Considering a Settlement for Your Child

The settlement for your child will be court approved. The judges' role in most jurisdictions is to assist in the determination of the settlement's fairness and to safeguard the funds until your child is an adult. If cash is paid in a lump sum, most judges will require the funds be placed in a "protected" account until age 18. The money is taxed yearly and a tax return must be filed when interest exceeds $600.00. The rate of return on the protected accounts is usually quite low, typically equivalent to a savings account. At age 18 your child assumes complete control of the money, in a lump sum distribution.

Many parents are concerned with the responsibility of their child managing all of the money at age 18. Statistics show that most settlements are spent within a year or two. Even a financially responsible child can make mistakes. A liability situation (car accident), future medicals that would have qualified under Medicaid, or failed marriage could wipe out the funds.

A 142 Trust for minors could be used for larger sums of money. However, the costs of implementing the trust and on-going corporate management fees eat away at the principal. In addition, all sums must be distributed by age 25.

A Structured Settlement solves many of these problems. It guarantees specific dollar amounts that can be spread over key years in your child's life. The benefits are:

1. Structures provide tax free payments. There is no tax due on the principal or earnings distributed for a personal injury claim.
2. Structures provide the highest after-tax return with low risk in today's interest rate climate, typically better than savings accounts or Registry of the Court.
3. Structures are not subject to the claims of creditors or considered common property in later marriages.
4. Structures relieve the burden and expense of money management, avoiding agonizing investment decisions and management fees that eat away at earnings.
5. Structures can provide payments to coincide with college semesters and payments into adulthood and retirement.

A structured settlement "annuity" really is "packaged wisdom"...offering guaranteed, dependable payments, which can help ensure that settlement money is not squandered, swindled or lost.
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SPECIAL LIFE SITUATIONS

* Home
* Using Structured Settlement Annuities in Divorce
* The Advantages To Funding a Special Needs Trust with Structured Settlement Payments
* Considering A Settlement For Your Child
* Structured Education: A Promise That Cannot Be Broken
* Structured Settlements For Seniors
* Spendthrift/Preservation Trusts