Structured settlements are funds awarded as compensation in personal injury or wrongful death lawsuits. In most cases, these settlements are not issued in a lump sum but rather disbursed through periodic payments.
The reason for issuing structured settlements is to assure a better quality of life for the beneficiaries over a long time. This is particularly true for minors who anticipate higher education or buying a home in the future.
So how do minors get paid structured settlements? Typically, their parents or guardians will receive a minimum amount of cash until the minor attains the age of 18 to start managing their settlement money legally.
Read on to understand how minors receive structured settlements.
Structured Settlements for Minors – How Do Minors Get Paid?
A minor receives a structured settlement either because of personal injury or wrongful death of a parent or guardian. When deciding on structured settlements, the court considers that the child no longer has the financial security that the guardian would have otherwise provided.
The structured settlement for minors is mostly paid through an annuity issued by a life insurance company.
The only difference between an adult and a minor owning a structured settlement is control. Legally, minors have no say in how their periodic payments are set up. Their parents or guardians have to follow court orders on spending the settlement amount until the child attains the age of 18.
The court adopts this setup to:
- Prevent the minor and their parents from having unlimited access to the funds and using it irresponsibly.
- Provide for the child’s needs while making sure part of the money is left when they turn 18.
Setting Up an Annuity for a Child
Setting up a structured settlement annuity is quite different from asking for a simple cash settlement. It would help if you had a few things in mind to avoid situations where it’ll either be too late for a structured annuity or doing something that prohibits the minor from having the option of a structured annuity.
So, here are the steps on how to set up an annuity for a child:
Step 1: Contact Your Settlement Planner
For a structured settlement annuity to be effective, it must be part of the settlement agreement with the defendant.
Start by contacting your structured settlement planner and create a good annuity design. The settlement planner will engage you (parent) and your attorney to create a plan with payout dates and amounts that suit your needs.
At this stage, you choose the right annuity company to handle future payments to the client.
Step 2: Additional Language in the Settlement Documents
Once you’ve chosen an annuity company, it’s time to add terms and conditions to the settlement documents concerning the annuity. Your settlement planner will tell you the details that need to be added to the settlement documents.
Court approval is required for the settlement if the plaintiff is a minor or legally incapacitated. There is specific additional language in the court approval docs.
In either case, the annuity company will demand a court approval of the structured settlement annuity.
The court approval documents contain several paragraphs outlining the annuity details, payment info, the annuity company, and other important information.
Step 3: Additional Details in the Defendant Release Agreement
You will then add other details to the defendant’s release agreement. Some paragraphs should outline overheads, funding, recipients, and the procedure of releasing the settlement to the plaintiff.
Again, the settlement planner provides you with the precise details for these agreements.
Step 4: Signing the Qualified Assignment Document
Lastly comes the signing of the Qualified Assignment document, which formalizes the transfer of responsibility to make future payments from the original defendant to the annuity company.
The defendant or his insurer signs the Qualified Assignment document as the assignor of these future payments and accepts liability for the same.
The annuity company will also sign as the assignee, showing they take responsibility for making future payments in exchange for a lumpsum payment from the original defendant.
Lawsuit Settlement for Minors
When the injured person is a minor, the child’s injury claim is split between him and the parent. So, any medical expenses incurred by the child are lodged with the parents. But the child holds the claim for their pain and suffering.
If the parties could not settle pre-trial, a lawsuit is filed with the court. And this lawsuit should have both the child and the parent named as plaintiffs.
Note: Failure to name the two (parent and child) as plaintiffs can prevent the child from being fully compensated by the defendant for his injuries and damages.
Typically, a parent can assert the child’s claim simply by being his parent. They do not have to do anything extra.
But they can encounter some challenges when settling a claim. Look at three types of settlements:
Settlements Under $15,000
If the lawsuit settlement for minor is below $15,000, a parent can consider compromising the claim without becoming the minor’s conservator and without the court’s approval.
Here the process is not complicated because the monies are not much. The only thing is having the insurance company issue the check to the minor’s parents and the parents signing the release prepared by the insurance company.
Settlements over $15,000
Court approval is required for any gross settlement above $15,000. And other than the court approval, a judge’s approval is also needed to reach this settlement. Some criteria used to determine the judge and jurisdiction:
- If the plaintiffs filed a lawsuit, the judge at the specific court where the suit was filed is responsible for approving the minor’s settlement.
- If the plaintiffs did not file a lawsuit, the parties should seek the probate judge’s approval in the minor’s county of residence.
- If the judge rejects the settlement as being unfair to the minor, the parties will have to renegotiate.
In some cases, the insurance company and the minor’s parents try to persuade the judge that the settlement is fair. That’s because the case can only be settled with the judge’s approval.
Settlements over $15000 with Parents as Conservators
Lawsuits involving minors can become so complex if:
- The gross settlement exceeds $15,000
- The settlement terms require the minor’s parents to receive more than $15000 payout before the minor attains the age of 18.
If so, the court must approve the settlement and name the parent as the conservator of the minor. This process is slow, expensive, and exhausting. For this reason, most people handling minor settlements try as much as possible to avoid this scenario.
The only way to prevent a case where the parent will be named conservator is to make sure the parent doesn’t receive more than $15,000 before the minor turns 18.
Summary
A structured settlement is a guaranteed and tax-free payout for a minor directly or indirectly affected by personal injury. The funds help in meeting expenses beyond educational services, and continuous payment is assured regardless of the financial status of the payee.
Since structured settlements are paid through annuities, parents and guardians of minors with personal injury settlement cases should follow the right procedure of setting up annuities.
Do you still have questions about structured settlements for minors? Talk to our experienced personal injury lawyers today for further guidance.
