Are structured settlements suitable for minors?

Structured settlements are the best vehicle for delivering guaranteed payments beginning at the specific ages of majority. Probate courts most often favor structures when approving minors' cases.

Everyone defaults to minors when they think of structures. It’s true that most probate courts favor structures for minors for obvious reasons. Minors are not allowed to receive funds prior to the age of majority. Structures are the best vehicle for delivering guaranteed payments beginning at the appropriate age. However, there are other reasons structures fit well with many minors.

529 College Savings Plans are tremendously valuable tools for putting away money for higher education. However, personal injury claimants who are minors may benefit more from a structured settlement annuity. A parent may have done a great job accumulating funds for a child through a 529 plan only to find out their student receives a scholarship, in-state tuition, etc. 529 funds not used for higher education may be transferred to a sibling or may face hefty fees if withdrawn. Transferring to a sibling is not very equitable if the child received the settlement funds due to his or her own injuries. Structured settlement annuities carry no penalties if paid out and used for non-education expenses (ie, down payment on a home, starting a business, etc.).

Bonding of a parent or guardian is typically not required when structured settlements are utilized for minors. The funds are locked away until age of majority which removes the risk of mismanagement of funds by a parent or guardian. In many cases, parents are not bondable anyway.

Structures provide an efficient low cost alternative to establishing a trust for minors. There are no legal fees for drafting trust documents and paying for ongoing trustee services. Also, the tax exclusion (IRC Section 104) enjoyed by structured settlements can be important for minors. Beginning in 2018, the unearned income of minors is taxed at the trust tax rates which are very high. A structured settlement avoids this taxation issue completely.