Frequently we are retained to represent the interests of a child who has suffered a serious injury or loss of a parent as a result of the negligence of others. The parent or guardian of the minor who retains our firm understandably wants assurances that the child’s best interests will be pursued and protected in any litigation that our firm undertakes on the child’s behalf. Fortunately, there are procedures in place to ensure that the minor’s best interests are safeguarded.
When a child’s (or for that matter, an incapacitated adult’s) injury or wrongful death claim is resolved, the settlement must first be approved by the probate court. This is achieved by obtaining a court order from the probate court by which it appoints an adult (usually, but not always, a parent or close relative of the child) to be the conservator of the child. The creation of the conservatorship serves several purposes. First, at the probate court hearing to appoint the conservator, the child’s attorney will have to explain to the court commissioner why the settlement was appropriate and in the child’s best interest. Typically, the child’s attorney will explain to the probate court commissioner:
- The facts and circumstances of the incident;
- The strengths/weaknesses of the liability claims against all defendants;
- Why the attorney pursued liability claims against some parties but not others;
- The availability of liability or other insurance proceeds to satisfy the child’s claim for damages;
- The efforts undertaken by the lawyer to rule out other sources of insurance coverage for the child’s losses;
- Whether and to what extent the lawyer sought, or could have sought, personal contribution from the responsible party toward the settlement;
- The fees charged by, and litigation costs incurred by, the attorney;
- Compromises of third party liens secured through the efforts of the attorney; and
- Why the proposed settlement is in the overall best interests of the child.
The probate court then has the authority to approve of the settlement and appoint the parent or another adult as the child’s conservator, or to disapprove of the settlement, if the court finds that the proposed settlement is not in the best interests of the child. Once the court approves of the settlement and appoints the conservator, the conservator now has the legal authority to sign a release of liability against the party responsible for causing the child’s losses, which the responsible party’s insurance company will require prior to tendering the settlement funds. Even if the conservator will be the child’s parent, the parent does not have the legal authority to settle their own child’s claim until appointed by the probate court as the child’s conservator.
Now what does the attorney do with the child’s net settlement funds? Typically, in the case of a settlement for an adult client who is not incapacitated, the attorney simply forwards the net settlement funds to the client. But when a child receives a settlement, the lawyer cannot give the settlement funds to a parent (the money belongs to the child, not to the parent); nor can the attorney write a check to a minor. Fortunately, there is a sensible solution for this as well.
Under the supervision of the probate court, the attorney and conservator can establish a restricted, F.D.I.C. insured account with a bank, credit union or other financial institution. The bank will agree (in writing!) that the settlement funds in the restricted account will not be withdrawn, without court order, until the minor turns eighteen years of age, and only then with a court order that terminates the conservatorship. This protects the settlement funds from being dissipated by anybody, and holds the financial institution accountable should it disburse the funds without first obtaining a court order. In short, the funds belong to the child and will remain in the account as the child’s “property” until the conservatorship is terminated after the child turns eighteen years old. Problem solved, right?
Not exactly. For starters, most of us wonder whether most eighteen-year-olds are responsible enough to handle access to a large sum of money upon becoming a legal adult. Also, the rates of return on most conventional bank accounts these days (including money market/savings accounts and even long-term certificates of deposit) are so low that there is always the threat that any yields/investment earnings on the settlement funds will not be enough to outpace inflation from the time the account is established until the minor turns eighteen. And although the probate court may approve of an investment plan for the settlement funds under the management of a qualified financial planner (for example, mutual funds) which often have the potential for a greater financial return, such an option ordinarily is not F.D.I.C. insured, may lose value over time, and may not be approved by the probate court in any event.
One solution? A structured settlement annuity.
Recently, I represented a five-year-old boy who suffered devastating burn injuries as a result of the negligent discharge of a flare gun. The boy was eight years old when our firm settled his case. Given that he had ten more years until adulthood, and the likely need for the settlement funds in his adult years, we retained an annuity broker and established a structured settlement annuity for the child, which will make periodic payments to him beginning on his eighteenth birthday, with progressively larger payments until the age of twenty-eight. This allows the child, once becoming an adult, to have access to settlement monies at various times when he is in need of such funds for college, travel, or even to make a down payment on his first home. And the entire amount of the future payments are free from taxation, with the annuity providing a far greater rate of return than any conventional bank account.
Of course, none of this discussion should be construed as legal advice for any particular case, as each child’s case should be evaluated, and an attorney should act accordingly, on a case-by-case basis. A parent or guardian who consults with an attorney about a child who has suffered bodily injury or the loss of a loved one and who may have a legal claim against the responsible party should discuss these issues with the attorney at the very beginning of the representation, so that the various options available for any eventual settlement funds may be explored thoroughly with the attorney and qualified financial planners long before the case is even settled.