The settlement for your child or minor ward must be court approved. The judge’s role, in most jurisdictions, is to assist in the determination of the settlement’s fairness and to assure that funds are safeguarded until your child or minor ward is an adult. If cash is paid in a lump sum, most judges require that the funds be placed in a "protected" or "blocked" account until the age of majority (age varies by state law). The money is taxed yearly on interest in excess of a modest exempt amount. The rate of return on the protected or blocked accounts is usually quite low, typically equivalent to a savings account. With such protected or blocked accounts, your child or minor ward assumes complete control of the money, in a lump sum distribution, at the age of majority.

Many parents and guardians are, and should be (and indeed an older child themselves should be) concerned with the potential for wasteful dissipation of settlement proceeds. The responsibility of managing all of the settlement money is immense at an age when the child or minor ward may not be financially savvy or mature. The stories of dissipation are unfortunately plentiful. A early study, published in a California practice guide, showed that most cash settlements are spent within five years. Even a financially responsible child can make mistakes. Take a moment to think about what you and your child or minor ward went through to reach the point of settlement. A liability situation (car accident), future medicals that would have qualified under Medicaid, impulsive spending, or failed marriage, could wipe out the funds.

A Structured Settlement solves many of these problems. It contractually guarantees specific dollar amounts that can be spread over key years in your child’s or minor ward’s life for a finite period of time or even for entire life of your child, if desired. Among the other benefits of a structured settlement are that:

• Structured settlements provide income tax-free payments. There is no income tax due on the principal or earnings distributed from structured settlements.
• Structured settlements offer a highly competitive after-tax return with low risk in today’s interest rate climate, typically better than savings accounts, current yields on a number of types of bonds, or the Registry of the Court.
• Generally, structured settlements are not subject to the claims of creditors or considered common property in later marriages.
• Structured settlements relieve the burden, expense and risk of money management, avoiding what can be agonizing investment decisions, unpredictable investment results and ongoing management fees that have the potential to eat away at earnings on your child's or minor ward's settlement.
• Structured settlements can provide payments timed to coincide with college semesters, other significant milestones, payments into adulthood and, if desired, all the way through retirement. If desired, other "in-combination" or "stand alone" spendthrift options are available to assure that money intended for college, or other vital expenses, is not wasted on frivolous items or "hangers on" to your child or minor ward through a Settlement Preservation/Conservation Trust mechanism.