Disclaimer: This article explains general information about setting up an annuity for settlement funds for a minor under Hawaii law. This is not legal advice. For case-specific guidance, consult a licensed Hawaii attorney and the appropriate court or state agency.
Detailed answer — what to know and the usual steps in Hawaii
When settlement money is paid on behalf of a child, the state and courts generally want to protect the child’s money until the child can use it responsibly. In Hawaii, that protection commonly happens by using a court-approved structure such as a guardian/conservator, a trust, or a court-ordered annuity purchase. The basic goal when setting up an annuity is to secure steady, predictable payments for the child while meeting the court’s requirement that the settlement is in the child’s best interest.
1. Who must approve the settlement and annuity?
Most minor settlements and their investment vehicles must be approved by a court or by a guardian/representative appointed by a court. The Hawaii Judiciary has information on guardianship and handling estate matters for minors; start at the Hawaii courts site for self-help and guardianship resources: Hawaii Judiciary. You can also review Hawaii statutes and rules via the Hawaii Revised Statutes site: Hawaii Revised Statutes (current).
2. Typical legal pathways to hold settlement funds for a child
- Guardianship or conservatorship of the child’s estate (court-appointed fiduciary who manages money and investments).
- Minor’s trust (created by settlement or by a parent/guardian) with a trustee managing investments, including annuities.
- Custodial account under a transfer-to-minor statute, if available and appropriate (these allow a custodian to hold property for a minor until a statutory age).
3. Why choose an annuity?
An annuity can provide steady periodic payments (monthly, quarterly, yearly) and can be structured to provide funds for education, health care, and living expenses over years or decades. Annuities also reduce the risk of rapid depletion of funds from a large lump-sum distribution.
4. Common annuity types and terms to consider
- Immediate annuity: payments start right away after purchase.
- Deferred annuity: payments begin at a future date (for example, when the child turns 18 or 21).
- Period-certain annuity: pays for a fixed number of years (for example, 20 years).
- Life-contingent annuity: pays while the annuitant (rare for a minor) is alive; not commonly used alone for a child without a co-annuitant.
5. Steps to set up an annuity for settlement funds
- Talk to the attorney who negotiated the settlement: they typically will prepare the petition or paperwork needed for court approval and recommend whether an annuity is appropriate.
- File for court approval if required: in many cases the court must approve the settlement terms and the proposed use of funds (including purchase of an annuity). Work with counsel to prepare a petition and proposed order the judge can sign. See the Hawaii Judiciary for forms and guidance: Hawaii Judiciary.
- Decide whether to use a trust or guardian account: sometimes the court will order the creation of a minor’s trust and the trustee will buy the annuity; other times a guardian/conservator does so directly.
- Obtain annuity quotes from reputable insurers: get written proposals from A.M. Best–highly rated insurers. Check insurer financial strength at industry rating sites such as A.M. Best and confirm the insurer is licensed in Hawaii via the Hawaii Division of Financial Institutions or the Department of Commerce and Consumer Affairs insurance division: Hawaii DCCA Insurance.
- Structure payment schedule with the court in mind: proposals should match court directives about when distributions can be made (for example, specific amounts for education, health care, or periodic payments at certain ages).
- Purchase the annuity and file final documentation with the court: after the purchase, provide the court with proof of purchase, the annuity contract, and any updated accounting the court requires.
- Ongoing reporting and accounting: guardians/trustees usually must provide periodic accountings to the court showing how funds were spent and that annuity payments are being used as ordered.
6. Tax and federal considerations
Some annuity transactions and structured settlement arrangements have tax implications. Federal tax rules can affect whether payments are tax-free to the injured party or taxable. For tax-specific questions, consult a tax professional. For annuity suitability and insurer tax reporting consider working with a knowledgeable attorney and an accountant.
7. Alternatives to an annuity
- Trust invested in diversified securities (stocks and bonds) managed by a trustee.
- Custodial accounts (if appropriate) for smaller sums.
- Combination: partial annuity purchase for steady income plus a liquid account for short-term needs.
8. Practical considerations and common pitfalls
- Do not accept a lump-sum buyout of a structured settlement without court approval; courts scrutinize buyouts to protect minors.
- Compare annuity offers carefully — rates and terms vary widely between insurers.
- Confirm surrender charges, inflation protection, and survivor or contingency provisions in the annuity contract.
- Make sure the annuity company will pay directly to the guardian/trustee or to the child as ordered by the court, to avoid payment problems later.
9. A short hypothetical example (to show how it often works)
Suppose a 10-year-old in Hawaii receives a $300,000 settlement. The parties petition the court for approval. The court approves a plan: $50,000 placed into a trustee-managed checking/savings account for immediate needs; $200,000 used to purchase a deferred annuity that begins paying an income at age 18; and $50,000 placed in a modest investment account for school expenses. The court appoints a guardian/ trustee, approves the annuity contract, and requires annual accountings until the child reaches the age set by the court.
10. Where to find local help in Hawaii
Work with a licensed Hawaii attorney experienced in minors’ settlements, trusts, guardianships, and insurance/annuity matters. You can start with resources at the Hawaii Judiciary (courts.state.hi.us) and the Hawaii Department of Commerce and Consumer Affairs insurance division (cca.hawaii.gov/ins). Also use the Hawaii Revised Statutes search page to review statutes that apply: Hawaii Revised Statutes.
Helpful Hints
- Start early: court approval and insurer underwriting take time. Plan months ahead of when funds are needed.
- Bring these documents to your first meeting with an attorney: settlement agreement, draft release, insurer quotes, and any medical records or expense estimates tied to the settlement.
- Ask potential annuity sellers for a written quote showing payment schedule, fees, surrender terms, and guarantees.
- Confirm whether the annuity company is licensed to do business in Hawaii and check financial strength ratings.
- Discuss the child’s future needs (education, health care, disability) and whether a special needs trust or other tailored solution is needed.
- Keep detailed receipts and records; courts often require periodic accountings for guardians and trustees.
- Never sign a settlement distribution or annuity buyout agreement without court approval when funds are for a minor.
If you would like, I can provide a short checklist of documents to bring to an attorney or a sample list of questions to ask an annuity provider and the judge’s clerk. Again, this is general information only and not legal advice. For specific legal steps and filings in Hawaii, consult a licensed Hawaii attorney and the Hawaii courts.