trust Fund. The Trustees manage the Trust Fund in accordance with the trust deed, pay any tax that becomes due and decide how the funds should be invested, as well as manage when and if they should be paid out or applied for your benefit.

You will need a minimum of two Trustees, but you can appoint up to four.  In some cases, you can be one of the Trustees.  If a Trustee dies or is no longer able to act, they can be replaced.

Your Trustees must be over the age of 18 years. You should choose people that you are confident will act in your best interests and who are good at managing paperwork. You may want to consider family, friends (unless you feel there may be a conflict of interests) and a solicitor and/or accountant if it is substantial compensation.

The Trustees will set up a bank account and other investments where it is appropriate to do so.  They may need to take advice from a financial adviser.  All Trustees would need to sign any cheques or authorities required to release funds. You would need to speak with the Trustees to explain when you need money.  With a bare trust the Trustees will make payments as and when you direct/request them.   With a discretionary trust, the trustees may need to understand the reason why funds are being requested before agreeing to make a payment.

It not always advisable to for the Trustees to make regular payments to you as this can may mean your resources regularly exceed to capital limits for benefits.  It can mean losing and then reapplying for benefits on a frequent basis.  The Trustees can make payments to third parties in respect of any need you have or services that you will benefit from.  For example, the trustees can make making payments to providers like physiotherapists or carers for services they deliver to you.

You cannot put other money than the compensation for your personal injury into the PIT.

Generally, the payment of the compensation is not in itself an event that will be subject to tax.  Thereafter, the annual income earned by the fund will be taxed.  The Trust will need to complete separate tax returns, unless it is a bare trust.  Income tax and capital gains tax may need to be paid.Some trusts for disabled and vulnerable people and children benefit from a special tax treatment which means they may pay less tax.  It is important to complete appropriate election forms issued by HMRC to benefit from the special tax treatment.

How the PIT is ended will depend on the type of trust you have established. If it is a bare trust, you can give you Trustees written instructions to transfer the money to you. The Personal Injury Trust will then come to an end and the fund will form part of your own estate.  Bear in mind that when this happens, the money belongs to you and may affect your entitlement to means tested benefits.
If you have established a discretionary trust or a life interest trust, the Trustees will need to be persuaded that it is a good idea to bring the Trusts to an end – you may have used this type of trust to protect you and the money from impetuous decisions and from influence from other people.

If you have established a life interest trust or a discretionary trust, the PIT trust deed will show what happens to the remaining trust fund on your death.

On your death, the type of trust you have established will dictate what happens to the money left in the trust at that time.  If you have established a bare trust, on your death the fund will form part of your estate. This means that it will pass under your Will to the people you have named in the Will.  You need to remember this when you write your Will.  If you have not signed a Will, the trust money will be added to any other assets you have and will pass according to the Intestacy Rules.

If you have established a life interest trust or a discretionary trust, the PIT trust deed will show what happens to the remaining trust fund on your death.

When the person to whom the personal injury compensation is paid does not have the capacity to manage the award or is a minor (under 18 years of age) the Court will be asked to decide whether the award should be managed by Court appointed Deputies, or through a Court approved PIT with Court approved Trustees.

As compensation awards can be substantial, and even with smaller awards the loss of means tested benefits can have a devastating effect, it is always sensible to take advice on the options available to you or your vulnerable loved one at an early stage.

 

 

 

Phillipa Bruce-Kerr

Phillipa Bruce-Kerr

Partner at Harrison Clark Rickerbys

Phillipa Bruce Kerr is a Partner at Harrison Clark Rickerbys, who qualified in 1984 after completing her Training Contract with a firm based in London’s West End.

She moved to Harrison Clark Rickerbys from Foot Anstey in 2008. She is a full member of STEP and Solicitors for Elderly, a member of the Law Society’s Private Client Section and a Dementia Friends Champion.

She is also the Gloucestershire Regional Co-ordinator for SFE, and member of STEP’s Mental Capacity Special Interest Group.

She has advised on Estate Planning issues (Wills, Powers of Attorney and tax planning) for a range of clients including business owners and farmers.

She has always worked with Older and Vulnerable Clients and was a Panel Receiver, when there were such things.

She is both Deputy and Attorney for clients who need assistance in managing finances.

She has been involved in assisting to draft some of the SCOPE information sheets on Trusts and Wills and has spoken at their National Conferences.

Phillipa works with Care Professionals explaining the practical implications of legal documents and the Mental Capacity Act.

She also works closely with older and vulnerable clients and their families in strategies to support decision and delegated decision making.

She has an increasing workload of disputes over financial and health and welfare issues which are adjudicated by the Court of Protection. She believes clear explanations and practical solutions are the best way to assist clients.

In their spare time she and her family are currently supporting their perplexed dog who is constantly outwitted by the Pygmy Goats that have arrived recently. The challenges and rewards of pet ownership never cease.

 

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