Personal Injury Trusts can play a vital part in protecting assets following an award of compensation as a result of a successful personal injury or criminal injury compensation claim.

A consequence of the receipt of a compensation payment is that it may affect entitlement to means tested benefits. This is of relevance whether or not the injured party currently claims state benefits; they must be careful not to obstruct any future entitlement to assistance should long term care or other assistance be required later in life.

Re-directing an award to this type of trust means that the value received will be disregarded for certain means testing purposes. There are also other advantages in having the funds held in a trust; the appointment of trustees is often useful in cases involving a person with restricted ability to deal with financial affairs; there may be a desire to 'ring-fence' the assets so that they are protected from the impact of events such as a divorce; it may also be that, following a personal injury, some freedom from the burden of financial administration/ reporting requirements is desired. The money placed into trust remains available for use by the injured party, as required. It will be prudent for the trustees to seek independent investment advice to ensure that the trust funds are appropriately invested. It may be necessary for the fund to produce an income to help support the injured party, or it may simply be that the fund should be invested for future use.

Several different types of trust can be utilised and we would seek to work together with the injured party to ascertain which type of trust would best suit their needs. For example, certain types of trust would be more suitable for those under eighteen; others should be considered where the injured party has limited capacity to deal with their own affairs. As well as advising on the most suitable type of trust, we also ensure that issues surrounding inheritance are explored. Such issues include the impact of inheritance tax and also the rules of succession in Scotland. Importantly, the selection of the "incorrect" trust can lead to significant and unnecessary upfront tax charges as well as putting the trust on a disadvantageous tax regime going forward.

There is no "one size fits all" regime for personal injury trusts and we consider the factors relevant to each client's circumstances and wishes when advising on setting up a personal injury trust.

Protecting Succession to the Trust Funds

It is also important that the injured person has a Will and that it is up to date. This is, of course, something that we advocate for all our clients, but it becomes even more important where certain types of trusts are used for compensation payments. Certain trusts are added to the value of the personal estate on death and the trust fund will revert to the estate on death. This means it is necessary to ensure that the potentially valuable assets end up with the right beneficiaries. Scots law has strict rules governing the devolution of a person's estate where there is no Will. These rules are often a complete surprise to clients, most of whom quickly take steps to ensure they have a Will in place.

Efficient Management of Affairs

Similarly, appointing a Power of Attorney over the injured person's affairs is vital. This will ensure that, should there be any reasons for them being unable to manage their affairs, the funds placed in trust can be used on their behalf for their benefit. The attorney would be able to manage the person's legal, financial or property affairs and can also be appointed to have authority for personal welfare in the event that capacity is lost. Without a Power of Attorney, an application must be made to the court in order for authority to be given to make decisions and conduct the affairs of another. Spouses and next of kin will not necessarily (and often do not) have any authority to discuss matters with financial institutions, care homes etc. A power of attorney can therefore avoid the expenses and difficulties of a complicated court action at a later date.

Our Personal Injury Trusts Team

Our Personal Injury Trusts team has built up significant experience in advising individuals, solicitors, financial and investment advisers and other professionals on the establishment of effective legal structures to receive personal injury awards. We bring together trusts and estates expertise, tax specialism and incapacity law experience to offer a genuinely rare blend of knowledge and insight to the issues in this area. The team's credentials include Law Society of Scotland specialist accreditation in trust law, full membership of the Society of Trust and Estates Practitioners and membership of the Law Society of Scotland's mental health and disability law committee.

Contact Us

For further information, please contact the key members of our Personal Injury Trusts team:

Andrew Biggart
Partner
0141 271 5322
andrew.biggart@mms.co.uk

Alan Eccles
Associate
0141 271 5375
alan.eccles@mms.co.uk

Claire McCarte
Senior Solicitor
0141 271 5335
claire.mccarte@mms.co.uk

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This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.