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What Happens When a Minor Settles a Lawsuit?

What Happens When a Minor Settles a Lawsuit?
Sage Settlement Consulting

For a parent, there are few things more frightening than when your child is injured. If a lawsuit is involved, that can make the situation even more overwhelming. Here are the basic things you need to know about what to do if you expect that your child will receive a legal settlement:

The Court’s Role

In any minor’s settlement, the court’s main focus is to protect the best interests of the minor. Even parents and legal guardians with the best of intentions can make mistakes with finances. The courts try to prevent the possibility of such mistakes as much as possible by imposing strict guidelines on how proceeds from minor’s settlements can be handled.

Questions to Ask

There are a number of questions that need to be answered to determine whether or not a proposed settlement is reasonable. You want to be sure that the settlement proceeds will meet the needs your child will have as the result of their injury. This can include, but is not limited to:

  1. Anticipated future medical costs
  2. Day-to-day expenses
  3. Home modifications to accommodate your child’s disability
  4. Purchase of a vehicle or modifications to your vehicle to accommodate your child’s disability
  5. Anticipated loss of future income

Prior to settling, you’ll also want to decide whether you believe your child will be able to manage their own finances in the future—and at what age that responsibility will be appropriate. A settlement planner can help you dig through the numbers, but more importantly, will work to understand your child’s and your family’s individual needs.

Choosing the Right Financial Option

The next step is to decide which financial option, or a combination of options, will be the best approach for your child. It’s important to make this decision prior to settling, as some options aren’t available after the settlement is finalized. You will likely need court approval for any financial decisions.

There are three main options for preserving the minor’s settlement proceeds:

#1: Structured Settlement Annuity: A structured settlement is one of the safest financial tools out there. It is usually arranged to begin when the minor reaches the age of majority (which can differ, depending on the state you live in), or sooner if the proceeds are paid into a trust account. There are no ongoing fees or expenses associated with a structured settlement annuity. Unlike other options, any growth on the funds placed in a structured settlement annuity is 100% income-tax free (as is the settlement money itself).

#2: Trust Account: The exact laws around minor’s trusts vary by state, but generally speaking, final distribution for the trust can be delayed beyond the age of majority. There are fees associated with drafting the trust and paying a trustee, and any interest growth on the account is taxable. However, the trust itself may be able to deduct certain distributions related to medical costs and trustee fees.

#3: Guardianship Account: While a guardianship account is also a safe investment, the money sits in an account drawing little interest, and any growth on the funds is subject to taxes. The minor usually receive full access to the funds upon reaching the age of majority.

Work with a Minors’ Settlement Expert

Sage Settlement Consulting has worked with minors and their families across the nation. We take the time to help your family understand all of your child’s settlement options and put together a plan for court approval. For more information about minors’ settlements, contact our settlement planning team today.

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