Requirements for a Minor’s Case
California law has different requirements for settling a case for a minor versus an adult. If the settlement is over a certain dollar amount, the court must review and approve the matter. The money must often be placed in a restricted account until the minor reaches the age of majority (18).
Petition for Minor’s Compromise
To protect the minor’s interest, the court must approve the settlement if the plaintiff is younger than 18 years old. A Petition to Approve the compromise will become the first filed document if the case has not been filed in court. A filing fee is required with all initial filings. The form that must be filed requests much information about the underlying issue, including any other claimants and what money those claimants will receive. The court will also review where the entirety of the settlement monies is going, so proper documentation of outstanding medical expenses to be paid from the settlement must also be included. While the extensive paperwork may seem overwhelming, it truly is in the minor’s best interest. The court will look at whether the settlement amount is reasonable in light of the minor’s injuries, ensure that costs and attorney fees are appropriate and lawful (there are limits placed on attorney fees, and the costs must be deducted before the fees) and ensure that the money will be set aside and inaccessible to potentially ill-intentioned relatives.
Where Does the Money Go?
Before the court approves the compromise, a blocked account or structured settlement must be in place. In some cases, courts have also upheld monies going into tuition savings plans, known as 529 plans.
Structured Settlement
A structured settlement places the funds into an annuity. The annuity is tax-free, and a professional financial planner can help ensure that the annuity addresses the minor’s anticipated future needs. Personal injury settlements are not taxable income, but earned interest usually is. A structured settlement can bypass the tax implications. One thing to consider when choosing a structured settlement is that it can be challenging to plan out the minor’s needs so far in advance, especially if the child is very young. Structured settlements are also complicated and expensive to undo. Some predatory companies will buy out a structured settlement for substantial fees. Another consideration is that the ultimate payout on a structured settlement will depend upon future interest rates; however, the minor usually ends up with more money at the age of majority, despite any associated setup fees, than if the money was placed into a blocked account.
Blocked Accounts
With smaller settlements and when the minor is close to the age of majority, most of our clients will choose a blocked account to deposit the settlement funds. Such an account is set up at any bank and essentially locks the funds into the account for release only upon court approval or when the minor turns 18. Because creating a blocked account requires a bank officer to fill out court forms and can be confusing, it may be necessary to have an attorney or paralegal go to the bank to assist in getting the account opened. Because blocked accounts are somewhat unusual, there may be some confusion at the bank when the minor-turned-adult appears to collect his or her money. Finally, interest rates on blocked accounts are usually relatively low, similar to an average checking account, so they will not earn money as a structured settlement might.
Tuition (529) Plans
Probably the least used of the options, the 529 Tuition Plan is a tax-advantaged way to put away money for college. Any earned interest is not taxable, and the interest rates are often higher than the other two options discussed above. The big consideration when choosing this as a settlement route is that the funds can only be used for education expenses.
Conclusion
Most often, settling a case is the beginning and end of the matter. However, when settling a case for a minor, much work is left to be done. A decision about where the money goes needs to be made. The attorney must clearly outline how the remainder of the funds are being disbursed. Though time-consuming, these procedures protect the minor and are therefore necessary.
North Highlands Personal Injury Lawyer
I’m Ed Smith, a North Highlands personal injury lawyer. Young people have unique financial concerns following accidents. If a collision caused you or a loved one serious injury, please contact me for free, friendly advice at (800) 404-5400 or (530) 392-9400.
My team and I have worked with North Highlands residents for decades. Please take a look at our website and review our case settlements and trial verdicts, or click on the following links to see what our clients have to say about our services:
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