Detailed Answer — How Arizona law treats early use of a minor’s settlement funds
When a minor receives money from a settlement in Arizona, the child cannot usually control those funds until they reach the age of majority. Courts and state law treat those proceeds as the minor’s property and require a formal mechanism to hold and protect the funds until the child turns 18 (or another age if a trust or structured settlement specifies a later distribution).
Parents or guardians can sometimes get part of those funds paid out early for the child’s medical care, education, or other necessary support, but Arizona law generally requires court oversight or approval before a caregiver can spend or withdraw the money. The most common paths are:
- Appointment of a guardian of the minor’s estate or a conservator who manages the minor’s money under court supervision (probate/protective proceedings).
- Courts approving a petition to settle or compromise a minor’s claim and directing how settlement proceeds will be held and spent.
- Placing funds in a blocked/bonded account, a custodial account, a trust for the benefit of the child, or a structured settlement with scheduled payments.
Arizona’s probate and protective proceedings laws govern these procedures. For overview and applicable rules, see Arizona Revised Statutes, Title 14 (Trusts, Estates and Protective Proceedings): https://www.azleg.gov/arsDetail/?title=14. The Arizona judicial branch provides practical forms and information about guardianships and conservatorships at the Arizona Courts website: https://www.azcourts.gov/selfhelp/Guardianship.
What the court will consider when you ask to use settlement money early
- The court’s primary duty is to protect the minor’s best interests. Any request to withdraw funds must show the expense benefits the child.
- The court will evaluate whether the requested use is reasonable and necessary (for example, medical care, tuition, tuition deposits, books, required housing, or essential living costs related directly to the child’s care and education).
- The court considers whether an alternative source of payment exists (insurance, existing savings, financial aid) and whether spending principal will prejudice the child’s future needs.
- When funds come from a structured settlement, the settlement agreement or federal rules governing structured settlements can limit early access and may require purchase of a court order or court-approved transfer or annuity buyout.
Practical steps to request early access in Arizona
- Review the settlement documents. Determine how the funds were ordered to be held (blocked account, trust, structured settlement, custodial account, guardian of the estate).
- Talk with the claims administrator, insurer, or trustee to learn what disbursement procedures already exist.
- If funds are under court control or if distribution requires court approval, prepare a petition to the superior court asking for specific disbursement(s). Include a detailed explanation and documentation (invoices, school tuition statements, medical bills, estimate of future need).
- Provide proposed accounting and protections (for example, a partial distribution, receipts, or an order that funds be used strictly for education or medical care).
- Attend the court hearing. The judge will decide whether to approve the request and may limit distributions, attach reporting requirements, or order appointment of a guardian of the estate to manage remaining funds.
Common options and tools to manage or access funds early
- Guardianship/conservatorship of the minor’s property — the guardian manages funds but must report to the court and get permission for major spending.
- Trusts — a settlement can fund a trust that allows distributions for education and medical expenses under terms you negotiate. A trust can allow more flexible transfers without repeated court petitions.
- Custodial accounts (e.g., accounts under state versions of the Uniform Transfers to Minors Act) — a custodian controls funds for the child’s benefit until the child reaches the statutory age. Custodial accounts usually allow spending on the child’s benefit but check account rules and settlement requirements.
- Structured settlements — these pay out over time. To accelerate payments, you generally need a court order approving a transfer or sale of future payments; courts often scrutinize these requests.
How courts tend to treat requests for college vs. medical expenses
Medical expenses are usually viewed as immediate, necessary needs and courts often approve reasonable disbursements for treatment, rehabilitation, and related care. Funding for college can also be approved, especially if you show specific and reasonable costs (tuition invoices, room and board, mandatory fees). Courts balance the immediate benefit of paying for education against preserving funds for the child’s future needs.
Tax, financial aid, and practical consequences
- Some distributions may affect a child’s eligibility for need-based financial aid. Large account balances can reduce financial aid awards.
- Certain settlement types may have tax consequences depending on the nature of the award (e.g., compensatory vs. punitive damages, interest earned on invested funds). Consult a tax advisor.
- Trusts and structured settlements give more control and predictability but can reduce flexibility or increase administration costs.
Helpful Hints
- Start by locating the settlement paperwork. That document will tell you how proceeds must be held and whether a court order is required to access them.
- Document the need. Collect invoices, school acceptance/tuition statements, medical provider bills, and any insurance denials showing the child’s need for the funds.
- Ask the claims administrator or trustee whether a partial distribution for education or medical expenses is possible without court action — sometimes an administrator can make payments within the settlement’s terms.
- If the settlement created a trust or structured settlement, review its distribution terms carefully; you may be limited to the schedule or to what the trustee/annuity provider allows.
- When in doubt, consult an Arizona attorney who handles minors’ settlements, probate, or guardianship matters. They can prepare court petitions, explain likely outcomes, and represent you at hearings.
- Keep careful records. If the court approves spending, you will generally need to submit receipts, accounting, or follow-up reports to the court showing how funds were used.
- Consider alternatives like 529 plans or scholarships for college funding; sometimes combining modest court-approved distributions with other funding avoids spending the child’s entire settlement.
Where to find official Arizona resources
- Arizona Revised Statutes, Title 14 (Trusts, Estates and Protective Proceedings): https://www.azleg.gov/arsDetail/?title=14
- Arizona Courts self-help pages on guardianship and conservatorship: https://www.azcourts.gov/selfhelp/Guardianship
- Arizona Rules of Procedure for Probate Court and local superior court forms (check the county superior court website for forms and filing rules): https://www.azcourts.gov/rules/Rules-of-Procedure-for-Probate-Court
Next best step: Gather the settlement paperwork and documentation of the education or medical need, then speak with an Arizona attorney experienced with minor settlement distributions or the probate department at your local superior court for guidance about filing a petition.
Disclaimer: This article explains general information about Arizona procedures for using a minor’s settlement funds. It is not legal advice. For advice about a specific situation, consult a licensed Arizona attorney.