Compensation Protection Trust

Upon receiving compensation as a result of an asbestos-related disease compensation claim, you are likely to require some support in managing the pay out sensibly and responsibly.

Compensation protection and Personal Injury Trusts are legal arrangements that hold and manage compensation awards that are obtained following the result of an injury.

On this page, the Asbestos Awareness team considers some frequently asked questions (FAQs) about compensation protection and personal injury trusts.

If you cannot find the information that you are looking for, simply contact us using this form or by calling us on 0800 987 8809. We will be only too pleased to try and help you.

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What is a Compensation/Personal Injury Trust?

A Compensation or Personal Injury (PI) Trust can be referred to as a compensation protection trust or special needs trust. The funds for a PI Trust must originate from the following:

• PI settlement award or interim payments.
• Payouts from government compensation schemes.
• Public or charitable donations made after an accident.
• Payments resulting from a professional negligence claim compensating for a previously undervalued PI claim.

There may be other potential sources of funds for cases not related to asbestos disease. The structure of the trust, or whether a trust is suitable, will rely on the individual’s specific circumstances.

The value of the compensation, the individual’s plans for their award, and their current and future needs must all be evaluated. As trust law can be complex, specialist legal advice is necessary. Any decision taken must ensure the individual’s situation and interests are safeguarded and not adversely affected.

Typically, a PI Trust is managed by at least two trustees or a trust corporation. The simplest and most common PI Trust is known as a “bare trust”, where the trust fund is considered the property of the individual who suffered the injury and received the compensation, allowing them to dissolve the trust whenever they choose.

How do I set up a PI Trust?

An essential first step for any individual is to seek specialist legal advice. This will help to determine the most appropriate trust to be put in place (if any).

Whilst the compensation claim is proceeding, the individual should begin to set up the trust. Indeed, the chosen trust arrangement should be set up before any settlement/funds are received to ensure no loss of statutory benefits or care funding entitlement.

In cases whereby the individual requiring a trust is a minor, their guardian or legal representative will appoint the trustees, subject to court approval. In all other cases, the individual must select their trustee(s) or corporation at this time.  The recipient of the compensation award can appoint themselves as trustee while being the primary beneficiary of the trust. It is essential to choose a responsible, trusted, and financially reliable trustee who prioritises the individual’s best interests.

A specialist solicitor will draft the trust document, known as a ‘trust deed’, which outlines all obligations and powers governing the trust’s operation.

Lastly, it is crucial to set up a separate trust bank account solely for depositing trust funds, keeping them distinct from personal finances.

The cost of establishing a trust varies depending on its type and complexity. Ideally, the recoverable costs should be considered and included within the compensation claim. If not, the individual will bear the costs from the trust funds.

The individual can choose to appoint a professional trustee where there is no one else suitable or they wish to benefit from someone with knowledge and experience.  Importantly, professional trustees typically charge for managing the trust and reasonable expenses payable from the trust funds. The professional trustee should provide estimates of expected costs on an annual basis.

Why should a PI Trust be set up?

The primary reason for most trusts to be set up is that funds held are disregarded when assessing state benefits and local authority funding (care home fees). This is relevant whether the individual receives the benefits at the time the trust is created or not.  If it is conceivable that the individual may need to apply for state benefits or enter a care home in the future, a PI Trust should be considered.

Furthermore, if an individual is unfamiliar with handling a large sum of money independently, a PI Trust can be beneficial.

A professional trustee can share their knowledge and experience to provide advice on decision-making relating to the trust.

Can money from a Trust be spent?

In cases where compensation is being obtained as a result of an asbestos-related disease, often the prognosis will mean that either the claimant will die shortly after the compensation has been obtained, or they will die during the claims process.

However, the purpose of obtaining compensation is to meet the needs of the individual during their lifetime and to reimburse past and future losses that are presented to them as a result of being diagnosed with a life-shortening illness, such as mesothelioma, asbestos-related lung cancer or another asbestos-related disease.

In addition to meeting the needs of the affected individual, a proportion of the fund is typically retained as liquid capital in a trust bank account to cover any ongoing expenditure. Depending on the overall compensation, typically the remainder of the trust will be invested. However, it is always advisable to seek guidance from a financial adviser.

What happens when the individual dies?

As mentioned above, the prognosis for many victims of asbestos-related disease is often life-limiting, meaning that the compensation will either be obtained towards the end of the victim’s life or after they have died.

In cases where compensation has been obtained before death and a PI Trust has been set up, the trust will become part of the estate. Upon death, the PI Trust will be distributed in accordance with the terms of the individual’s Will or under the rules of intestacy if the individual does not have a Will.

Asbestos Awareness is dedicated to informing, educating, and supporting people in relation to asbestos-related diseases.

For further information, or to speak to a member of our experienced medical personal injury solicitors, please call 0800 987 8809. Alternatively, you can fill in this contact form.

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