The Settlement Alliance

Read This Before Settling Your Next Minor’s Case

Read This Before Settling Your Next Minor’s Case

May 12, 2017

One of our attorney clients recently expressed frustration that for minors’ cases, a registry of the court seemed like the only viable option for settlement. Registries of the court, surrogate bank accounts, and blocked savings accounts are all safe options for protecting minors’ settlement proceeds, but each offers little more than a safe place to park the money. Typically, the money sits in an account that draws very modest interest, and any gain on the funds is taxable. Fortunately, there are other settlement tools that may be more advantageous, while still remaining conservative enough to garner court approval.

Ultimately, the best strategy is dependent on the present and future needs of the minor, as well as the state and local regulations related to minors’ settlements. Here are three different alternatives to consider:

#1: Structured Settlement

A structured settlement annuity is generally arranged to begin when the minor reaches the age of majority, which varies across states. Structured settlements are flexible in terms of design, offering payments on a monthly, quarterly, semi-annual or annual schedule. If larger future expenses are anticipated—such as the cost of college education—future lump sums can also be arranged. Structured settlements do not have any ongoing fees or expenses, and the rate of return is guaranteed1, regardless of what happens in the open market. Better yet, both the funds put into the structured settlement and any growth on the funds are 100% income tax-free.

#2: Minor’s Trust

A minor’s trust is another conservative option for protecting the assets of a minor involved in a settlement. In some states, the final distribution can be delayed beyond the age of majority, preventing the minor from receiving a large lump sum all at once. Unlike a structured settlement, there are fees for drafting a trust and paying the trustee. Also, trust income is considered taxable, but the trust may be able to deduct distributions related to medical costs and trustee fees. Despite any costs, however, a trust remains one of the safest options for preserving a minor’s settlement proceeds.

#3: Combination of a Structured Settlement and a Trust

For some minors, the best option may be a combination of a structured settlement and a trust, and within this approach, there are a couple of different paths that can be taken: 1) structured settlement payments can be used as the funding vehicle for the trust, or 2) a portion of the settlement proceeds can be used to fund the trust directly, while the remaining proceeds can be placed in a structured settlement annuity.

One of the main advantages to using the combination approach is that the trust distributions can provide for the minor’s needs prior to the age of majority, while the structured settlement can be used to provide a source of tax-free future income.

Contact us with your next minor’s case

Our team works with attorneys to ensure that their minor clients have settlement plans to meet their long-term needs. To learn more, contact us today at 800-464-2500 or info@settlement-alliance.com.

1 Guarantees are subject to the claims-paying abilities of the issuing insurance company.

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • Liberty Life Assurance Company of Boston
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential