Archive for September 2nd, 2013

Compensation and the Importance of a Personal Injury Trust
Serious Injury Law LLP

At the end of the litigation process for a serious injury claim, compensation may be arrived at when the court orders a suitable damages award, or alternatively where both sides reach an agreement in an out of court settlement. Either way, there is a great importance for successful claimants to create and utilise a Personal injury Trust.

Types of Compensation

In general, serious and catastrophic cases (such as those for a spinal injury claim) require a substantial compensation award in order to cover the claimant’s considerable schedule of loss. This ranges from the relative simplicity of covering their past and future loss of earnings through to their extensive care and rehabilitation regime, as well as for any bespoke aids and adaptation requirements.

However, there are three main methods by which a personal injury compensation award can be paid to the successful claimant:

  1. Provisional damages award – In this case, an initial amount of compensation is awarded but may be increased at a later date should the claimant’s condition deteriorate.
  2. Periodical payment order – This is where the claimant receives a fixed annual amount of compensation. It often follows an initial lump sum award to cover losses.
  3. Lump sum settlement – A one-off compensation payment to cover the claimant’s losses and outgoings until their death.

Historically, lump sum settlement payments have been the most common type of award for personal injury claims; however recent times have brought about a change with periodical payment orders (PPOs) gaining considerable popularity.

Somebody who suffers from a spinal cord injury may be awarded a lump sum compensation payment and of course, this type of funding is an incredibly useful and vital resource. It is one that can be used instantly to address many of their immediate physical and mental challenges, yet it is not without its disadvantages.

Lump sum drawbacks

If the large lump sum compensation award is paid into the claimant’s personal bank account, then they run the risk of becoming ineligible to receive means-tested benefits.

Should the claimant’s compensation be in excess of £6000 (or if it increases their existing financial assets to over £6000), then HMRC will treat the funding as income received regardless of the fact that it is intended to support the injured person for the rest of their life, and will deem the claimant ineligible to receive benefits.

This has the potential to have disastrous impact on the injured person’s life. What if they live longer? What if they overspend? Or even make unwise investments? If the money runs out, then it is highly unlikely that a spinally injured person will be able to earn more at a later date, so without means-tested benefits, where will their future income come from?

There is hope however, for such people who receive large personal injury settlements. This is through the founding of a Personal Injury Trust.

Trust advantages

Personal Injury Trusts are legally binding financial agreements where a bank or building society account is opened solely for the purpose of managing a successful claimant’s compensation award. It is a perfectly legal financial arrangement and one that is recognised by HMRC and the Department for Work and Pensions.

When the compensation (or interim payment) is deposited into the trust, it is not treated as income by HMRC, meaning the claimant will not exceed the £6000 threshold and therefore stay eligible for such means-tested benefits as the new Universal Credit Scheme.

Even those who may feel that they do not require benefits, it is advisable for them create a trust so as to remain eligible. This is because there may come a time when their condition deteriorates to such a level that further funding is required.

Aside from the obvious financial benefits, there are also administrative advantages as well. In particular, a Personal Injury Trust that is well-managed by trustees helps those who have suffered from extremely debilitating conditions such as tetraplegia as a result of a serious spinal cord injury, as they are most likely to be permanently incapacitated and unable to adequately manage their own affairs.

In addition, a Personal Injury Trust is useful for seriously injured people below the age of 18. Classed as minors, their parents, guardians and/or legal representatives are able to manage the compensation award on their behalf.

How they work

The injured person (claimant) is the trust’s beneficiary, whilst other people are chosen to be the trustees who look after and use the compensation correctly. Usually, reliable family members or those in positions of authority are appointed, such as serious injury lawyers or financial advisors. In addition, the claimant/beneficiary is often also appointed as one of the trustees so as to maintain an element of control in the funding.

Trustees are only to use the compensation award in the best intentions for the beneficiary, and in some cases, for other people stipulated in the Personal Injury Trust’s guidelines.


Compensation alone is not the end of the story. It must be used wisely to support the successful claimant for the rest of their life, and the financial security offered by a Personal Injury Trust is one of the most efficient ways of doing so.

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