To protect a minor child’s settlement, the courts and legislation of all states restrict access to or control of a minor child’s settlement money. The state’s involvement is based on the fact that a minor child lacks the legal capacity to enter into a binding contract (with certain exceptions not applicable to injury claims). Because the minor child cannot make a contract, he or she cannot settle his or her injury claim.A minor child’s claim is settled upon court approval and is binding on the minor child. The property codes protecting the minor child differ from state to state, but all require the same criteria. The procedure is variously referred to as guardianship, a friendly suit, minor child’s court approval, court confirmation, or minor child’s compromise proceeding.

Settlement Award Options:

1. Settlement awards can be held in the registry of the court (a court-ordered savings account) and paid in full when the minor child reaches age of majority (most commonly age 18). Although the funds in the registry of the court are construed as trust funds, the clerk acts only in a custodial capacity in relation to funds held in the registry of the court. A clerk is not a trustee for the minor child and does not assume the duties, obligations, or liabilities of a trustee on behalf of the minor child’s account.The interest derived from the money on deposit in the registry shall be paid as earned as follows:(a) A designated percentage or sum of the interest shall be paid into the general fund of the county to reimburse the county for the expenses of maintaining the registry fund; and(b) The remaining percentage of the interest shall be credited to the minor child’s registry fund. The interest earned will be taxed on a percentage disclosed by the court registry;
2. Settlement awards can be placed in a court-approved trust (in some states). Fee Schedules and taxable interest will be determined and applied by the trustee managing the trust. Interest earned will be taxable and filed accordingly. It is generally filed by the trustee’s in-house tax attorney or an appropriate party thereof; or
3. Settlement awards can be designed in a tax-free, guaranteed, structured settlement plan. The structure can be custom designed in many formats. Most often, structured settlement payments begin once the minor child reaches age of majority (age 18). In situations where the minor child is disabled and must permanently rely on government public assistance or requires immediate access to funds, the structured settlement payments begin immediately and are deposited into a special needs trust or court administered trust.

Structured Settlement Design Considerations

(The structured settlement may be custom designed to provide many options that are special to the minor child):

• College tuition (undergraduate and graduate years)
• Purchase of their first car
• Down payment on their first home
• Monthly payments through college or early adult years
• Depending on the amount of settlement award available, some designs may have the capability to pay for all of the above, as well as provide a monthly payment for their lifetime with an annual Cost of Living Adjustment (COLA).
• Preserving a disabled minor child’s ongoing governmental public assistance, most importantly Medicaid. The structured settlement payments pay directly into the minor child’s special needs trust.

Meet with ROBINYOUNG & COMPANY to review your minor child’s needs, desires, and expectations now or in the future. Young will illustrate the many ways that you can protect your minor child while maximizing their settlement with guaranteed, tax-free interest.