The use of trusts, either set up during a person’s lifetime as a means of estate planning, or upon death through a person’s Will, is a complex area that requires careful consideration of trust law and the way that trusts are taxed. Trusts vary so much depending on the purpose for which they are created.

It is important to establish from the outset what type of trust is most suitable.

The nature of a trust in essence is a straightforward concept. In simple terms assets are placed into a trust and are managed by trustees for the benefit of named beneficiaries. The choice of trustees and beneficiaries is made by the person creating the trust. Whilst the concept of a trust is generally straightforward, often the circumstances surrounding the creation of the trust are more complicated, and it is these circumstances that influence what type of trust is most appropriate.

Discretionary Trust

The nature of a Discretionary Trust is that there is more than one beneficiary and the trustees are given an absolute discretion as to who should benefit from the trust assets and any income arising from those assets. Discretionary Trusts are useful in the context of asset protection. For example, when drafting your Will it may be sensible to create a discretionary trust so that your trustees can distribute your estate when the time and circumstances are right – this may not be upon your death e.g. if one of your children was bankrupt, was lacking financial maturity or in the process of getting divorced.

Discretionary Trusts can also be set up during your lifetime as a means of providing for beneficiaries and also estate planning by reducing the size of your estate for inheritance tax purposes. This type of trust can also be an effective way of reducing or even avoiding paying care fees (please see our Elderly Client Services Section).

Life Interest Trust

The nature of a Life Interest Trust is that there is only one beneficiary, unlike Discretionary Trusts where there is a class of beneficiaries. The sole beneficiary is entitled as of right to any income produced by the trust and where the trust comprises a property, or a share in it, the use of that property for life. Quite often these arrangements will be created by a deceased spouse’s Will. On the death of the beneficiary the life interest ends and the trust property either passes into a further trust or, more typically, to named beneficiaries outright.

The use of life interest trusts is particularly common where a couple remarry and both have children from their respective previous marriages. Structuring things in this way ensures that the competing interests of the security of the surviving spouse and the children of the first to die are balanced. Like Discretionary Trusts, Life Interest Trusts can also be used as a means of care fees avoidance.

Personal Injury Trust

A Personal Injury Trust is a specialist trust designed to ring fence and protect damages paid.

Where there is an award of compensation a personal injury trust arises when that award is put under the control of certain persons chosen by you called ‘trustees’. The trustees must look after the compensation, which becomes the ‘trust fund’, for the benefit of you, while you are alive, and for any other persons you choose. You and the others who can benefit are called ‘beneficiaries’.

When the trustees are appointed they agree to act in the interests of the beneficiaries and not themselves. This is why it is called a ‘trust’. They are entrusted to look after the trust fund for the beneficiaries. The beneficiaries can benefit in ways set out in a document called the trust deed. The compensated person is expected to be the main concern of the trustees even if there are other potential beneficiaries.

Why should you bother?

If you receive compensation, even an interim payment, it will usually cut your means-tested benefits. That may cost you more than you think. Not having benefits can stop other free services such as free prescriptions.


  • Your compensation need not cut your means-tested benefits. You can ‘have your cake and eat it’. The best of benefits and compensation. A real financial bonus for you and your loved ones. This is perfectly acceptable under Department of Work and Pensions and Local Authority means-testing rules but they are unlikely to tell you what you should do. The special treatment of compensation placed in a personal injury trust is an ‘opt in’ scheme. We can help you ‘opt in’.
  • Your compensation can be protected for you and your family. Even if some day you cannot look after it yourself you can rest assured your compensation will be looked after properly for you and your loved ones.

What can you do with the money in a personal injury trust?

Your normal expenses of daily living which are supposed to be met by means-tested benefits such as gas, water, electricity, food, mortgage interest, council tax, most rents and certain payments for residential care will still need to be met by any means-tested benefits you receive.

Other things that are not met by benefits such as your phone bill, TV costs and the cost of care can be met from the trust. The trust can also pay for a place to live, a new car, a holiday and much more if you take our simple step-by-step advice.

Whom should you choose to be your trustees?

You need to pick trustees (three or four) who will look after the compensation you put into the personal injury trust and make decisions about payments from the trust. We suggest you choose a mix of suitable family members with a least one professional. We can be trustees if you wish. There is no extra charge.

Your choice of trustees is very important. Payments are subject to their consent. Trustees must take proper investment advice. They must be fair-minded sensible people and not too young. You will probably want to talk about your choice with us.

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