Compensation Protection Trusts

Compensation Protection Trusts

If you have received compensation following a personal injury or medical negligence claim, it is important to consider how those funds are managed. A Compensation Protection Trust can help safeguard your compensation, preserve entitlement to means-tested benefits and provide long-term financial security for you and your family.

A Compensation Protection Trust allows compensation to be held separately from your personal assets by appointed trustees for your benefit. By placing compensation into a trust within the relevant timescales, you can often protect your eligibility for means-tested benefits while ensuring funds remain available to support your future needs.

Why Consider a Compensation Protection Trust?

Compensation awards are intended to support your recovery, future care needs and financial wellbeing. Without appropriate planning, receiving a significant compensation payment could affect your entitlement to certain means-tested benefits.

A Compensation Protection Trust can:

• Protect entitlement to means-tested benefits
• Safeguard compensation for future needs
• Provide support in managing significant sums of money
• Help protect funds from financial pressure or undue influence
• Offer additional protection in the event of relationship breakdown
• Support long-term financial planning and peace of mind

What would happen if I don’t set up a Trust ?

Once you have funds in excess of £16,000 (including any previous savings/bank balances in addition to the compensation awarded) you will stop receiving any form of means tested benefits. Once your capital has dropped below this amount again you can re-apply for benefits (if necessary) however, this can often be a time-consuming process.

How Does a Compensation Protection Trust Work?

The trust is managed by trustees who are appointed by you and who hold and administer the compensation funds for your benefit. You may appoint yourself alongside trusted family members or friends.

In some circumstances, particularly where compensation awards are substantial or where ongoing administration may be complex, Eaton Smith can act as a professional trustee. Our experience in trust administration helps ensure that trusts are managed effectively and in accordance with their legal and financial obligations.

What Happens if a Trust Is Not Established?

If compensation funds are held directly in your name, they may be taken into account when assessing entitlement to means-tested benefits.

For many benefits, capital exceeding certain thresholds can affect eligibility. Whilst compensation payments may benefit from an initial disregard period, it is important to obtain advice as early as possible to ensure appropriate arrangements are put in place before this protection expires.

Why Not Simply Spend the Compensation?

Whilst the compensation belongs to you, government agencies may assess how funds have been used if benefit entitlement is later reviewed. In some circumstances, assets that are deliberately given away or spent with the intention of retaining or obtaining benefits may still be taken into account.

Seeking specialist advice before making significant financial decisions can help avoid unintended consequences and ensure your compensation continues to provide long-term benefit.

How We Can Help

Our Private Client team can assist with:

• Advising on whether a Compensation Protection Trust is appropriate
• Drafting a trust tailored to your circumstances
• Advising trustees on their duties and responsibilities
• Arranging specialist financial planning support where required
• Registering the trust with HMRC
• Preparing trust accounts and tax returns
• Acting as a professional trustee where appropriate
• Providing ongoing trust administration and support

Why Choose Eaton Smith?

Our Compensation Protection Trust service is closely integrated with our Personal Injury and Medical Negligence teams, providing seamless support from the successful conclusion of a claim through to the long-term protection of your compensation.

We understand the legal, financial and practical considerations involved in managing compensation awards and provide clear, practical advice tailored to your individual circumstances.

Costs

The cost of establishing a Compensation Protection Trust will depend on the complexity of your circumstances and the level of support required.

We offer a free, no-obligation initial discussion to help you understand your options. Following that meeting, we will provide a clear estimate of costs and, where appropriate, a fixed fee for the trust's initial setup.

To find out more about Compensation Trusts, reach out to our Private Client team.