What is a Personal Injury Trust?

Mary McMahon
Mary McMahon

A personal injury trust is a method for managing assets paid out to victims in personal injury cases where a third party acts as a trustee to oversee the assets. There are some advantages to holding assets in trust, as opposed to personally taking possession of them. In addition, such trusts provide a mechanism for managing a large pool of assets used to pay people participating in a group personal injury settlement; a common example is an asbestos personal injury trust.

Woman holding a book
Woman holding a book

For an individual, a personal injury trust is created when the beneficiary of a settlement or court ordered payment of damages chooses to establish a trust, acting as the trustor. A trustee is appointed to oversee the assets. Periodic payments are made out of the trust to the beneficiary to cover living expenses, and the trustee may be empowered to invest the funds and take other steps to make sure the trust will adequately support the beneficiary.

Some people are unfamiliar with handling large amounts of money and may prefer to use a trustee to oversee their assets. More commonly, a personal injury trust is established to reduce tax liability, as well as accessing means-tested government benefits. People who need government benefits may be excluded if they control large amounts of assets. With a trust, they can receive those benefits, and cover the rest of their living expenses out of the trust. Otherwise, they would quickly burn through the funds received in the settlement and then be forced to rely entirely on government assistance.

A person can also use a personal injury trust to protect assets. People who are concerned about exploitative family members can put the funds out of their reach, for example. This technique may be used when someone with intellectual disabilities receives a trust settlement. There may be concerns about misuse of the funds by family members in such cases. With a trustee to oversee the funds and supervise disbursements, the interest of the beneficiary can be protected.

In the case of a pool of assets, a personal injury trust can be funded by a lump settlement or by periodic payments. People who believe they qualify for benefits can apply to the trust with documentation such as a doctor's certification of an injury. The trustee provides payments to people entitled to benefits and administers the trust to make sure funds will be available to handle all payouts over the course of the trust's lifespan.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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