Securing a Child’s Financial Future
When a child is traumatically injured, the instability of the child’s financial future can compound an already emotional situation. Fortunately, there are settlement solutions available to help ensure that the child will thrive long-term.
Implications of Settling with Cash
There are many reasons not to accept a lump sum cash settlement (and in fact, some states will not allow cash settlements for minors):
Fast Depletion of Funds: An injury settlement is often the largest sum of cash a family has ever handled at one time. Compounding medical bills, lending money to friends and family, and emotional spending are all common pitfalls that can quickly eat up settlement proceeds, especially if the family is inexperienced at managing large amounts of cash.
Ineligibility for College Financial Aid: A lump sum cash settlement could render the child ineligible for financial aid. Even if the family intends to use the money to cover the costs of caring for the injured child, college financial aid offices typically consider those funds when determining financial aid packages.
Loss of Government Benefits Eligibility: Most states have income and asset tests to determine eligibility for needs-based government benefits (e.g., SSI, Medicaid, CHIP, etc.). If the child or the child’s parents accept a lump-sum cash settlement, then the family will almost certainly lose access to important needs-based benefits.
A Better Approach: Proactive Planning
There are a few different options for handling a minor’s settlement that will help avoid many of the negative consequences associated with a lump sum cash payment:
Option 1: Defer Payment Until After College
With private college tuition averaging over $30,000 a year before room and board, a four-year degree can easily top out at over $100,000. By placing settlement proceeds in a structured settlement and arranging to have the first payment deferred until after college, the child may be able to maintain eligibility for financial aid assistance. The deferred payments will be helpful to a young adult regardless of his/her chosen professional or personal path.
Option 2: Utilize a Minor’s Trust
Minors with more extensive medical needs may benefit from a minor’s trust. There are state-specific (and in many jurisdictions, county-specific) guidelines that must be followed to gain court approval. A minor’s trust is managed by a trustee, who is often a close loved one (i.e., a parent, grandparent, or guardian), but in some cases, could be a court-mandated professional or bonded trustee.
The trust funds do not necessarily need to be distributed during the minor’s youth; if the funds are not needed immediately, the trust can be set up to begin distributing funds when the minor reaches the age of majority in his/her state. To determine the appropriate approach, families will want to consider medical needs, anticipated financial needs (whether there will be a loss of earnings or a large future purchase), and the minor’s ability to handle funds at the age of majority. Structured settlement annuities can be used to fund a minor’s trust, providing an added layer of protection while also maximizing the proceeds.
When selecting this option, consideration must be made for the amount of funds going into the trust vs. the bonding and court fees for the time the trust is in existence.
Additional Options for Minors
Depending on the jurisdiction and the discretion of the judge, options for settlement may also include a guardianship account or a registry of the court account. However, if possible, families may want to explore the possibility of a structured settlement annuity or a combination of a structured settlement and a minor’s trust to maximize and preserve the settlement proceeds.
Contact Sage Settlement Consulting with Your Next Minor’s Settlement
For more information regarding your next minor’s case, contact the experts at Sage Settlement Consulting today. Our experienced settlement consultants will help create a stable financial future for your minor clients.