Personal injury trust following a lump sum settlement

Quick summary: Investing a personal injury trust

• What is it?
  A trust that holds injury compensation to protect benefits and support long-term financial needs
• Why set one up?
  Preserves access to means-tested care and ensures structured, long-term financial support
• Who manages it?
  Trustees, often with professional help, act for the beneficiary who may lack capacity
• Wealth Planner’s role?
  Supports trustees with financial planning to sustain funds over the beneficiary’s lifetime
• How is it invested?
  Low-risk, long-term strategies to meet care costs and lifestyle needs
• Why take advice?
  Ensures funds are used appropriately, last longer, and adapt to changing needs.

Managing a personal injury trust requires careful planning and ongoing support to ensure the beneficiary’s long-term financial security. This article explores the key benefits of setting up a personal injury trust, the role of a Wealth Planner and how investment advice for a personal injury trust can help trustees manage investments effectively while meeting care and lifestyle needs.

What is a personal injury trust?

When someone receives compensation after a personal injury, the money can either be given directly to them, invested through a Deputyship (someone becomes legally allowed to make certain decisions on another person's behalf), or settled into a trust.

A personal injury trust has two main benefits: it ensures that assets are disregarded where means tested support is concerned. This means local authorities can't use the compensation money to reduce state support, such as funding for care. Secondly, it is a way for trustees to provide wider support to the beneficiary.

A trustee is appointed to be responsible for managing and protecting the compensation funds within a personal injury trust. While the injured person is the beneficiary, they typically aren't the trustee to ensure a clear distinction between ownership and management. Trustees may include professionals like lawyers, as well as family members.

The trustees work together to make decisions, ensuring that the money is used to enhance the beneficiary's quality of life and meet their long-term needs.

Benefits of a personal injury trust

In addition to safeguarding compensation from local authorities, a trust provides a safe space for managing the funds. Many individuals who receive personal injury awards may not have the expertise or capacity to manage large sums of money, so having a trust allows for guidance from a professional trustee.

Professional trustees can guide recipients and protect them from making poor financial decisions.

Can personal injury trusts protect from care home fees?

Personal injury trusts can help protect compensation money from being used to cover care home fees. If someone is living in a care home, the local authority cannot force them to use their compensation settlement to pay for care if that money is held in a trust.

The trust is a way to ensure that compensation funds are used for their intended purpose and trustees can negotiate with the local authority to help find an appropriate solution.

Role of a Wealth Planner in managing a personal injury trust

Wealth Planners help support professional trustees in managing the capital within a personal injury trust. Their role is to help assess the sustainability of the funds for long-term needs, while also ensuring that money is being used in the best way possible.

A Wealth Planner will consider the life expectancy of the client and can use tools like cash flow modelling to assess how the assets should be managed. For example, if the client has a life expectancy of 65, they will plan to ensure the assets last at least until 70, with a margin of safety. The trustees will also consider whether spending levels can be reduced, or in some cases, if local authority input can be sought.

Cash flow modelling can also help trustees understand how long the money will last and whether a proposed expenditure is feasible, such as making home modifications or paying for special care.

How can a personal injury trust be invested?

Investing the capital within a personal injury trust requires careful planning to ensure the funds last for the beneficiary’s lifetime.

For every part of the plan, a Wealth Planner will find the best product or service to implement it. Sometimes we’ll source a solution from a trusted partner. Other times we’ll use our own internal teams – such as a Canaccord Wealth Investment Manager. If you choose a Canaccord Investment Manager, you can be confident in our track record of meeting client needs and delivering consistent returns, measured against industry benchmarks.

Investment managers and trustees collaborate to establish a strategy that balances risk and meets long-term care needs.

In some cases, the capital invested is not meant for daily living costs, as those are usually covered by the Periodical Payment Order (PPO), which is a fixed annual, inflation-linked amount a court order requires a claimant to be paid, designed to cover care and living costs.

Investments are typically focused on lower-risk options to secure stable returns, mitigate volatility and regular reviews ensure the trust’s funds are used appropriately for ongoing care and lifestyle requirements. Adjustments are made as needed to account for changes in the beneficiary’s needs, ensuring the trust’s capital remains intact for the future.

In some cases, an investment manager will create a liquidity buffer. For instance, if a client needs an additional £100,000 a year for three years, we may allocate that into low-risk fixed-income assets, like gilts (UK government bonds) or corporate bonds. This ensures there is a liquidity pot to cover those needs. The remainder of the capital may be invested with a slightly higher risk profile to generate returns over the long term. These discussions are often had with the trustee and sometimes with the client if they have the capacity to engage.

The primary concern is managing the balance between maintaining the capital for the long term and meeting any immediate needs. An investment manager will discuss the expected income from the portfolio and the required withdrawals. This ensures both short-term and long-term goals are on track.

Choosing investment advice for a personal injury trust

Every trust is tailored to the client’s specific needs and the strategy will vary based on individual circumstances. At Canaccord Wealth, we prioritise regular communication and guidance with trustees and beneficiaries to ensure the effective management of personal injury trust investments. Our team supports trustees through ongoing discussions to ensure the trust’s assets are used appropriately to meet the beneficiary’s needs.