Structured Settlements as A Strategy For Children and Minors
Structured settlements help to secure a brighter future for children who have suffered a serious physical injury or the wrongful death of a parent. Settlements for, or on behalf of, children or minors must be court approved. While the Court of jurisdiction may vary by the type of case, court oversight is necessary regardless of whether your child’s lawsuit involves medical malpractice, personal injury or wrongful death. The judges role, in most jurisdictions, is to assist in the determination of the settlements fairness and to assure that funds are safeguarded until your child or minor ward is an adult. If cash is paid in a lump sum, most judges require that the funds be placed in a "protected" or "blocked" account until the age of majority (age varies by state law). The money is taxed yearly on interest in excess of a modest exempt amount. The rate of return on the protected or blocked accounts is usually quite low, typically equivalent to a savings account. With such protected or blocked accounts, your child or minor ward assumes complete control of the money, in a lump sum distribution, at the age of majority.
Many parents and guardians are, and should be (and indeed an older child themselves should be) concerned with the potential for wasteful dissipation of settlement proceeds. The responsibility of managing all of the settlement money is immense at an age when the child or minor ward may not be financially savvy or mature. The stories of dissipation are unfortunately plentiful. A early study, published in a California practice guide, showed that most cash settlements are spent within five years. Even a financially responsible child can make mistakes. Take a moment to think about what you and your child or minor ward went through to reach the point of settlement. A liability situation (car accident), future medicals that would have qualified under Medicaid, impulsive spending, or failed marriage, could wipe out the funds.
A Structured Settlement solves many of these problems. It contractually guarantees specific dollar amounts that can be spread over key years in your child’s or minor ward’s life for a finite period of time or even for entire life of your child, if desired. Other Benefits of Structured Settlement for Children:
- Structured settlements provide income tax-free payments to your child. The impact of the structured settlement tax benefit will increase as your child enters the work force. There is no income tax on the principal or earnings from structured settlements involving damages for physical injury or physical sickness.
- Structured settlements offer a highly competitive after-tax return with low risk in today’s interest rate climate, typically better over the long haul than savings accounts, current yields on a number of types of bonds, or the Registry of the Court.
- Generally, structured settlements are not subject to the claims of creditors or considered common property in later marriages.
- Structured settlements relieve the burden, expense and risk of money management, avoiding what can be agonizing investment decisions, unpredictable investment results and ongoing management fees that have the potential to eat away at earnings on your child's or minor ward's settlement.
- Structured settlements can provide payments timed to coincide with college semesters, other significant milestones, payments into adulthood and, if desired, all the way through retirement. If desired, other "in-combination" or "stand alone" spendthrift options are available to assure that money intended for college, or other vital expenses, is not wasted on frivolous items or "hangers on" to your child or minor ward through a Settlement Preservation/Conservation Trust mechanism.
- A Structured settlement can provide a core amount of stable income in the post college years to permit your child to explore better training programs that offer good long term potential but may not pay as much, while being independent, and avoid the distraction of having to work multiple jobs or share living quarters with multiple people in order to make ends meet.
- Create an annual scholarship in the name of your child at their former school or university, or a fellowship in the medical specialty that treats the condition that your child is/was afflicted with. Fund the annual scholarship or fellowship with a structured settlement annuity and/or life insurance, which can be funded with a structure.