Structured Settlement Annuities are a Great Solution for any Minor's Settlements
Category: Structured Settlements
Structured settlement annuities have long been recommended to aid those with catastrophic personal injuries in planning for their future. Using IRC Section 130 0F[i] periodic payments from a structured settlement annuity to fund Medicare Set-Asides and life care plans is common, but it isn’t the only type of settlement that can benefit from a tax-free investment vehicle. Using a structured settlement for a minor’s settlement is also a perfect type of case to settle with an annuity.
It is a parent’s worst nightmare to have their minor child injured in an accident. But what happens when a minor is injured and settles a personal injury claim? In 2019, more than 180,000 children were treated and released for injuries sustained in motor vehicle crashes, over 89,000 children were treated and released for nonfatal dog bites, and over 18,000 children were treated and released for pedestrian injuries.1F[ii] Damage is still present and can be significant. While many of these settlements may not be categorized as catastrophic, there still needs to be consideration related to how to best protect the minor’s recovery.
In most states, statute dictates what can be done with a minor’s proceeds from a personal injury settlement. In certain states, net proceeds under a certain dollar limit may be given to the parent or natural guardian of the minor child. For settlements over that limit, the proceeds must be preserved for the benefit of the minor in a way that isn’t managed by a parent or guardian. Some options include restricted guardianship accounts, conservatorship accounts, preservation trusts, or special needs trusts. Another option that is widely used for a minor’s settlement proceeds is a structured settlement annuity. Parents should, with the aid of their attorney, seek guidance on how to protect the minor’s settlement and maximize the recovery.
A structured settlement annuity is an arrangement that provides tax-free periodic payments in the future. The parents or guardians typically make decisions about the plan for the future payments, although in certain jurisdictions a judge may order a specific payment schedule. Using a structured settlement annuity can alleviate concern about the balance of proceeds being issued to the minor as soon as they reach the age of majority, like in guardianship.
For parents, guardians, or counsel that are concerned about a minor receiving a lump sum of money, a well-devised structured settlement payment plan can be the solution. The payment plan is specific to each minor and can be tailored for their future needs. Options may include annual or semi-annual payments for college, monthly payments for support during their 20’s, or lump sum distributions starting at age 18. The decisions regarding the payment plan are critical as once the structured settlement annuity is established and the contract issued, the payments cannot be changed, deferred, accelerated, increased, or decreased.
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