by ajobrien » Tue Jan 18, 2011 03:51 am
My 14 year old son, 15 next month (we live in Arizona) was a passenger in an accident, the "other" insurance company wants to settle. He is fine with the settlement amount. The "other" insurance company wants to set this up in trust cause my son is a minor...a minor who wants the money now to buy his first car...does his money have to be tied up in a trust account until he is 18?
Posted: Tue Jan 18, 2011 03:59 am Post Subject:
At worse the settlement needs to be approved by a court (differs from state to state but I doubt it would need court approval if under $10,0000. Other then that, I don't think you are under any obligation to place it in a trust. Have you asked the adjuster if you are obligated to do this? Personally, I've never done it.
Posted: Tue Jan 18, 2011 04:01 am Post Subject:
It's a little over $20k...I didn't ask the adjuster if we are obligated to put it in a trust. When he called me to let me know they came to a settlement amount, he automatically said that with him being a minor that it would go to a trust.
Posted: Tue Jan 18, 2011 04:14 am Post Subject:
The adjuster did say that there would be a court hearing, so I imagine that is due to the fact that my son is a minor and because of the monetary amount. Does anyone know, that with the amount being a little over $20k, if his settlement HAS to be put in a trust or not?? Is this up to the insurance company adjuster or the courts?
Posted: Wed Jan 19, 2011 01:04 am Post Subject:
The adjuster did say that there would be a court hearing, so I imagine that is due to the fact that my son is a minor and because of the monetary amount.
Normally a trust/structured settlement happens when there are serious, lasting injuries, or the settlement amount is in the 6-figure range. To force a $20,000 payment into a trust/structured settlement seems unreasonable to me.
Is this up to the insurance company adjuster or the courts?
It is DEFINITELY NOT up to the insurance company to force this to a trust. I'm sure they would be offering one of their nice 3% fixed annuity products as the vehicle -- simply moving the money from the right pocket to the left so they don't have to "realize" the loss at this time. Just a different entry on the "liabilities" report.
Then again, do you want your son spending the whole $20,000 on a car at age 16? Nothing wrong with driving something older and less costly as a "newbie" to the road, not to mention the premium savings on your auto policy.
Posted: Wed Jan 19, 2011 02:34 am Post Subject:
I'm betting $20k requires court approval and they courts may require that the money go into a trust. If you asked the adjuster about this I'm sure you'd get a straight answer.
Posted: Wed Jan 19, 2011 01:36 pm Post Subject:
$20k requires court approval and the courts may require that the money go into a trust.
Even if this is true, the insurance company is not in control of how or where the trust is established, or what the funding vehicle is. That is entirely up to the parent or guardian of the minor (with the court's approval). The only concern of the court is that the money is protected for the benefit of the minor, and not consumed by a parent or guardian for their own personal expenses, not those of the minor.
The vehicle that holds the money in trust for the child could be a bank CD, an annuity, treasury bonds, or any other place where no loss to principal would occur over the time needed for the minor to reach the age of majority or beyond. Obviously, an annuity makes some more sense than a bank CD, since the CD earnings are taxable every year, and the annuity grows tax-deferred.
But an annuity creates the potential for pre-age 59-1/2 withdrawal penalties unless the withdrawals are structured systematically (most annuities in this category will have an endorsement or provision included that waives surrender charges, even if withdrawals are not systematic -- the courts tend to disapprove of anyone interfering with the full flow of the money to the child). When an annuity is involved, income taxes will be due on the interest/gains in the year received, and gain must always come out before principal.
The OP's original post makes it sound as if the insurance company wants to cram a annuity down her throat, when the decision on where to place the money is his/hers with the consent of the court (if this even needs court approval at all). An annuity from some other insurance company may offer different (i.e., more favorable) advantages/disadvantages.
And if there is no continuing disability or future expectation of related medical expenses involved, which is also what the circumstance seems to be, the court will probably not require a structured settlement at all, and possibly not even a trust into which the money must be placed -- it could simply order that the money be placed in a "protected" account from which withdrawals simply require notice to/approval from the court, in which case an annuity could be the wrong vehicle entirely.
Also, if any part of the settlement amount can be subrogated to the OP's medical insurance company, that will complicate matters even more, since that money should come off the top, before anything goes into a trust or other protected account.
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