San Diego, CAWhat to do with a minor's settlement money from a personal injury verdict is a very important decision that can have long and lasting effects for the future of a child. It depends on the circumstances but attorney Gordon Levinson, Levinson Law Group, usually advises parents to consider choosing a structured settlement.
"I always talk to my clients about structured settlements--you usually know the right situation for an annuity when you see it," says Levinson.
Traditionally, cash settlements for minors have been deposited in a blocked savings account. When the child turns 18, the money in the account is released, and it is used it at their sole discretion. Although some parents are uncomfortable with large sums of money falling into the hands of such a young adult, many are not aware they can influence how and when the money is paid out, Levinson explains.
At the time of settlement, when the parents are still the child's legal guardians, they are entitled to make decisions about how the money will eventually be released to the child. "Using an annuity settlement structure, the money can be paid out in monthly amounts, with periodic lump sum payments to pay for college or buy a house," says Levinson.
"Structured annuities have many financial advantages over just putting the money in the bank until the child is 18," says Levinson. "The rate of growth is mind boggling. The money really balloons due to the compounded interest, the longer it stays in the bigger it grows and it is completely tax-free."
Some parents are uncomfortable with the concept of structured annuities and mistakenly consider them risky investments. From Levinson's experience, parents that expect their children to go college are more likely to choose the structured annuity. "What they choose really depends on their parenting style," says Levinson.
Although it really has more to do with the child than the structured annuity, one problem can arise. "Once the annuity is structured, it can't be changed, however, it can be sold," says Levinson.
Parents often take great care, mapping out structured settlements, only to find that annuity pirates swindle their son or daughter out of the money. "The young person is at college and they see one of those infomercials that offer to buy the annuity out for 50 cents on the dollar," says Levinson. "It is disappointing to think that would happen because they think it is better to get the cash rather than get the full benefit of the annuity. "
"All you can do is your best," Levinson says wisely. "You can instruct your children, but at the end of the day all you can do is your best."
Structured annuities can work well for adults with a poor retirement plan. "If they happen to get a decent settlement and they have a change to hit the 'do-over button' and reset their retirement plan," says Levinson, "it is getting late in the day for them and they could benefit from a structured annuity as well."
Gordon Levinson received his J.D. at the University of San Francisco (1996) and his B.A. at California State (1993). The Levinson firm is a full service law firm that works with structured annuity brokers. Visit their FDA website
for more information.