A structured settlement provides a secure, tax-free, and management free investment that is often a sensible tool for a minor that will receive money from a settlement of a lawsuit. There is much confusion about how a structured settlement works. Specifically, there is uncertainty about when to use a structured settlement when settling a case for a minor. What is certain is the Michigan has a detailed process that must be followed when settling a case for a minor. MCR 2.420 mandates that all personal injury settlements and judgments for minors or persons under guardianship must be brought before the judge to whom the action is assigned to pass on its fairness.
In Michigan, there are essentially two options that exist when settling a lawsuit for a minor. First, the money may be placed in a minor conservatorship estate. A minor conservatorship is a court managed file in which the conservator (often a parent) protects the money for the benefit of a minor, until their 18th birthday. Annual Accounts, surety bonds, and restrictions on the use of the money are components of a minor conservatorship estate. Generally, the money is deposited in an FDIC insured bank or credit union under strict rules on the use of the funds. In most situations, no money may be withdrawn from a minor conservatorship without a prior court order.
To avoid a minor conservatorship estate, the other option is to purchase an annuity with the settlement with all of the money paid out after the minor’s 18th birthday. The settlement proceeds are used to purchase an annuity through a financial entity or insurance company. The structured settlement payments are guaranteed and do not change in value regardless of the economic conditions.
Careful consideration should be used when using a structured settlement. Most importantly, a structured settlement should be specifically tailored to the meet the minor’s future needs and goals. Input from the parent(s), attorney, and financial adviser should be considered when creating a structured settlement plan.
The Periodic Payment Settlement Act, passed by Congress in 1982, encouraged the use of a structured settlement in personal injury cases. It also provides that payments be offered in installments over time, and the entirety of every structured settlement payment would be exempt from federal, state and local income taxes.
A structured settlement is not always the best vehicle to use when settling a case. The money in a structured settlement is untouchable until paid out. Since the money is completely out of the reach of the minor (or the family) until the 18th birthday, it may not provide for the immediate needs to care for the minor through the 18th birthday. In addition, depending on the current market conditions, the rate of return (interest rate) may not be competitive.
The Probate Pro can assist in determining the most advantageous manner in which to settle a case for a minor. Just give us a call…