When a personal injury settlement involving a minor represents a significant amount of money, the court must ensure that the money both pays for the child’s needs and is protected against misuse by other individuals. Settlements are often granted in response to personal injury or wrongful death cases, typically when a parent’s life has ended due to someone else’s negligence. When the child is left without the financial support that their deceased guardian would have provided, a settlement is appropriate. Structured settlements for minor children are generally paid through an annuity issued by a life insurance company.
Types of Structured Settlement Cases
Structured settlements for minors most often arise from cases of birth injury, medical malpractice, and wrongful death claims.
These settlements first became common for minors in response to severe congenital disabilities caused by the drug Thalidomide. Since then,
many settlements have been granted when a child suffers birth injuries caused by a physician’s negligence. When a child has been harmed due to medical malpractice, the legal system often awards settlements to resolve the claim. Opting for a structured settlement for a child may also expedite the court’s approval because this structure is designed to protect minors’ best interests.
When a parent is killed in an automobile accident or by a doctor’s negligence, the minor child deserves compensation.
Benefits of Structured Settlements
A young child cannot manage a large sum of money, and receiving a lump sum payment may be prove tempting to a guardian put in place to care for the child. Maintaining a scheduled series of payments makes it more likely that the child’s basic needs (shelter, clothing, food, and medical care) will be met throughout their childhood and teenage years.
Structured settlements:
- Are not taxed as income
- Offer compounding interest which maximizes the account value over time
- Provide secure payments which cannot decrease for any reason
- Are regulated by insurance companies
Trusts and Other Options
Trusts and guardianship accounts include specialized structures for special situations.
For instance, a special needs trust (SNT) is typically considered if the child’s impairment will impact their ability to work after reaching the age of majority, typically 18 years old. The key benefit of an SNT is that the trusts are not considered when determining eligibility for public government programs. Social Security Income and Medicaid are vital for many families who cannot afford long-term care for a disabled child. But these public programs adhere to a stringent asset limit of $2,000. Congress enacted special needs trusts under the Omnibus Budget Reconciliation Act of 1993.
Legal and financial experts generally recommend funding a special needs trust with an initial lump sum payment while also establishing a structured settlement for the long term.
Funding Structured Settlements
There are several structures these settlements can utilize, and funding is a critical aspect of their design. In some cases, a portion of the money is placed in a blocked bank account only accessible by the minor child’s parent or guardian. This money is intended to pay current medical bills and other essential expenses caused by the accident. The funds may also be utilized to establish a trust or an annuity, from which a series of structured settlement payments typically begin after the child’s 18th birthday. However, the guardian can tailor contract details in other ways, such as granting a series of payments at set times. This may look like one payment at 18, another upon graduating college, and the balance at 25.
Court Protection for Minors
Settlements are considered legal property of the minor but are awarded under specific provisions dictated by the court. Once structured settlement details are finalized, no one can modify either scheduled payments or their amounts. A court-appointed guardian ad litem will review the settlement to guarantee the minor’s best interest is represented.
Probinsky & Cole provide personal injury legal expertise to victims of negligence, including minor children and their guardians. If you need representation, we invite you to call us to learn more about asserting your rights under the law.
