The Intricacies of Structured Settlements for Minors
In a case where a juvenile is an injured claimant in a lawsuit, the laws are designed to be fiercely protective of the minor's interests. Any settlement that is made for a child's claims needs to be given the court's approval by way of a proceeding which is known as a court confirmation, guardianship, a minor's compromise or just a court approval. The most significant concerns of the court are:
- The minor must be awarded the compensation he or she is due.
- The money must be carefully invested so that it grows over time.
- The child's parents or any other person does not use the money in any way, for their benefit.
- The child does not have complete access to the entire sum of money to avoid losing it or even spending it entirely.
This is where structured settlements come in. It reduces the risk of anyone being able to misuse, misappropriate large amounts of the money that belong to the minor injured claimant. Therefore, according to the laws of almost all states in the US, now, you are not allowed to take funds from any settlement over $5,000, on behalf of a minor and invest it on your own.
Usually, a significant part of the money is deposited into a blocked bank account, which is only accessible by the parent or guardian of the minor and usually by the court's order. This account is meant to pay immediate medical and other expenses, that have been incurred due to the accident or such expenses that may be occurring in the future. The rest of the sum is used for setting up the structured part of the settlement. This will, in future, make some payments to the minor starting at the age of eighteen. This may continue for a particular number of years or the entire life.
In earlier times, an injured minor’s settlement amount would be placed in a blocked account to address the concerns mentioned earlier. However, such an account yields very low interest and even this interest is liable to tax. On the other hand, a structured settlement invests in annuity or Treasury bonds to help grow the money and also keep it out of reach of the parents. Also, the interest earned is entirely exempt from taxes. The finer details of the fund's setup can be tailored to meet the needs of the particular child.
The amount of money that is available at regular intervals is designed to meet the medical or other expenses of the child over the set number of years or the life of that child. The lump sum present in the blocked account can also be used for this purpose. The important thing to note is that interest yields can vary significantly and the actual sums that are available to be withdrawn at regular intervals can vary if the starting amounts are the same. Here are the expenses for which these funds will be needed:
- Attorney fees
- Medical service providers
- Medical bills
- Purchase of the annuity for the structured settlement
- College tuition, fees, supplies and living expenses
This is a broad understanding of the costs, and a lot of detailed research is needed to determine the actual sum necessary for the child at the later stages of his or her life. There can be several different methods of designing the payouts received at regular intervals. This can be better planned and manged by consulting an attorney or a financial planner with experience in this area. Also, discussions with structured settlement buyers can help to figure out the best available options for the specific needs of the child who is the injured claimant. For some, it may be more suitable to have monthly payments but not have tuition fees. Some kids may have different dreams, passions, and ambitions in life that they want to pursue and would need a larger sum of money than others.
However, one must keep in mind the nature of these financial instruments. For instance, you should realize that once the structured settlement is set up and the payments are scheduled, neither the schedule of payments nor the payment amounts themselves can be modified. Therefore it is necessary to put in the time and thought necessary to accurately anticipate the needs of the minor and what they are going to be in the future.