Author29th January 2026 | David Mulholland TEP | Private Wealth, Personal Injury, Asset Protection
When compensation is awarded following a serious injury, it is intended to provide long-term financial support, often for life. However, receiving a lump sum of damages can have unintended consequences, particularly where the injured person relies on, or may need to rely on, means-tested state benefits.
A personal injury trust can be an effective and well-established solution. At Sherrards, we regularly advise injured individuals and their families on how personal injury trusts can protect compensation, preserve benefit entitlement and support long-term financial planning.
This article explains what a personal injury trust is, when it may be appropriate, and the key issues to consider.
What Is a Personal Injury Trust?
A personal injury trust is a legal structure used to hold compensation awarded as a result of a personal injury. The trust can take several different forms, but it must be established wholly or partly for the benefit of the injured person.
Personal injury trusts are commonly used for damages arising from:
- Road traffic or workplace accidents
- Medical negligence
- Criminal injuries
- Industrial disease
- Injuries caused by another person’s negligence
Importantly, damages held within a properly established personal injury trust are disregarded for the purposes of means-tested benefits.
Compensation awarded solely for “injury to feelings” (for example in discrimination claims) is treated differently and will not usually qualify for this protection.
Why Consider a Personal Injury Trust?
Preserving Eligibility for Means-Tested Benefits
Means-tested benefits such as Universal Credit are subject to strict capital limits. In broad terms:
- Capital over £6,000 can reduce entitlement
- Capital of £16,000 or more usually removes entitlement altogether
Without a trust, a personal injury award can quickly push an individual above these thresholds.
Where compensation is placed into a personal injury trust, the trust capital is ignored when assessing entitlement to means-tested benefits. Any income generated by trust assets is also generally disregarded, even if it is paid to the injured person.
This allows individuals to access their compensation while maintaining financial support from the state where appropriate.
The 52-Week Temporary Disregard
Following receipt of compensation, there is a limited statutory “breathing space”. For up to 52 weeks, personal injury damages can be held by the injured person without affecting means-tested benefits.
This period is intended to allow time to take advice and decide how best to manage the award. However, once the 52-week period expires, any remaining funds held personally may be treated as assessable capital.
Given the complexity and uncertainty around how this rule applies, particularly where interim payments are made, reliance on the temporary disregard alone is rarely advisable for larger awards.
Asset Protection and Long-Term Planning
Even where benefits are not currently claimed, a personal injury trust may still be highly relevant. Clients often choose to use a trust to:
- Plan for possible future care needs
- Manage compensation where capacity may fluctuate
- Protect assets from divorce, bankruptcy or financial pressure
- Help ensure that damages last for the long term
- Ring-fence compensation from third-party influence
A trust can provide reassurance and structure at a time when financial decisions may otherwise feel overwhelming.
When a Personal Injury Trust May Not Be Appropriate
A trust may not be the right solution in every case. For example:
- Where the award is modest and unlikely to affect benefits
- Where the costs of establishing and administering a trust are disproportionate
- Where the injured person prefers to manage funds personally and does not need benefit protection
Alternative arrangements, such as investing in other forms of disregarded capital or using a deputyship account where mental capacity is lacking, may be more suitable in some circumstances.
Types of Personal Injury Trusts
Bare Trust (Most Common)
A bare trust is the simplest and most commonly used personal injury trust. The injured person is absolutely entitled to the trust assets, with trustees acting primarily in an administrative role.
Bare trusts are often preferred because they are:
- Simple and transparent
- Cost-effective to run
- Easy to understand
They are usually the default option unless there are clear reasons to consider a more complex structure.
Life Interest Trust
A life interest trust provides the injured person with income for life, with the capital passing to other beneficiaries (such as children) on death.
This structure may be suitable where:
- Long-term family provision is important
- There is concern about pressure to spend a lump sum
Careful management is required to ensure income payments do not inadvertently affect benefits.
Discretionary Trust
A discretionary trust gives trustees wide powers to control how and when funds are applied.
This can be appropriate where:
- The injured person is vulnerable
- There is a risk of financial exploitation
- Strong asset protection is required
Discretionary trusts are more complex and can carry additional tax considerations, so specialist advice is essential.
Disabled Person’s Trust
Where the injured person meets the statutory definition of “disabled” for tax purposes, a disabled person’s interest trust may provide favourable inheritance tax treatment, particularly for larger awards.
Choosing Trustees
Choosing the right trustees is critical to the success of a personal injury trust. Key considerations include:
- Appointing two to four trustees
- Avoiding a sole trustee
- Including at least one independent trustee
- Considering whether a professional trustee is appropriate
In some cases, particularly where awards are substantial or the injured person is vulnerable, the court may require professional trustee involvement.
Managing Payments from the Trust
Funds held within the trust are protected for benefits purposes. However, once money is paid directly to the injured person and retained, it may become assessable capital.
Trustees can help manage this risk by:
- Paying major expenses directly to third parties
- Structuring payments to avoid unnecessary benefit implications
This is an important part of ongoing trust administration.
The Importance of Will Planning & Wider Estate Planning
Advice on personal injury trusts should always be considered alongside will and wider estate planning.
- Bare trusts come to an end on death, with assets passing under the will or intestacy
- Other trust structures may reduce urgency but do not remove the need for a will
- Lasting Powers of Attorney or a Deputyship Order are also essential to safeguard the injured person as part of their wider Estate planning
Ensuring that personal wishes are properly documented is a vital part of holistic planning.
How Sherrards Can Help
Personal injury trusts require careful coordination between personal injury law, private client expertise, tax and welfare benefits. Early advice can make a significant difference to long-term financial security.
At Sherrards Solicitors LLP, we provide clear, practical advice tailored to each client’s circumstances, working closely with personal injury solicitors, financial advisers and families where appropriate.
Speak to a Specialist
If you or a family member have received, or expect to receive, compensation following a personal injury, specialist advice at the right time is crucial.
For tailored advice on personal injury trusts, please contact David Mulholland, or the Private Wealth team.
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