Trusts in Scotland can be utilised for a number of reasons. An individual may, for example, wish to pass wealth to a younger generation while retaining control of the underlying assets, or there may be a wish to mitigate tax. In the context of personal injuries, trusts can be very helpful for different reasons.

 

Why settle a personal injury trust? 

Recipients of personal injury (PI) awards often need to deal with a variety of issues. The injured party may have suffered life-altering injuries which might affect their ability to work again, and there may be concerns in respect of ongoing care needs. There may also be concerns regarding the management and administration of the award, particularly where a brain injury has occurred, or where the injured party could be perceived to be vulnerable. 

Where any of the above concerns apply, an injured party, or an attorney or guardian acting on behalf of an injured party, may consider settling a PI trust to hold the award. A PI trust is defined by what it holds – that being payments received in consequence of a PI (often compensatory payments but can include payment such as those made from insurers). 

Benefits of holding funds in a PI trust: 

  1. The trust is a disregarded location (ie outwith the scope of assessment) for means-tested benefits.
  2. The trust is a disregarded location for assessment for residential care (the trust can also provide more limited protection of funds in respect of non-residential care).
  3. As with any trust, a PI trust provides a means of managing and administering what might be a large sum of money.

It should be noted that for purposes 1 and 2 above, PI awards are disregarded for an initial period of 52 weeks, from first payment, whether or not a PI trust is in place. To secure the disregards beyond the 52-week period a PI trust is required.

 

How does the trust work? 

The injured party appoints trustees (who may include the injured party) and the trustees hold the funds in terms of the trust deed for the benefit of the injured party. The trustees may simply elect to hold funds in a trustee bank account, however, the trust fund can also be invested, or used to purchase assets (including property). 

The type of trust which may utilised will depend on the circumstances of the case. Often, a simple bare trust arrangement will suffice, where the trust fund is held absolutely for the benefit of the injured party. Where more protective measures are required, a discretionary trust can be appropriate, where the trustees have discretion over how the trust fund is managed. A particular type of discretionary trust, known as a disabled person’s trust, can be utilised in some cases depending on the circumstances of the beneficiary. 

Although tax is rarely a guiding principle in the formation of PI trusts, depending on the trust used, trust settlements may have very different tax consequences; care (and specialist advice) should be taken.

 

Further help 

For more information on PI trusts, please contact us on 0131 228 8111 or through the website.