The Settlement Alliance

Preserving a Minor's Settlement: Part I

Preserving a Minor's Settlement: Part I

Oct 3, 2014

When a minor is injured in an accident, the long-term implications can be not only physical—they can be financial as well. When a large settlement is involved, the stress on the family can feel overwhelming. To protect the minor’s best interests, the court is often responsible for determining the fairness of the proposed settlement, and the appropriateness of the course of action taken to protect the settlement proceeds.

Financial Options for Minor’s Settlements: The Big Three

Generally speaking, the court favors a conservative approach that will ensure the long-term preservation of the settlement proceeds. For a minor's settlement involving a large recovery, there are three main options for preservation:

Option #1: Guardianship Account

  • Usually a money market account or something equivalent over which the court maintains some control
  • Costs involved in setting up the guardianship
  • Annual fees for accounting and filing
  • Typically earns a modest interest rate; earnings are taxed annually
  • Guardian has little control over the money
  • Court approval is required for any change in the account

Option #2: Trust

  • Professionally managed by bank trust department, independent trustee, or independent financial advisor
  • Annual trust administration fees exist
  • Any gains are potentially taxable
  • Will likely require ongoing management fees

Option #3: Structured Settlement Annuity

  • Allows for the design of a tax-free, guaranteed, reliable stream of payments tailored to the child’s specific needs
  • Will earn a competitive rate of return on investment; earnings from structured annuities funded with personal injury settlement proceeds will not be taxed as income [See IRC § 104(a)(2)]
  • Once the rate of return is determined, it will never decrease
  • Payments can be structured to increase with a cost of living adjustment
  • No ongoing maintenance or management fees

It is important to note that these options can be used exclusively, or in a combination that best meets that child’s particular needs. Each option has its own set of pros and cons, and should be discussed with a settlement expert prior to finalizing any decisions.

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

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