Personal injury trusts in Scotland
If you receive a significant personal injury settlement, it could affect your entitlement to means-tested benefits such as Universal Credit, PIP, or Housing Benefit. A personal injury trust allows you to protect your compensation so that it does not count as capital for the purposes of these benefit assessments.
This guide explains what a personal injury trust is, how it works in Scotland, who needs one, and how to set one up.
What is a personal injury trust?
A personal injury trust is a legal arrangement under which your personal injury compensation is held separately from your other assets. The money is held by trustees (who may include you, a family member, and a solicitor) on your behalf.
Because the money is held in trust rather than in your own name, it is disregarded when calculating your capital for means-tested benefit purposes. This means that receiving a large compensation payment does not automatically cause you to lose benefits such as Universal Credit, Housing Benefit, Income Support, or Council Tax Reduction.
The trust arrangement does not prevent you from accessing or spending the money. It simply changes the legal form in which it is held.
Why do you need a personal injury trust in Scotland?
Most means-tested benefits apply a capital limit, above which your entitlement is reduced or eliminated. For Universal Credit, the limit is:
- Capital between £6,000 and £16,000 reduces your award
- Capital above £16,000 removes entitlement entirely
If your personal injury compensation exceeds £6,000, and you are receiving or expecting to receive means-tested benefits, a personal injury trust is worth serious consideration. Without one, receiving your settlement could immediately reduce or end your benefits, which may include housing support, disability benefits, and other vital income.
Which benefits are affected?
Means-tested benefits affected by capital limits include:
- Universal Credit
- Housing Benefit (if still receiving the legacy payment)
- Income Support
- Income-related Employment and Support Allowance (ESA)
- Income-based Jobseeker's Allowance (JSA)
- Pension Credit
- Council Tax Reduction
Personal Independence Payment (PIP) and Disability Living Allowance (DLA) are not means-tested and are not affected by the amount of compensation you hold.
When is a personal injury trust not needed?
If you are not receiving any means-tested benefits and are not likely to receive them in the future, a personal injury trust may not be necessary. Similarly, if the total compensation is modest (below £6,000), the capital limits are unlikely to be triggered.
However, your circumstances can change. Even if you are currently working and not claiming benefits, a serious injury may affect your ability to work in the future. Discussing the option with your solicitor before your settlement is finalised is always worthwhile.
How does a personal injury trust work?
The trust is created by a trust deed, which is a legal document setting out the terms of the arrangement. The compensation is paid directly into the trust account, not into your personal bank account.
Who are the trustees?
You must appoint at least two trustees. You can be one of the trustees yourself. Common choices for the second trustee include a family member or a professional trustee (such as a solicitor).
The trustees hold the money on your behalf and must apply it for your benefit. In practice, this means releasing funds to you when you request them for your personal use.
Can you access the money freely?
Yes. The trust is for your benefit, and you can ask the trustees to release funds for your use at any time. Common uses include home adaptations, therapy costs, purchasing equipment, paying off a mortgage, or simply living costs.
The trustees are required to act in your best interests and cannot unreasonably withhold funds.
What happens to the money if you die?
The trust deed will specify what happens to any remaining funds if you die. Typically, the funds pass to named beneficiaries or into your estate according to your will.
Are personal injury trusts recognised in Scotland?
Yes. Personal injury trusts operate under Scots law in Scotland. The trust is governed by the Trusts (Scotland) Act 1921 and subsequent legislation. The DWP recognises personal injury trusts for the purposes of benefit assessments in Scotland as they do in England and Wales.
It is important that the trust deed is drafted correctly to comply with DWP requirements. A solicitor experienced in personal injury trusts in Scotland should draft the documentation.
When should a personal injury trust be set up?
Ideally, a personal injury trust should be set up before your compensation is paid. If the money is first paid into your own account, it becomes your personal capital immediately, and you may lose benefit entitlement during the period it sits in your account.
However, DWP guidance allows for a trust to be set up after the payment, provided this is done as promptly as possible. If you have already received a settlement and are worried about the impact on your benefits, seek advice urgently.
What does it cost to set up a personal injury trust in Scotland?
The cost of setting up a trust varies depending on complexity, but it is typically a straightforward and relatively affordable piece of legal work. The cost can often be paid from the compensation itself or included as a disbursement in your claim. Ongoing administration costs depend on how actively the trust needs to be managed.
Is a personal injury trust the same as a statutory will or guardianship arrangement?
No. A personal injury trust is distinct from the arrangements needed where a seriously injured person lacks mental capacity. Where an injured person cannot manage their own affairs, it may be necessary to appoint a guardian or obtain an intervention order from the Office of the Public Guardian for Scotland. These are separate legal processes from a personal injury trust.
Where both a capacity arrangement and a personal injury trust are needed, your solicitor can advise on the interaction between the two.
Frequently asked questions
Does a personal injury trust work for DLA as well as PIP? Neither PIP nor DLA is means-tested, so a personal injury trust is not needed to protect those benefits. It is relevant only to means-tested benefits with capital limits.
Can I be my own trustee? Yes, you must be at least one of the trustees. You need at least one additional trustee, who is often a family member or a professional.
What if the compensation has already been paid into my bank account? You may still be able to set up a trust retrospectively, but you should act quickly and take legal advice. There is a risk of benefit suspension during the period the money was held in your account.
Can the DWP challenge the trust? The DWP can investigate whether a trust has been set up as a genuine personal injury trust or as a deliberate attempt to deprive yourself of capital. A trust that is properly set up, funded with compensation from a genuine personal injury claim, and documented correctly should not be open to challenge.
What happens if I no longer need benefits? The trust can be wound up and the remaining funds distributed to you if you no longer need the benefit protection it provides. Your solicitor can advise on the appropriate process.
How do I set up a personal injury trust in Scotland? Your solicitor will draft the trust deed, help you identify suitable trustees, and arrange for the compensation to be paid directly into the trust account. The process is straightforward and can usually be completed before your settlement is finalised.
Get advice on personal injury trusts in Scotland
If you are expecting a personal injury settlement and receive means-tested benefits, do not wait until after the money is paid to take advice. The consequences of receiving a large payment without a trust in place can be immediate and significant.
Call 0800 123 4567 for a free, no-obligation discussion. Our solicitors are regulated by the Law Society of Scotland and can advise on personal injury trusts alongside your claim.
