Personal Injury Trust UK (2026): Protecting Compensation from Means-Testing and Care Fees

A personal injury trust (PI trust) is a trust specifically designed to hold money received as compensation for a personal injury — whether from a court award, an out-of-court settlement, or a payment from the Criminal Injuries Compensation Authority (CICA). The purpose is to ensure the compensation is disregarded when calculating the claimant's eligibility for means-tested state benefits (such as Universal Credit, income-related ESA, or Housing Benefit) and when a local authority carries out a financial assessment for care home fees. Without a PI trust, significant compensation sitting in a personal bank account will be counted as capital and can reduce or eliminate entitlement to those benefits.

A properly constituted personal injury trust can protect the compensation from: (1) Means-tested DWP benefits — Universal Credit, income-related Employment and Support Allowance (ESA), income-related Jobseeker's Allowance (JSA), Housing Benefit, and Council Tax Reduction. The capital limits for these benefits (broadly £6,000–£16,000 for full/partial entitlement) do not apply to funds held in a qualifying PI trust. (2) Local authority financial assessments for care home fees under the Care Act 2014 — the local authority calculates the individual's ability to contribute to care costs, and a qualifying PI trust fund is not counted. Note: a PI trust does NOT protect capital against non-means-tested benefits (such as contributory ESA or PIP) or against IHT — the trust fund will still form part of the claimant's estate for inheritance tax purposes.

The following payments qualify: (a) compensation or damages awarded by a court for personal injury to the claimant; (b) out-of-court settlement payments in respect of personal injury claims; (c) payments from the Criminal Injuries Compensation Authority (CICA) or the Motor Insurers' Bureau (MIB); (d) structured settlement annuity payments. The injury does not have to be physical — payments for psychological injury, clinical negligence, or industrial disease (including mesothelioma and asbestos claims) qualify. What does not qualify: payments made for purposes other than personal injury (such as employment tribunal awards or inheritance receipts), even if the claimant also has a personal injury. Where a settlement includes both personal injury and other heads of damage (such as lost earnings), only the personal injury element can be placed in a qualifying PI trust.

Under DWP regulations, any personal injury compensation held in an ordinary personal bank account is automatically disregarded as capital for means-tested benefit purposes for 52 weeks from the date of receipt. This gives recipients a window of one year to set up a personal injury trust and transfer the funds into it without losing their benefit entitlement. After the 52-week period, if the funds have not been moved into a qualifying trust, they become assessable capital and will affect benefit calculations. The 52-week window is not a permanent solution — it is an interim disregard to allow time for proper legal arrangements to be made. Recipients should seek to establish the PI trust well within this period.

Both bare trusts and discretionary trusts can qualify as personal injury trusts, but they are used in different circumstances. A bare trust (also called an absolute trust) holds the money absolutely for one named beneficiary — the injured person. The beneficiary has an immediate and unconditional right to the capital and income. It is simpler and cheaper to administer but inflexible. A discretionary trust gives the trustees flexibility to decide when and how much to pay to the beneficiary (or a wider class of beneficiaries), which is particularly valuable where the injured person lacks mental capacity, may need means-tested care in the future, or may die before the funds are exhausted. For claimants who lack mental capacity, the Court of Protection will typically require a discretionary trust structure and may appoint a professional trustee. For adults with full capacity who simply want to protect their award, a bare trust is usually sufficient.

No. DWP regulations and local authority guidance require that a personal injury trust has at least two trustees (or a trust corporation acting as sole trustee). The injured person can be one trustee but must not be the only trustee. This is because a sole trustee who is also the sole beneficiary has complete control over the funds — there is no meaningful separation between the trust and their own capital — and regulators would treat the trust as a sham. The second trustee is often a family member, close friend, or solicitor. There is no legal requirement for the second trustee to be a professional, but professional trustees bring accountability and understanding of their duties. If the injured person lacks mental capacity, they cannot be a trustee at all.

A qualifying personal injury trust protects the fund from the local authority's financial assessment for care home fees under the National Assistance (Assessment of Resources) Regulations 1992 and the Care and Support (Charging and Assessment of Resources) Regulations 2014. The local authority is required to disregard funds held in a personal injury trust when assessing the individual's ability to pay for their care. Without a PI trust, a large compensation award could mean the individual receives no local authority funding towards their care costs until the capital falls below the threshold. This is particularly significant for claimants who suffered serious injuries requiring long-term or permanent care. The trust must be properly constituted and the funds must not have been mixed with other capital.

The funds in a personal injury trust do not bypass the injured person's will — they form part of their estate for inheritance tax and for the purposes of their will and intestacy. On the death of the beneficiary, the trustees distribute the remaining trust fund in accordance with the trust deed: typically to the beneficiary's estate, where it passes under the will or intestacy rules. This means the injured person should review their will when setting up a PI trust to ensure they have considered who should receive the trust funds. If the PI trust is a bare trust with no survivorship clause, the funds simply fall into the estate and pass under the will. If it is a discretionary trust, the trust deed will specify what happens on the death of the principal beneficiary — often distribution to a class of family members or to the estate. A will and a PI trust should therefore be planned together.