There’s one particular area of Personal Injury Trusts that warrants a little further investigation, and that is Minor Injury Trusts – where the claimant of a personal injury award is a child. Here, the rules are a little more complex as the Courts are likely to play a much more active role in managing the claimant’s finances.
What is a Minor Injury Trust?
Normally a personal injury award by the Court to a minor will be held in Court and invested by the Court Funds Office until the minor is 18. Although the Court will always seek to look after the minor’s best interests, this may not result in the best possible returns from the award. The Court, after all, is not a financial adviser, and has the interests of many claimants to look after once.
In certain cases the Court may allow part of the award to come ‘out of Court’ to be held on trust for the benefit of the minor claimant. The Court must first be convinced that taking funds out of Court is in the minor’s best interests. It is normal that the Court will ask for advice from an independent financial advisor and a trust lawyer that such a trust will be in the minor’s best interests. The trust is established by a special trust deed approved by the Court.
Why may a trust be in the minor’s best interests?
A trust provides trustees with the power to use income and/or capital for the benefit of the minor (for example to fund a house purchase or refurbishment, purchase medical equipment or assist with transportation) rather than requiring separate applications to the Court each time funds are required. It allows the trustees to invest the fund for future growth and plan for the minor’s long-term financial needs, rather than relying on the Court to choose investments.
Furthermore, a personal injury trust protects the compensation from being taken into account for assessment for means-tested state benefits. A child may not be in receipt of such benefits while under the age of 18 but may be in the future. By setting up the trust while they are young, the compensation is ring fenced and this will continue into adulthood. A trust is also exempt from local authority means testing should the child require local authority assistance, funding or care in the future.
Such a trust is particularly suitable for children who are likely to retain their capacity at 18 but for various reasons may remain vulnerable. The trust provides protection, guidance and flexibility.
If a trust is not applied for, then all of the award including any earlier interim payments must be paid into the Court Funds Office until they reach 18. Any investment of that money is dealt with by the Court Funds Office and the interest paid is nominal, so it is usually better if funds are removed from the court so that full investment options can be looked at and flexibility given to the trustees.
This allows them to use the money in the best interests of the child without having to go to the Court each time for approval, saving both time and money.
It also allows the child to become more involved in the running of their trust as they are older otherwise they would simply receive the funds at the age of 18 without any guidance or experience of managing their own finances.
Who looks after the trust fund until the minor reaches 18?
The trust deed will state who looks after the fund, and they are called the trustees. The Court will insist that at least one of the trustees is a ‘professional trustee,’ someone who is or who has been carrying on a business which consists of or includes the management of trusts or the administration of estates.
It is usual that the Court will approve the professional trustee acting together with a “litigation friend” (usually a parent, guardian, family member, friend, professional advocate or social worker, or a solicitor) and/or the minor’s parents as co-trustees.
Please note that professional trustees will charge fees for administering such trusts. The role of trustee is fundamental to how the trust fund is managed and administered. The litigation friend should always be completely satisfied that the trustees are reliable, trustworthy and capable of carrying out their duties fully until the minor reaches the age of 18.
And what happens then?
The minor can request on turning 18 that the trustees pass all the money over and bring the trust to an end. It is important to understand that the compensation (both in Court and in trust) belongs to the minor and the Court/trustees are only taking care of the funds until the minor is of full age and decides whether or not he or she would like the trust arrangement to continue.
For several reasons – protection from means testing, ease of fund management, etc – the claimant may, of course, simply choose to retain the trust.