Personal Injury Trust or Deputyship – what is the difference?

Personal Injury Trust or Deputyship?

If someone has sustained an injury and has received a compensation award, then there are two main options for holding and managing that award – a Personal Injury Trust (PI Trust) and a Deputyship. Let’s look at each of the options.

What is a PersonaI Injury (PI) Trust?

A PI Trust can be set up if someone, the injured party, has received a compensation award for a personal injury. The award would be managed by the trust. It is usually only possible to set up a PI Trust if the injured party has the mental capacity to manage their own property and affairs.

A PI Trust is often set up to protect a compensation award from assessment for means-tested benefits, both now and in the future.

There are different types of PI Trusts. The type that is normally chosen is known as a ‘bare’ trust. The main advantages of a bare trust are that the injured party retains a large degree of control, and the trust is tax neutral. If the injured party wanted to close the trust down, it is easy to do so, and the injured party is free to change the trustees as they think fit.

A bare trust gives the injured party an immediate and absolute right to both the capital and the income held in the trust. No one else is entitled to the funds and on the death of the injured party, the trust ceases and the remaining funds fall into the injured party’s estate to be dealt with under their Will, or if they don’t have one, under the intestacy rules.

A PI Trust needs at least two trustees. It is possible for the injured party to be one of the trustees.


What is a Deputyship?

A Deputy can be appointed if the injured party lacks the mental capacity to make their own decisions and the injured party has not made an Enduring Power of Attorney or a Lasting Power of Attorney.

There are two types of Deputy:

  1. Property and Affairs Deputy
  2. Personal Welfare Deputy.

A Personal Welfare Deputy might make decisions about the injured party’s medical treatment and how they are looked after whereas a Property and Affairs Deputy might pay the injured party’s bills and manage their investments.

You can apply to the Court of Protection to be one type of Deputy or both. Property and Affairs Deputyships are more common.

If you are appointed as a Deputy, you will receive an Order which sets out what you can and cannot do on the injured party’s behalf. The Deputy must make all decisions in the best interests of the injured party.

You need to be 18 or over to be a Deputy. A Deputy is usually a close relative or friend of the injured party. However, it is possible to have a professional Deputy, for example, a solicitor. A professional Deputy is often preferred in certain situations, for example where there is or there has been a large personal injury claim.


PI Trusts – What are the Pros and Cons?

Pros – It is usually cheaper to set up a PI Trust than to apply for a Deputyship. The injured party can choose their trustees. Trusts allow more freedom in decision making and decisions can be made fast.

Cons – A professional trustee may charge more than a professional Deputy. Trusts/trustees are not supervised, and the lack of oversight can increase the risk of financial abuse. Trustees can only make decisions relating to the funds held in the trust only, not all the injured party’s assets.


Deputyship – What are the Pros and Cons?

Pros – A Property and Affairs Deputy has the authority to manage all the injured party’s property and financial affairs, not just their compensation award. Deputyship offers the injured party greater protection and Court oversight. Deputies are supervised by the Office of the Public Guardian (OPG) and are accountable for the decisions they make as Deputy. The security bond offers the injured party protection. Deputyship costs are subject to assessment by the Senior Court Costs Office.

Cons – There are costs involved in applying for a Deputyship, including the OPG supervision fee and the security bond. An application for Deputyship can take time and the Deputy’s authority will be limited by the terms of the Order. This might mean a further application needs to be made to the Court to request specific authority.


Other Options:

It is possible to make an application to the Court of Protection for authority to set up a PI Trust for an injured party who lacks mental capacity. The Court will decide what is in the injured party’s best interests. This hybrid option is considered in the following judgments – SM v HM [2021] COPLR 187 and Watt v ABC [2016] EWCOP 2532.


How can we help?

There are pros and cons to both PI Trusts and Deputyships. Mental capacity is usually the determining factor as to whether a PI Trust or Deputyship is the most appropriate option for the injured party.

Our specialist Court of Protection team has a wealth of experience in Deputyships and PI Trusts. If you have any questions or queries, then please contact the writer Charlene Hughes by email at Charlene.Hughes@freeths.co.uk

Share this article on: