While requirements for minors’ settlements vary by state and county, there are several common considerations to keep in mind when submitting a plan for court approval. These include:
- Current financial and/or medical needs
- Existing needs-based government benefits
- Future medical needs and financial goals
- Future loss of earnings
- Expected ability to handle funds in the future
Courts typically favor a conservative approach and a court-appointed conservator or guardian ad litem may be assigned to protect the minor’s best interests. A comprehensive plan can be designed to protect the minor’s assets until the age of majority, or a later date, if necessary. If the minor has suffered a more severe injury with inevitable future health considerations, the plan will include payments that provide for their long-term medical and financial needs.
The following case examples illustrate potential approaches:
Case #1: Traumatic Brain Injury and Spinal Cord Injury
Colin is an 11-year old plaintiff who suffered a traumatic brain injury and a spinal cord injury after falling off faulty playground equipment. As a result of his injuries, Colin suffered severe cognitive impairment, seizures, sleep disturbance, speech impairment, and permanent paralysis of his legs. His doctors determined that he is permanently disabled and that he will require lifelong medical care.
After attorney fees, Colin’s net settlement was $1,225,000. At the time of settlement, Colin lived with his mother and his two younger siblings in subsidized housing. Because of their low income level, the family received needs-based government benefits including Medicaid, SSI, and SNAP (food assistance).
With the overwhelming costs of Colin’s long-term medical needs on the horizon, his mother wants to ensure that the family will continue receiving their need-based government benefits, most importantly Medicaid. Colin will require round-the-clock nursing support, regular physical therapy visits, home modifications, and medical equipment including a hospital bed, a power lift, a bathroom lift, an electric wheelchair, a handicap accessible van, and seizure medication.
After discussing several options with their settlement planner, the following plan was devised for Colin: $500,000 in cash would be used as seed money to fund a special needs trust (SNT) at the time of settlement. The remaining funds would be placed in a structured settlement annuity, which would then be used to fund the SNT in the future. By placing the money in the SNT, Colin’s family could continue to receive their needs-based benefits, while utilizing the money in the SNT to pay for goods and services to enhance Colin’s quality of life. The incorporation of the structured settlement as a long-term funding source will allow Colin’s settlement proceeds to grow tax-free, while also providing him with an added layer of protection.
| Description of Payments | Guaranteed Payments1 | Expected Payments* |
|
Payments made to Special Needs Trust: Up Front Cash: $500,000.00 at time of settlement to seed trust Lifetime Monthly Income: $2,087.83 for life, payable monthly, guaranteed for 40 year(s) which is 480 payments, beginning one month from funding. |
$ 500,000 $ 1,002,158 |
$ 500,000 $ 1,709,933 |
| Total Guaranteed Payments | $ 1,502,158 | |
| Total Expected Payments | $ 2,209,933 | |
| Cash Seed to Trust: $500,000.00 | ||
| Structured Settlement Cost: $725,000.00 | ||
| TOTAL COST (Cash + Structure): $1,225,000.00 | ||
*Expected payments are estimated payments that will be made over the claimant’s life expectancy as computed by the life company, or that will be made over the guarantee period if no life contingent benefits are quoted. Lifetime payments will continue until the death of the claimant, only if life contingent benefits are quoted.
Case #2: Dog Bite Injury with No Future Medical Needs
Taylor is a 9-year-old plaintiff who was bitten by her neighbor’s dog. After attorney fees, Taylor’s net settlement was $100,000. She was not expected to have any future medical needs resulting from this injury, so her parents wanted to utilize her settlement proceeds to cover the cost of college. Beginning at age 18, Taylor will receive semi-annual payments of $10,000 for four years, totaling $80,000.
Rather than receiving the remaining funds in one large lump sum, Taylor’s parents opted for a $25,000 lump sum payment at age 23 and a $33,600 lump sum payment at age 25. Instead of parking the $100,000 in a low-interest bearing savings account (the growth on which would be taxable), Taylor’s parents chose to let the money grow income tax-free in a structured settlement, with the reassurance that the funds will be available beginning when Taylor turns 18.
| Description of Payments | Guaranteed Payments | Expected Payments* |
| $10,000 payable semi-annually, guaranteed for four years which is eight payments, beginning at age 18, with the last guaranteed payment at age 21. | $ 80,000 | $ 80,000 |
| Guaranteed Lump Sum Payment: $25,000 paid as a lump sum at age 23 | $ 25,000 | $ 25,000 |
| Guaranteed Lump Sum Payment: $33,600 paid as a lump sum at age 25 | $ 33,600 | $ 33,600 |
| Total Guaranteed Payments | $ 138,600 | |
| Total Expected Payments | $ 138,600 |
*Expected payments are estimated payments that will be made over the claimant’s life expectancy as computed by the life company, or that will be made over the guarantee period if no life contingent benefits are quoted. Lifetime payments will continue until the death of the claimant, only if life contingent benefits are quoted.
There is no one-size-fits-all approach when it comes to a minor’s settlement. Work with your trusted settlement consultant to help ensure that all appropriate considerations are taken into account, resulting in the best possible outcome for your client.
1 Guarantees are subject to the claims-paying abilities of the issuing insurance agency.
