A personal injury trust is a legal

term of art Jargon is the specialized terminology associated with a particular field or area of activity. Jargon is normally employed in a particular communicative context and may not be well understood outside that context. The context is usually a particu ...

in the modern

English English usually refers to: * English language * English people English may also refer to: Peoples, culture, and language * ''English'', an adjective for something of, from, or related to England ** English national ide ...

law of trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...

and is also applicable, where relevant, to

Wales Wales ( cy, Cymru ) is a Countries of the United Kingdom, country that is part of the United Kingdom. It is bordered by England to the Wales–England border, east, the Irish Sea to the north and west, the Celtic Sea to the south west and the ...

Scotland Scotland (, ) is a country that is part of the United Kingdom. Covering the northern third of the island of Great Britain, mainland Scotland has a border with England to the southeast and is otherwise surrounded by the Atlantic Ocean to the ...

and

Northern Ireland Northern Ireland ( ga, Tuaisceart Éireann ; sco, label= Ulster-Scots, Norlin Airlann) is a part of the United Kingdom, situated in the north-east of the island of Ireland, that is variously described as a country, province or region. Nort ...

. A

personal injury Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. In common law jurisdictions the term is most commonly used to refer to a type of tort lawsuit in which the person bringing the suit (t ...

trust is a form of

trust Trust often refers to: * Trust (social science), confidence in or dependence on a person or quality It may also refer to: Business and law * Trust law, a body of law under which one person holds property for the benefit of another * Trust (bus ...

, a legally binding arrangement, in which funds are held by persons, called

trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...

s, for the benefit of others upon the terms of a document, called a trust deed. :"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."Coldrick on Personal Trusts - Fourth Edition (Ark Group 2008) Page 3

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 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 se ...

) will be the injured party (that is except in limited circumstances involving an official compensatory body such as the

Criminal Injuries Compensation Authority The Criminal Injuries Compensation Authority (CICA) is an executive agency of the UK Government. The Authority, established in 1996 and based in Glasgow, administers a compensation scheme for injuries caused to victims of violent crime in Englan ...

). * The person founding the trust from their payment must also be the sole

beneficiary A beneficiary (also, in trust law, '' cestui que use'') 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 ...

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 is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures. Principal elements of English law Although the common law has, historically, be ...

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 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. Assets in a bare trust are held in the name of a trustee, but the beneficiary has the right to all of t ...

where the money involved, the

trust fund A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...

, 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 A life interest (or life rent in Scotland) is a form of right, usually under a trust, that lasts only for the lifetime of the person benefiting from that right. A person with a life interest is known as a life tenant. A life interest ends when t ...

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 A discretionary trust, in the trust law of England, Australia, Canada and other common law jurisdictions, 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 t ...

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 Hybrid may refer to: Science * Hybrid (biology), an offspring resulting from cross-breeding ** Hybrid grape, grape varieties produced by cross-breeding two ''Vitis'' species ** Hybridity, the property of a hybrid plant which is a union of two diff ...

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 Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specificall ...

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 A means test is a determination of whether an individual or family is eligible for government assistance or welfare, based upon whether the individual or family possesses the means to do without that help. Canada In Canada, means tests are use ...

purposes is low enough.

Long-term care Long-term care (LTC) is a variety of services which help meet both the medical and non-medical needs of people with a chronic illness or disability who cannot care for themselves for long periods. Long-term care is focused on individualized and ...

provision in

England and Wales England and Wales () is one of the three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wales Acts 1535 and 1542. The substantive law of the jurisdiction is Eng ...

, either at home or in a

care home A nursing home is a facility for the residential care of elderly or disabled people. Nursing homes may also be referred to as skilled nursing facility (SNF) or long-term care facilities. Often, these terms have slightly different meanings to in ...

, 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'' 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 A court order is an official proclamation by a judge (or panel of judges) 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 o ...

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 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 decision ...

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 or revenue law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments (as in the case of the US) use a body of rules and procedures (laws) to assess and collect taxes in a ...

if the wrong sort is chosen. For example, if an award of more than the ''nil rate band'' for

inheritance tax An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died. International tax law distinguishes between an es ...

is placed in a discretionary trust or (since 21 March 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 A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or ...

. 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

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 The Trustee Act 2000c 29 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 ...

and the general law on trustee investment. This is a complex technical field.

References

{{reflist Common law Wills and trusts

Trust Trust often refers to: * Trust (social science), confidence in or dependence on a person or quality It may also refer to: Business and law * Trust law, a body of law under which one person holds property for the benefit of another * Trust (bus ...