The unimaginable happens and your child is involved in an accident, one of the last things on your mind is going to be insurance claims. However, if this happens it is best you look over and familiarize yourself with the process. The responsibility of determining the fairness of the settlements lies with the court. The judge is obligated by law to ensure the child's interests are protected, as well as any funds that are agreed upon in the contract. In order to ensure that the child's payout is invested wisely, there are currently only three acceptable options for preserving their settlement.
Guardian Accounts
If the amount is comparatively small, the child may be given a lump sum payment. This needs to be placed into a guardian account or trust, which is a protected bank account. These accounts usually yield a modest rate of interest and will provide your child with a good sum of cash once they are old enough to gain access to the account. The court will oversee the account being set-up and will maintain a measure of control over it. The rest of the account is overseen by a court appointed guardian, this can be a parent, guardian or attorney.
Trusts
A trust would hold a property or asset on behalf of the minor. A trustee would be selected, usually by the court, to manage and maintain the trust. Settlement Trusts are known to yield a conservative interest rate. A document, known as the trust documents is produced by the court and specifies how the funds can be used for the child's benefit while he/she is under the age of eighteen.The document also notes how the funds will be managed after they reach the age of eighteen; this is usually through a one off payment, but occasionally installments are agreed upon.
Structured Settlements
This is by far the most popular option for insurance agreements involving children, because they allow them to receive tax free payments from their settlement over a designated period of time. Furthermore, it guarantees a sizable return from the interest rate and there are no ongoing fees to pay. The payment schedule is established by the court, and in most cases the payments begin when the beneficiary turns eighteen. Once this is decided the payout becomes permanent and unchangeable for the life of the contract.
This is by far the most popular option for insurance agreements involving children, because they allow them to receive tax free payments from their settlement over a designated period of time. Furthermore, it guarantees a sizable return from the interest rate and there are no ongoing fees to pay. The payment schedule is established by the court, and in most cases the payments begin when the beneficiary turns eighteen. Once this is decided the payout becomes permanent and unchangeable for the life of the contract.
If, as a parent or legal guardian you were in financial trouble, you cannot simply sell structured settlement. There must be a special language in the documents referring to the conditions surrounding the possibility of selling annuity. This is done in the interest of the beneficiary and is finalized prior to the settlement documents execution. Therefore, until the recipient turns eighteen the settlement cannot be sold in return for a lump sum.
Structured settlement annuities are easy to maintain and offer favorable financial returns. Subsequently they are the preferred option for preserving children's payouts.
