PI Trust Myth buster

Following a serious injury, most people find themselves navigating not only medical uncertainty but also financial complexity. Compensation payments, benefits entitlement, long‑term care planning — it’s a lot, and misinformation doesn’t help.

Personal Injury Trusts (PITs) are one of the most misunderstood tools in post‑injury financial planning. They’re incredibly valuable yet surrounded by confusion. Below, I break down the most common misconceptions and unusual scenarios we see in practice, and what they really mean for you or your loved ones.

“Do I Need to Register the Trust with HMRC?” — The Quiet Rules Nobody Told You About

This is easily one of the biggest misunderstandings.

Despite the increase in trust regulation over recent years, most Personal Injury Trusts do not need to be registered with HMRC under the Trust Registration Service (TRS). If the trust is funded solely by compensation from a personal injury claim, it falls within a specific exemption.

But — and this is where confusion creeps in — banks and investment providers may still require registration under the Automatic Exchange of Information (AEOI) rules. This is nothing to panic about. It’s administrative rather than tax‑related, and it does not undo the TRS exemption.

For many families already overwhelmed by paperwork, understanding that distinction can make a huge difference.

“I Don’t Have Anyone I Can Trust as a Trustee” — A More Common Scenario Than You Think

Not everyone wants, or is able, to involve friends or family as trustees. And that’s okay.

In these situations, a professional trustee or trust corporation can step in — and in some cases, act as the sole trustee. This can simplify administration, give the injured person more independence, and remove family pressure at an already difficult time.

For many clients, appointing a professional is not a last resort — it’s a relief.

Investments, Cash, or Both? Managing the Compensation Fund

Once compensation arrives, one question often follows:

“Is the money invested automatically?”

Not necessarily. Trust funds can be held in cash, in investments, or a mixture of both. Trustees must prioritise prudence, accessibility, and the beneficiary’s long‑term needs.

For some, keeping funds easily accessible for ongoing care is the priority. For others, especially those with large settlements intended to last decades, regulated financial advice is essential to structure the fund sustainably.

Timing Matters: Should the Trust Be Set Up Before Compensation Is Received?

Ideally, yes — but life isn’t always ideal.

Setting the trust up before compensation is paid ensures immediate protection for means‑tested benefits. But even where funds have already been received, creating a trust may still be possible if done quickly and with specialist advice.

This is often time‑sensitive, so early guidance is key.

What Happens to the Trust When I Die? Planning for the Future

A Personal Injury Trust is designed for the injured person alone and usually ends on their death. Any remaining funds fall into their estate and pass under their Will or, if no Will exists, the rules of intestacy.

This is why having a well‑drafted Will is crucial — especially where significant compensation is involved. Trust planning works best when aligned with broader estate planning, not considered in isolation.

“Is There an Annual Fee?” — The Unexpectedly Simple Answer

Contrary to popular belief, there is no automatic annual fee for having a Personal Injury Trust.

Where family members act as trustees, ongoing costs can be minimal. Professional trustees will charge for the work they do — not simply for existing. Additional costs from accountants or financial advisers may arise only if needed.

For many clients, this flexibility comes as a pleasant surprise.

How Much Control Do I Have? Can I Spend the Money Freely?

 Yes — the funds are there for the injured person’s benefit. Trustees must approve payments, but they are not there to restrict your life.

Provided decisions are made in the beneficiary’s best interests and with proper awareness of any knock‑on effects, the trust is designed to enable, not limit.

Can a Trustee Live Abroad? Technically Yes — Practically Difficult

This is one of those “possible but problematic” scenarios.

While it isn’t legally prohibited, overseas trustees can create practical challenges. Some banks simply won’t open trust accounts where trustees live overseas, and routine administration becomes slower and more complex.

Choosing local trustees helps avoid these hurdles.

Final Thoughts

Personal Injury Trusts can be transformative — protecting compensation, preserving benefit entitlement, and providing long‑term financial security. But they’re not straightforward, and misconceptions are common.

At Private Client Solicitors, we specialise in guiding people through the complexities of having a personal injury trust. If you would like to discuss further, please feel free to call 0161 509 5020 or email enquiries@privateclientsolicitors.co.uk