Winning compensation after a serious injury should feel like a turning point. For many people it does, right up until a letter arrives explaining that their benefits are being reduced or stopped because they now have too much capital. Compensation intended to pay for care, adaptations, lost earnings and years of extra cost can end up simply replacing support they were already receiving, which leaves them no better off at all.
A personal injury trust can help prevent that outcome. Used properly, and set up in time, it can allow qualifying compensation to be disregarded under the relevant means-tested benefit and local authority care-funding rules. This article explains how it works, why timing matters so much, and what to watch out for.
Why Compensation Can Cost You Your Benefits
Means-tested benefits and local authority care funding both take account of capital, but they use different rules and thresholds. The figures below identify which regime they belong to.
- For Universal Credit and some other working-age means-tested benefits, capital above £6,000 can reduce an award and capital of £16,000 or more will usually prevent entitlement. Different limits can apply to other benefits, including for people over State Pension age.
- For local authority care charging in England, the capital limits are different: capital below £14,250 is disregarded, capital above £23,250 normally means meeting the full cost, and capital between those figures produces an assumed tariff income. Wales has separate rules.
- After any applicable temporary disregard, compensation held in your own name can count as capital. The benefit and care-charging rules should be checked separately.
The unfairness is obvious when you consider what compensation is for. A settlement may be calculated to cover decades of care, equipment, therapy and adapted housing. Treating it as though it were a windfall in a savings account misses the point entirely, and that is precisely why the law allows compensation to be protected in a trust.
The Temporary Disregard, and the Trap at the End of It
For relevant means-tested benefits, a qualifying personal injury payment held personally is normally disregarded for up to 52 weeks or 12 months from first receipt, depending on the benefit rules. Care-charging rules are separate. This temporary breathing space allows time to take advice and organise your affairs.
The problem is what happens when the applicable period expires. Compensation still held personally can then count as capital for the relevant benefit, even if the funds are earmarked for future care. The exact treatment depends on the benefit or care-charging regime, so the deadline should be checked rather than assumed.
A trust set up later will not usually change correct assessments made for an earlier period, so support lost after the temporary disregard may not be recoverable. An incorrect decision may be capable of challenge or revision, but it is far better to get welfare-benefits or care-charging advice promptly than rely on correcting matters afterwards.
The Best Time to Set One Up Is Before the Money Arrives
Ideally, the trust is in place before your payout, so the compensation can be paid straight into it. That is the cleanest possible position: the funds never sit in your personal account, there is no question about mixing them with other money, and the temporary-disregard deadline never becomes a source of anxiety.
If you have already received a payment, do not assume the opportunity has passed. While the applicable temporary disregard is still running there is usually time to put a trust in place properly, and even after it has expired a trust may protect your position going forward. The sooner you get advice, the less you stand to lose.
Do You Give Up Control of Your Money?
This is the question we are asked most often, and it is completely understandable. You have fought for this compensation, sometimes for years, and the idea of handing it over to someone else is unwelcome.
In practice, most personal injury trusts are bare trusts, and in a bare trust you remain the person entitled to the money. You choose the trustees yourself, usually trusted family members or friends, and in many cases you can act as a trustee too. The money is still yours to use for whatever you need: care, a car, home adaptations, a holiday or day-to-day living. What changes is the legal wrapper around it, not your entitlement to benefit from it. If the injured person lacks capacity to manage the award, the Court of Protection and a deputy may need to be involved, so specialist advice is essential.
There are practical points to get right. Payments out are made through the trust's bank account, and trustees need to understand their duties. Once the structure is explained and set up, most clients find it far less intrusive than they feared.
One Golden Rule: Keep the Fund Pure
A personal injury trust should hold funds derived from the personal injury payment. Adding an inheritance, redundancy payment, savings, lottery winnings or house-sale proceeds can create serious tracing problems and jeopardise the disregard. Keep non-compensation funds out unless specialist advice confirms how they should be treated.
If you receive money from another source and want to protect it, that is a separate conversation about a separate structure. Our wider trusts service covers the other options, and keeping the two entirely apart is essential.
The 2026 High Court Decision on Care Act Assessments
There was welcome clarity in 2026. In R (CGT) v West Sussex County Council [2026] EWHC 293 (Admin), the High Court confirmed that the capital held in the personal injury trust in that case had to be disregarded in the Care Act financial assessment.
That matters because care funding assessments carried out by local authorities are where injured people often feel the greatest financial pressure. The decision confirms the capital disregard in that context, not only in relation to benefits, although payments made out of a trust can still be relevant to an assessment. If a local authority says your trust fund will be taken into account, have the assessment reviewed by someone who knows this area.
Is a Personal Injury Trust Right for You?
A personal injury trust is likely to be worth considering if any of the following apply.
- You currently receive, or expect to need, means-tested benefits.
- You are receiving or are likely to need local authority funded care or support.
- Your compensation, or the total of staged payments, will take your capital above £6,000.
- You want to keep your compensation clearly identifiable and separate from your other money.
- You want family members involved in helping you manage a large sum sensibly.
It may be less relevant if your award is small, or if you have no realistic prospect of needing means-tested support. Even then, a short conversation is worth having, because circumstances change and care needs in particular tend to arrive later rather than sooner.
Talk to AIB Estate Planning Before Your Payout
We set up personal injury trusts for clients across England and Wales, working alongside their solicitors so the trust is ready when the settlement is. We explain the structure in plain language, help you choose trustees, deal with the paperwork and make sure everyone understands how payments should be made afterwards.
If you are expecting compensation, or you have received it within the last few months, call AIB Estate Planning on 0800 048 7320 today. Acting promptly can help protect support and avoid relying on a later challenge or reassessment.
This article is general information, not legal or financial advice. For guidance on your circumstances, call AIB Estate Planning on 0800 048 7320.
Expecting compensation? Protect it before it arrives.
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