How Structured Settlements Work in the Case of Minors

Before structured settlements, minors involved in personal injury, accident and other case types with cash awards were generally granted lump sum payments. Because they were minors and not legally able to accept payments on their own, the money was given to their guardian or parent. On the surface, this makes a great deal of sense. However, there were many problems here.

One problem was that there were no rules on the adult in question spending that money strictly for the child’s needs. That means there were many adults spending money meant for the child on items or services for themselves. The items purchased might not be related to the responsibilities the court awarded them at all, or the money might have been spent completely irresponsibly.

Structured settlements were designed to help get around that problem by only providing a specific amount of money per payment. The hope was that guardian adults would use those payments more responsibly, because the temptation of a large lump sum would not be there.

The Court Has the Say and Restricts Guardian Adults

Structured settlements are tax free vehicles
Structured settlements have flexible schedules
Structured settlements can offer favorable financial returns
Structured settlements offer protection from adults who would spend irresponsibly or without regard to the child’s actual needs

If a child is under the age of 18 when the structured settlement is finalized, the terms are final for the life of the annuity. This is generally the case because the terms of the settlement have to be drafted during the initial notification period between the defendant and plaintiff.

Payment structure and options are virtually unlimited with a structured settlement. There are numerous options available for ensuring that minors have steady income throughout their life, including multiple lump sums, small payments over a period of time and more. The amount of the settlement can also be designed to increase over time in order to keep up with cost of living increases.

Structured Settlement Transfers Involving Minors

While minor children are not allowed to control their funds directly, courts today do strive to provide them with some measure of control over their finances resulting from a lawsuit. The court now has the responsibility of determining the fairness of the settlement amount, as well as how those funds will be divided up and administered.

Both guardianships and trust funds are still used today, and they’re both still viable solutions for administering the funds resulting from a settlement. However, structured settlements have become the more preferred option because they help to preserve the financials security of the child in question.

If a child is under the age of majority (as determined by their State of residence) and that person wishes to sell some or all of their structured settlement, it will be very important to evaluate if such a transaction is truly in the best interest of the child. To assist, the transfer court will usually appoint a guardian ad litem, an expert who will review the case and provide an opinion as to the benefits of the transaction. This process will delay such a transaction.

Depending on the circumstances, Settlements.org may assist with funding of the guardian ad litem, but we will need to understand all of the facts of the case before accepting a minors transaction.