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Structures Best Financial Protection for Minors, Short-Term AND Long-Term
Parents should focus on a long-range view to protect a child’s financial future.
Settlement planning in cases involving a minor present a unique set of challenges for everyone at the settlement table. A court-approved agreement is a given in protecting the interests of the child. And in the best of worlds, parents or guardians work cooperatively with all parties involved to create opportunity and bright futures for their children by focusing on a plan of distribution that will anticipate major life milestones, like education and housing, along with other possible future income and/or medical needs. Where we sometimes see a disconnect is the short-term focus parents have on higher yields versus a long-range view that could be much more important in protecting a child’s future financial success. We’re reminded of the famous quip from Will Rogers, “I am more concerned with the return of my money than the return on my money!” What they fail to consider are two significant pitfalls that may occur prior to their child reaching an age of greater financial maturity and more sound financial decision-making. The first involves the judgment of a young adult who is suddenly handed a significant amount of money. The return on that money is a moot point if the settlement funds are prematurely squandered. The second involves the entrance of other people (particularly “bad influencers”) into a young person’s life not anticipated at the time of settlement. With these concerns in mind, let’s look at how various settlement alternatives protect both the short- and long-term interests of a child. Court-Restricted / Conservatorship AccountsIn the case of a court-restricted account, funds are protected until the minor turns 18. Good, yes, but the funds are then available all at once. I think we can imagine what happens to most 18-year-olds with unfettered access to a lot of money. It’s not exactly a recipe for success! Also keep in mind that earnings in court-restricted accounts are small AND taxable. If a young adult is interested in postsecondary education, those monies available at age 18 will also be counted against financial aid eligibility. Alternatively, a trust has some advantages depending on the size of the settlement, the nature and extent of the injuries, and the need for health care in the future. Possible downsides with a trust, however, are the added administration/management fees and taxes on earnings inside the trust. Also, unless the minor will be deemed incompetent at the age of majority, the money is technically his or hers. Thus, probate courts typically won’t withhold money once the child turns 18. That leaves us with only one surefire way to create a plan of distribution beyond age 18, which can be used either alone or in conjunction with a trust. Structured SettlementsThe unique status given to structured settlements by Congress makes this option particularly advantageous for anyone receiving an injury settlement, but especially for minors. Here’s why:
Structures are not considered “assets” when applying for financial aid.
Long-Term Benefits for Life’s Milestones, OpportunitiesOne of the best reasons to choose a structured settlement is right there in the name: structure. Payments can be created and scheduled for many years to come, providing a good start and financial security into adulthood, including:
For more information about settlement planning for minors, don’t hesitate to contact your Ringler advisor. |
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