By Guest Author Samantha Webster – Director of Case Management for Synergy Settlement Services
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 are 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 guardian 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 a 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.
Working with an experienced settlement planner, such as those at Synergy Settlements, is key. The purpose of the settlement plan is to consider the future needs of the minor and devise a payment schedule to meet those needs. For most minors, the goal is to defer payments until the age of majority. Deferring payments for younger children (under age 10) to the age of 18 will result in cumulative payments that exceed the original net. For older minors (over age 14), a structured settlement annuity can still be beneficial but may require a longer deferral of payments to realize positive gain. In any event, the goal is to preserve the proceeds for the minor and devise a payment plan that will benefit them after the age of majority.
In some states, if a minor has immediate needs, a structured settlement annuity can provide guaranteed payments to a guardianship, guardian or parent to support the minor. Depending on the size of the settlement, a structured settlement annuity may only be part of the settlement plan for the minor. For example, a structured settlement annuities may be combined with other settlement options when having access to funds to support the minor while they are young is necessary. Another example would be if a minor is entitled to needs based benefits, or the potential exists that they may be entitled in the future, a structured settlement annuity combined with a special needs trust may be considered as part of the overall plan. A settlement management trust, which provides assistance with managing the settlement proceeds through a fiduciary, can also be combined with a structured settlement annuity. A structured settlement annuity can also be combined with a guardianship or conservatorship account. The combination allows for some funds to be available from the guardianship or conservatorship account to support the minor before age of majority and provide guaranteed payments from the structured settlement annuity directly to the minor after the age of majority. All of these combinations can create the flexibility and protection needed for most any minor’s settlement.
For options that include a combination of a trust, guardianship account, or conservatorship account, structured settlement annuity payments are made to the trust or dedicated account for the minor child. Funds are then available and can be disbursed to the parent or guardian to pay for immediate needs. When combined with a trust, whether a settlement management or a special needs trust, the settlement proceeds are divided between the trust and the structured settlement annuity. The initial deposit of cash in the trust is available to take care of immediate needs of the minor child and the structured settlement annuity payments are arranged to replenish the trust according to a prescribed payment schedule. The trust becomes the payee of the structured settlement annuity for the benefit of the minor and depending on the circumstances may also be the beneficiary to handle distributions after death.
For any minor’s settlement, a structured settlement annuity should be a consideration. For most minors’ settlements, the structured settlement annuity can allow preservation of the settlement proceeds for the minor until they reach the age of majority. For catastrophically injured minors, a structured settlement annuity can allow for parents or guardians to adequately plan for care of the minor child. A structured settlement professional, such as those at Synergy Settlements, can help by creating a unique and comprehensive settlement plan. Our settlement consulting team assists injury victims and their attorneys in creating innovative settlement plans for those that are injured. No settlement is ever too small for a structure so before a decision is made that a settlement for a minor isn’t worth bothering with a structured settlement, talk to us. We can help with options no matter the size of the settlement.
[i] 26 U.S. Code § 130
[ii] Centers for Disease Control and Prevention (CDC). Web-based Injury Statistics Query and Reporting System [online]. Atlanta, GA: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, 2020. Available at http://www.cdc.gov/injury/wisqars
Jason D. Lazarus is the managing partner and founder of the Special Needs Law Firm; a Florida law firm that provides legal services related to public benefit preservation, liens and Medicare Secondary Payer compliance. He is also the founder and Chief Executive Officer of Synergy Settlement Services, which offers healthcare lien resolution, Medicare secondary payer compliance services, public benefit preservation and complex settlement consulting.