Structured Settlements for Minors: What You Need to Know (2024)

When a case involving a minor is settled with a significant amount of money, the court has decided that the child’s life will be negatively impacted long-term by the actions of the defendant.

This money is intended to provide for the child’s needs and should be protected against misuse, whether intentional or unintentional, and spent wisely for the benefit of the child.

How Do Minors Receive Structured Settlements?

Settlements may be issued because of personal injury or, in wrongful death cases, because a parent’s or guardian’s is life was cut short, leaving the child without the financial security the deceased would have provided.

Structured settlements for minors are usually paid through an annuity issued by a life insurance company.

Types of Cases Resulting in Structured Settlements

Cases that result in structured settlements for minors range from birth injury and medical malpractice to wrongful death claims.

Personal Injury

Structured settlements were first granted on behalf of minors after children were born with severe birth defects from exposure to the drug Thalidomide in the womb.

Birth Injury

Many birth injuries are caused by a doctor’s negligence. In these cases, people may be eligible for compensation.

Medical Malpractice

When a minor is affected by medical malpractice, courts often award settlements to resolve the defendant’s claim.

Wrongful Death

When a party is deemed at fault in the death of a parent, a wrongful death case may result in a structured settlement.

Benefits of Structured Settlements for Minors

Managing a large sum of money meant to last decades can be difficult for a young person or parent. Structured settlements became a popular way to ensure the money was retained and used for the child’s care as prescribed by the court. Having a scheduled series of payments makes it easier to ensure a child has their basic needs, such as shelter, clothing, food and medical care, met.

Other benefits include:

• Structured settlements are not taxed as income.
• Compounding interest increases account value over time.
• Payments cannot decrease for any external reason.
• Structured settlements are regulated by insurance companies.

Choosing a structured settlement for a minor may also speed up court approval because this arrangement is designed to protect minors’ interests.

Special Needs Trusts and Other Options

Other payment options for minors exist, including trusts and guardianship accounts.

Not every minor with a disability requires a special needs trust, or SNT, but the option is often considered if the child’s impairment is likely to affect their ability to work after he or she turns 18.

A special needs trust offers a key benefit: These trusts are not counted in determining eligibility for public government programs.

Public assistance programs such as Social Security Income and Medicaid are essential for many families who may be unable to afford long-term care for a disabled minor. But these public programs come with strict $2,000 asset limits. Congress passed the Omnibus Budget Reconciliation Act of 1993 to address this by authorizing the establishment of special needs trusts.

Some legal experts recommend using a large lump sum to initially fund a special needs trust while simultaneously establishing a structured settlement. For example, making a structured settlement payable to a special needs trust provides a minor with the benefits of a structured settlement without jeopardizing current government benefits.

Funding Structured Settlements for Minors

There are several ways to design a structured settlement, and the funding is a critical part of the settlement process.

Sometimes part of the money is placed in a blocked bank account only accessible by the child’s parent or guardian. This money is meant to pay the minor’s current medical bills and other critical expenses caused by the accident.

Alternatively, the money may be used to establish a trust, an annuity or a combination of both.

A series of structured settlement payments usually begin after the child turns 18 years old. However, a parent or legal guardian can tailor contract details with an attorney prior to finalization. For example, a child can receive one lump sum payment at 18, another at 21 and again after graduating college.

Step-by-Step: How Structured Settlements Are Created

• The defendant resolves a claim by offering a settlement.
• Both parties agree to the terms of the settlement.
• The payment schedule is established.
• The allocation of the funds — blocked account or trust — is determined.
• The proper parties — usually the minor, a parent and their attorney — appear before a judge for approval.
• A judge may appoint a guardian ad litem to review the settlement to ensure it is in the minor’s best interest.

Court Protection for Minors and Their Payments

Settlements are legal property of the minor but are often awarded under specific provisions from the court that dictate how the money can be spent.

Judges typically appoint a guardian ad litem to review the settlement prior to approval. Tasked solely with looking out for the minor’s interests, the guardian ad litem will review case facts and make recommendations to the judge.

Once settlement details are finalized, neither schedules nor amounts can be changed for the life of the agreement.

There is no one-size-fits-all approach to structuring a minor’s settlement. Parents and guardians should discuss details with an attorney and a trusted financial advisor.

Selling a Minor’s Structured Settlement Payments

The sale of payments for minors is more stringently regulated on a state and federal level. Among other regulations, such as needing substantial documentation to prove a serious financial need, judges typically appoint a guardian ad litem to evaluate the sale and the reputation of the purchasing company to verify that it is in the best interest of the child.

A petition must be filed under the same case number and with the same court that originally approved the settlement. Paperwork must detail how the early release of funds will directly benefit the child.

For example, increased medical expenses constitute a financial need, but purchasing a new home for the family will most likely not.

Parents are barred under most state laws from withdrawing a child’s settlement funds to invest elsewhere. This ensures that funds meant to secure the child’s future are not mismanaged or spent irresponsibly before he or she turns 18 years old.

Minors can sell future payments for a lump sum after turning 18.