Protect the funds from being mis-used or mixed with other family assets.
Given the long history of trusts in the UK, we can look at UK guidance if a person receives damages for personal injury where the injury is significant and the injured requires constant care. In these cases, the advice is to consider protecting injury compensation by placing the funds in a “personal injury trust” to-
· Ring-fence the money so that it doesn’t affect means-tested, (more info) and
· Protect the funds from being mis-used or mixed with other family assets (more info)
What would a trust do to protect the injured party?
Segregation of funds
A trust holds the compensation separately from the family’s general assets. This helps prevent the injured person’s money being swallowed into general family spending or lost in family financial problems. If the payout becomes part of the general marital or family finances, it could be exposed to divorce, creditors, insolvency or family conflict. A standalone trust can shield it.
Protection of means‐tested benefits / care funding
In some jurisdictions, if you receive a large compensation payment and simply deposit it in your bank, it may count as capital and reduce eligibility for benefits or trigger higher care costs. A properly designed trust (eg, a personal injury trust) can prevent that.
Governance / oversight
Trustees (ideally independent or family plus professional) are responsible for managing the fund, approving expenditures, investing wisely, and documenting decision‐making. This reduces the risk of impulsive spending, mis-investment or abuse by others.
Future care / adaptations
In serious injury cases the funds may need to cover long‐term care, home adaptations, medical equipment, specialist schooling etc. Having a trust means planning for that rather than the money being spent on non-essential things early on.
Flexibility and control
The trust deed can specify how and when the injured person (beneficiary) receives funds, what the permitted uses are, how investment is managed, etc.
Getting Advice
A suitably qualified and experienced lawyer should be able to set up an appropriate trust to hold such compensation payments to protect the injured, ideally working with an investment firm that can set up the right investment structure to provide the required income and growth over the medium to long term.
