Detailed Answer
Overview: When a child (a minor) receives settlement money, Florida law generally requires extra safeguards to protect the child’s money. One common and practical safeguard is to convert some or all of the settlement into an annuity (a stream of periodic payments) or to place the funds into a court‑approved trust or custodial account. This article explains the typical options and steps under Florida law, the role of the court, how annuities work in this context, and practical considerations you should raise with an attorney and financial advisor.
Key legal framework (Florida)
Two parts of Florida law that often apply are:
- Florida’s Uniform Transfers to Minors Act (UTMA) — see Florida Statutes Chapter 710 for rules about custodial accounts and how long a custodian holds property for a minor: Fla. Stat. Ch. 710 (UTMA).
- Florida’s guardianship and protective proceedings statutes — see Florida Statutes Chapter 744 for rules on when a guardian or court supervision is required: Fla. Stat. Ch. 744 (Guardianship).
Local circuit courts also have procedures for approving settlements involving minors. Many personal injury settlements for minors require a petition to the court and court approval before funds can be disbursed or invested.
Common options for holding settlement funds for a child
- Structured settlement annuity
A defendant’s insurer or settling party purchases an annuity from a highly rated life insurance company. The annuity pays the child (or payee/guardian on the child’s behalf) periodic amounts over time. Often used to provide long‑term financial security and protect against waste. The annuity purchaser typically works with structured settlement brokers and uses a qualified assignment process for tax-efficient transfers when applicable.
- Court‑approved trust (minor’s settlement trust)
The court approves creation of a trust for the child (often called a minor’s settlement trust or custodial trust). A trustee manages investments and makes distributions under trust terms approved by the court. Courts commonly approve this when the settlement is large or the child’s needs require supervision.
- UTMA custodial account
Under Florida’s UTMA, an adult can act as custodian and hold funds for the minor until the statutory termination age. UTMA accounts are relatively simple but give the child full control at the termination age, which may be unsuitable for large settlements.
Typical steps to set up an annuity for a minor’s settlement in Florida (practical roadmap)
Below is a typical sequence used in many cases. Local practice and judge preferences vary, so treat this as a general roadmap.
- Talk to a lawyer experienced with minor settlements. Ask about the court approval process in your circuit and whether a guardian ad litem is required.
- Decide on the structure. Decide if you want a structured settlement annuity, a court‑approved trust, a UTMA account, or a combination (e.g., some money in an annuity and some in a trust).
- Obtain settlement terms from the insurer/defendant. If you choose a structured settlement, the insurer usually agrees to purchase an annuity; the parties will negotiate the payment schedule (immediate payments, deferred payments, lump sum component, survivorship options, cost‑of‑living adjustments, etc.).
- Prepare court filings. The attorney files a petition asking the court to approve the settlement and the proposed method of protecting the funds (annuity, trust, UTMA). The court may require a guardian ad litem or additional information about the proposed arrangement.
- Court hearing and approval. The court reviews the settlement for fairness and the protection of the child’s interests. If the court approves, it will enter an order authorizing the settlement and directing how funds must be paid and managed.
- Purchase/establish annuity or trust per court order. If the order requires an annuity, the insurer or structured settlement consultant arranges purchase from an insurance company and the annuity issues in the name specified by the court order (often payable to the child, the trustee, or the custodian as the order directs).
- Ongoing administration. If payments are periodic, track receipts, report to the court if required, and follow trust terms. If a trustee manages funds, they must follow fiduciary duties and any court reporting requirements.
Hypothetical example
Suppose a parent settles a $500,000 personal injury claim on behalf of a 10‑year‑old child. The settlement agreement calls for $100,000 up front and $25,000/year for 16 years. The court usually requires approval because the child is a minor. The parties petition the circuit court to approve a structured settlement annuity to make the $25,000 yearly payments. The court approves and orders that the yearly payments be paid to a trustee who will make minor‑appropriate distributions. The insurer buys an annuity from a highly rated company and names the trustee as payee per the order. The trustee manages the initial $100,000 and coordinates distributions with the annuity payments.
Tax and benefits considerations
- Personal injury damages for physical injury are generally not taxable under federal law, but tax treatment can vary with punitive damages, interest, and investment income. Consult a tax advisor.
- Structured settlements can offer creditor protection in many cases and can be tailored to provide long‑term income.
- Check annuity company financial strength (A.M. Best, S&P, Moody’s ratings) and confirm the annuity issuer is licensed in Florida.
When court involvement is required
Most circuits require court approval before a minor’s settlement is paid out or when a parent or guardian seeks to invest or spend settlement money. The court protects the minor’s best interests and may require a guardian ad litem or detailed accountings. Use the court order as your guide — it governs how funds are to be held or paid.
Who should you talk to?
- A Florida attorney experienced in minor settlements and guardianship procedures in your circuit.
- A structured settlement consultant or broker who understands court‑approved annuities.
- A financial advisor or trustee candidate with fiduciary experience.
- A tax advisor about potential tax consequences.
Statute references: Review the Florida statutes for more detail on custodial transfers and guardianship protections: Florida Statutes Chapter 710 (Uniform Transfers to Minors Act): https://www.leg.state.fl.us/Statutes/0700-0799/0710/0710ContentsIndex.html. Florida Statutes Chapter 744 (Guardianship): https://www.leg.state.fl.us/Statutes/0700-0799/0744/0744ContentsIndex.html. For local practice rules and filing procedures, contact the clerk of the circuit court in the county where the minor resides.
Short checklist to prepare before court filing
- Settlement agreement and proposed payment schedule.
- Proposed annuity illustration and insurer name and ratings.
- Draft petition for court approval and any guardian ad litem reports.
- Information on trustee/custodian and proposed trust terms (if applicable).
- Contact information for attorney, structured settlement broker, financial advisor, and tax advisor.
Important reminder: Judges vary by circuit. Some judges prefer trusts; others routinely approve structured settlements. Your attorney will tailor filings to local practice and the child’s best interest.
Disclaimer
This information is educational only and is not legal advice. It does not create an attorney–client relationship. For advice tailored to your situation, consult a Florida lawyer experienced with minor settlements, structured settlements, and guardianship proceedings.
Helpful Hints
- Start early: court approval and annuity purchase take time—plan for several weeks to months.
- Get multiple annuity illustrations and compare cost, payment guarantees, and issuer ratings.
- Ask the court whether it requires a guardian ad litem or independent counsel for the child.
- Consider splitting funds: an annuity for long‑term income and a trust or UTMA for near‑term needs.
- Confirm who receives the annuity payments (child, trustee, or custodian) per the court order.
- Keep careful records of all filings, court orders, annuity contracts, and trustee accountings.
- Consult a tax advisor about the tax character of settlement components and future investment income.
- If the settlement is modest, UTMA may be simplest; if large, expect a court‑approved trust or structured settlement.