When a child is traumatically injured in an accident or is the recipient of a financial windfall resulting from a settlement involving a parent, the unknowns of the child’s financial future can compound an already emotional transition. Fortunately, there are settlement solutions available to help ensure that the child’s financial future is protected.
Implications of Settling with Cash
There are many reasons why accepting a lump sum cash settlement is not in the best interest of a minor child (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, education expenses, 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 offering financial assistance.
Loss of Government Benefits Eligibility: Most states use income and asset tests in determining one’s 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, 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 obtain eligibility for financial aid assistance. The deferred payments will be valuable to a young adult regardless of his/her chosen personal or professional 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.
If funds for the minor child are not needed immediately, the trust does not necessarily need to distribute payments during the minor’s youth; instead, 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 most 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 court registry account. In an effort to maximize and preserve the settlement proceeds, families are encouraged to explore the possibility of a structured settlement annuity or a combination of a structured settlement and a minor’s trust.
For more information regarding your next case involving a minor, contact Kimberly Overby at Sage Settlement Consulting today. Our experienced settlement consultants will help create a stable financial future for your minor clients.
Volatile Markets are No Match for this Financial Option
Trade wars? Historic tariffs? With uncertainty as to which direction the markets are heading, investors are considering the best strategies to protect their portfolios. Injured claimants are particularly vulnerable, especially those whose quality of life depends on a steady income. Fortunately, there is a solution that offers protection from market volatility while providing a source of stable, long-term income: structured settlements.
Steady Gains, Lasting Peace of Mind
Both the term and the rate of return for a structured settlement annuity are locked in, and payments are guaranteed1, so when the market drops—even in a recession—the structured settlement payments remain unaffected. Structured settlement annuities are issued by highly-rated life insurance companies, making them one of the safest, most attractive financial vehicles available.
With no overhead fees, structured settlement annuities often yield returns competitive with traditional investments. Certain life companies also offer a rider that provides additional growth potential based on the S&P 500—without any market loss.
Claimants who can incur a degree of market-related risk may want to consider combining a structured settlement annuity with a market-based structured settlement program. Such an approach creates a truly balanced settlement solution.
Your Client Needs a Solid Plan
Claimants have a one-time opportunity to structure their settlements. The decision must be made before settlement, and the settlement agreement must include the proper language. Your settlement consultant can walk your client through the various settlement options, helping to establish realistic expectations and to ensure that a proper plan is in place to preserve the settlement proceeds.
You Need a Plan, Too
Many of the nation’s leading attorneys leverage the benefits of structured attorney fees to defer taxes on their contingency fees. As with structured settlements for claimants, attorney fee structures provide guaranteed, fixed income to create a predictable source of income immune to market volatility.
Take Control of Your Financial Future: Contact Us Today
None of us can control the economy, but we can mitigate some of its negative implications. Contact Kimberly Overby today to protect your clients and your practice.