Structured settlements for minors provide a secure foundation the future of children and young adults who have experienced significant personal physical injury, endured the wrongful death and of one or both parents, or faced psychological and emotional trauma, with or without accompanying physical injuries.

Structured Settlements for Minors | What You Need to Know

Court approval is generally required when structured settlements are proposed for, or on behalf of minors and children. While the Court of jurisdiction may vary by the type of legal case, court oversight is necessary regardless of whether your child’s lawsuit involves medical malpractice, personal injury, or the wrongful death of a parent or sibling in an auto accident, construction accident, aviation accident or due to a defective product.

Working with a settlement planner who possesses expertise in financial transitions can be highly beneficial

We have extensive experience working on all aspects of minors' settlements, with attorneys, parents and guardians, guardians ad litem and all parties to settlements for minors. Many structured settlement annuitants, whether or not we have written their structured settlements, contact us when they make the transition to young adulthood (or experience other life events), to ask questions. We provide education, context and an orientation about their structured settlements and a resource for other financial matters.  This has also been helpful in addressing the root causes of unwarranted sales of structured settlement payments.

Why is Court Approval Required in Settlements for Minors?

In most jurisdictions, the judge's role is to evaluate the fairness of the settlement and ensure that funds are safeguarded until your child or minor ward reaches adulthood. When cash is paid as a lump sum, judges typically require the funds to be deposited into a "protected" or "blocked" account until the child attains the age of majority, which varies by state law. Funds in a blocked account are subject to yearly taxation on interest exceeding a modest exempt amount. The rate of return on these accounts is generally low, comparable to that of a savings account. Upon reaching the age of majority, your child or minor ward gains full control of the funds in a lump sum distribution, which may affect their eligibility for student loans.

Be Mindful of Wasteful Dissipation

Many parents and guardians, as well as young adult children, are rightly concerned about the potential for wasteful dissipation of settlement proceeds. The responsibility of managing a significant settlement amount is considerable, especially at an age when the child or minor may lack financial maturity or expertise. Unfortunately, there are numerous stories of such funds being dissipated. An early study, published in a California practice guide in the early 1990s, reported that most cash settlements are spent within five years. Even a financially responsible child can make errors. Consider the challenges and efforts you and your child or minor ward have faced to reach the point of settlement.

Consider the loss and the time taken from your lives due to the event and lawsuit. Without proper planning, education, and guidance, future medical expenses that could have qualified under Medicaid, impulsive spending, failed marriages, or naive mistakes severely impact or even accelerate depletion of the funds. Structured settlements as an excellent settlement option for minors, helping to address many potential issues.

What a Structured Settlement Can Do for Minors?

A structured settlement guarantees specific dollar amounts that can be:

1. spread over key years in your child’s or minor ward’s life;
2. spread over a finite period of time;
3. paid for entire life of your child; and/or
4. sprinkled across specific ages or time periods
5. provide meaningful legacy gifting for minors whose legal recovery is for the loss of a parent, grandparent or sibling. 
6. used to bridge anticipated life transitions

The structured settlement for your child can be designed with more than more than one structured settlement payment stream, or type of payment stream, to address different things.  Read more about the types of structured settlement payments here.

• A structured settlement can be split-funded through multiple structured settlement annuity issuing life insurance companies.
• Part of  a structured settlement can be funded an index linked payment stream
• A structured settlement can also be paired with other strategies such as a trust or investment account to provide a bespoke solution for the client.

John Darer is here to listen, inform and help educate you in a manner that is conducive to way you best absorb information and to collaborate with you on the best solution for your child, or children.

More Benefits of Structured Settlements for Minors and Young Adults

• Structured settlements offer income tax-free payments to your child in cases involving claims of physical injury, physical sickness, or your child is a survivor of wrongful death. Tax-deferred payments may be applicable in other types of cases or components of cases where the damages do not meet the requirements of the IRC 104(a)(2) exclusion.
• The impact of the structured settlement tax benefit will increase as your child enters the work force. There is no income tax on the cost of the structured settlement or earnings from structured settlements involving damages for physical injury or physical sickness, or if the structured settlement is established as compensation to the child for the wrongful death of a parent, that arose out of a physical injury or physical sickness. By contrast, interest on a lump sum settlement invested in bank CDs or otherwise, generates taxable unearned income or capital gains and the so-called " Kiddie Tax applies. Unearned taxable income that exceeds certain thresholds for dependents under age 19, and dependents who are full-time students under age 24. The SECURE Act, effective January 1, 2020, re-established that the the parents’ marginal tax rate applies instead of trust tax rates that were in effect under the Tax Cuts and Jobs Act. 
• In some cases, a structured settlement can be used to shelter settlement money from student financial aid formulas. But ultimately the timing of the payments will determine how structured settlements impact financial aid applications.  See Mark Kantrowitz "How Structured Settlement Impact Financial Aid" The College Investor March 26, 2025 update.  Money sitting in a bank account or trust on behalf of the minor can seriously impact financial aid. A child's assets are counted at 20% towards the Expected Family Contributions under the FAFSA form and 25% under the CSS Profile used by around 300 private schools for institution-based aid. There is no accrual under FAFSA making structured settlements an ideal planning tool for help with college funding.
  

• Generally, structured settlements are not subject to the claims of creditors or considered common property in later marriages.
• Structured settlements offer a highly competitive after-tax return with low risk in today’s interest rate climate, typically better over the long haul than savings accounts, current yields on a number of types of bonds, or the Registry of the Court. 
• Interest rate linked structured settlements  (American General),  index linked structured settlements  (such as Pacific Life ILAPA,  Prudential Income Advantage,  Independent Life  (IStructure)  and  market based structured settlements, or blended solutions (Assura Trust) are available and may be incorporated as part of an allocation in a longer-term settlement plan, if appropriate and if the Court approves.
  
• 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 for minors can offer payments that are strategically timed to align with college semesters, significant life milestones, and payments into adulthood, extending if desired, all the way through life. Additionally, other "in-combination" or "stand-alone" spendthrift options are available to ensure that funds designated for college or other essential expenses are not squandered on unnecessary items or individuals seeking to exploit the minor.  One way this can be achieved is through a Settlement Preservation Trust mechanism.
• A structured settlement can serve as a reliable source of stable income during the post-college years, enabling the child to pursue advanced training programs that offer promising long-term opportunities but may initially provide limited financial returns. This support allows them to maintain independence, avoid the burden of working multiple jobs, and sidestep the challenges of sharing living arrangements with several individuals to cover expenses.
• Although a structured settlement cannot serve as collateral, the stable income from a structured settlement highlights a reliable resource and the capacity to meet financial obligations, which can appeal to potential lenders or landlords.
• Create an annual scholarship in the name of your child at their former school or university, or a fellowship in the medical specialty that treats the condition that your child is/was afflicted with. Fund the annual scholarship or fellowship with a structured settlement annuity and/or life insurance, which can be funded with a structure.
• Fund an annual payment to help pay for holiday gifts, so that resources are there through thick and thin, for a fixed period of time, and/or for life.

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Last updated April 26, 2025