Structured settlements have become a common method for managing court-awarded compensation intended to provide for an injured minor’s ongoing needs. These arrangements involve scheduled periodic payments funded through an annuity, rather than providing the awarded compensation in a single lump sum.
Hey, this is James, and I work as a financial advisor assisting families in situations involving financial settlements resulting from a personal injury or medical malpractice case on behalf of children.
In this article, I will provide an overview of structured settlements for minors and how they can protect an injured child’s financial future.
The Role of Courts and Guardians in Protecting Settlement Funds
When a court case involving the injury of a minor results in a settlement or award, the court takes an active role in dictating how these funds are managed on the child’s behalf. The court’s primary goal is to ensure the child’s needs are provided for over the long term. Courts will often mandate the compensation to be paid through a structured settlement arrangement versus being given as a lump sum payment. This requirement is intended to prevent settlement funds from being depleted too quickly or used in ways that don’t benefit the injured minor.
How Structured Settlements Are Managed When The Recipient Is A Minor?
Let me break it down in some bullets to give a complete picture of the answer:
- For structured settlements involving injured minors, the court appoints a guardian to manage the settlement payments on behalf of the child. This guardian is often a parent.
- The appointed guardian has legal responsibilities until the minor turns 18 years old. Their duties include:
- Facilitating the setup of the structured settlement
- Overseeing the settlement payments as they are disbursed over time
- Ensuring the funds are only used for expenses that the court has specifically permitted
- If the guardian wants to access any of the settlement funds, they have to petition the court for approval. This involves showing documentation that the payments are being used to meet the injured minor’s needs.
- The guardian’s discretion over the settlement funds is intentionally limited by the court. This protects against any misuse of the money, even by well-meaning family members who think they know best how it should be used.
- Oversight remains in place until the injured minor becomes a legal adult by reaching age 18. At that point, the structured settlement recipient gains full control over any remaining payments.
Financial Planning – Creating Stability Through Periodic Payments
Families who find themselves managing significant compensation on behalf of an injured minor need to carefully consider how to utilize these funds to provide long-term stability. There are several options, including annuities, trust accounts, and court-administered blocked savings accounts. Each approach has its own advantages and disadvantages. The goal is to structure payments in a way that ensures money will be available as needed until the child becomes grown.
What Benefits Do Structured Settlements Offer Minors?
One major benefit of annuities is that any investment earnings accumulate tax-free. This enables more of the settlement funds to go to providing for the injured minor rather than being eroded by taxes.
Trust funds, on the other hand, usually involve some tax liability on investment income earned within the trust. Regardless of which financial instrument is used, courts want to see settlement funds conservatively invested while under guardianship rather than exposed to major investment risks during the child’s minority.
Financial advisors like Fairfield Funding help families map out an appropriate structured payment schedule that anticipates future expenses – both expected ones like college tuition and less predictable ones like uncovered medical care. We also advise families on investing funds in low-risk, stable instruments appropriate for the situation. Having an expert to consult with removes some of the burden from parents already coping with the challenges of raising an injured child.
Customizing Structured Payment Schedules
Given concerns over minors’ ability to properly manage sudden wealth, structured settlements for injured minors are designed to distribute funds gradually over time rather than conveying a lump sum to the recipient as a legal adult. Settlement experts assist with mapping out anticipated financial milestones and expenses. This allows for periodic payments to be scheduled accordingly.
Types of Payment Arrangements For Minors Structured Settlements Include:
Education Funds – A portion of payments can be designated to cover college or vocational education expenses once the minor reaches that phase of life. These may include direct tuition payments or lump sums at certain ages to be applied toward education costs.
First Car/Home Purchase – Larger lump sums can be scheduled for when a recipient needs help making a major purchase as a young adult, like buying a vehicle or putting a down payment on their first house.
Medical Care Funds – For severely injured minors, significant healthcare costs often continue into adulthood. Certain payments can be earmarked for these medical expenses.
Income Stream – Regular monthly or annual payments can provide general income once the structured settlement recipient becomes an adult. This mimics wages they might otherwise have difficulty earning if disabled.
The overall objective of these customized payment arrangements is coordinating access to funds when they will be most beneficial while limiting risks from conveying total settlement amounts prematurely. Built-in flexibility also allows for payment schedules to be adjusted if an injured minor’s financial needs change significantly due to new medical issues or health improvements.
Selling Future Payment Rights – The Secondary Market
While structured settlements promise injured minors long-term financial stability, situations occasionally arise where a pressing financial need creates pressure to sell a part or all of future payment rights. However, regulations limit minors’ ability to transfer future settlement payments in exchange for an immediate discounted lump sum. Such sales require petitioning the original issuing court and having a judge deem the transaction in the minor’s best interest.
For example, if a parent loses their job and faces foreclosure, they may desperately wish to sell their child’s future payments to stay financially afloat. But judges will reject such requests unlikely to directly benefit the injured minor. On the other hand, if escalating medical costs exceed a family’s ability to pay, selling some future payments could be deemed prudent by the court. Judges endeavor to balance financial pragmatism and protecting the child’s long-term interests.
While selling future structured settlement payments can supply urgent cash, there are downsides families should carefully weigh. For one, inflated spending in the present diminishes funds the minor will have available later on. Additionally, deals offered by settlement purchasers often shortchange recipients well below the full value of remaining payments. However, for families facing serious hardship, obtaining emergency funds may at times be the most viable path forward.
Conclusion – Promoting Responsible Stewardship
The courts play a pivotal role in overseeing structured settlement annuities involving injured minors, appointing guardians, and dictating appropriate uses of funds. This judicial supervision continues until the minor legally becomes an adult. Ongoing court oversight, combined with guidance from qualified financial advisors, can alleviate common concerns over settlement monies being squandered or used irresponsibly before an injured child matures. Utilizing structured payments aligned with a minor’s evolving needs both before and after reaching adulthood continues benefiting recipients long after any court case concludes!
What are structured settlement annuities?
A structured settlement annuity is an insurance product that provides scheduled periodic payments to a beneficiary, rather than a single lump sum. These tax-free payments are funded through an annuity purchased from a highly-rated life insurance company.
How do minors receive structured settlements?
For a minor’s settlement, the funds are used to purchase an annuity in the child’s name that makes payments according to a customized schedule. Settlement money often doesn’t start until adulthood and may be tailored around predicted future expenses.
Who controls settlement proceeds awarded to a minor?
Courts oversee the settlement process to ensure they solely benefit the injured minor rather than other family members. Judges outline approved uses for funds based on the minor’s documented needs. Appointed guardians facilitate financial arrangements until the minor reaches adulthood.