When a personal injury case is brought on behalf of a minor child, there are generally two claims filed: (1) the claim on behalf of the child for the injury and resulting loss and (2) a claim by the parents/guardians for medical expenses for treating the child’s injury and loss of services during child’s minority. Moquin v. Hedrick, 163 N.C. App. 345 (2004).
Since these claims basically are for two different parties as affected by the same injury, the settlement is generally also split up based on these claims. This means that the money for medical expenses is typically given directly to the parents while the money for the minor’s injuries is protected by the court until the minor turns 18 or is otherwise declared a result.
This leaves the question of where the money goes during these years between the accident and adulthood for the minor’s injuries. As the guardian of the minor child, you want to ensure this money is taken care of and that the child has access to it when they come to majority.
There are generally three payment plans that are used for settlement payments: (1) investment through the Clerk of Superior Court, (2) investment into a structured settlement annuity, or (3) given to the Guardian of the Child’s estate for holding and management. Let’s look at these options one by one.
The simplest and most cautious approach is to ensure that any and all funds for the minor child is placed into trust with the County Clerk of Clerk. Although it does not give the parent or the Guardian ad Litem physical control over the settlement money, it eases one’s mind to know that the money is in good hands and you are not responsible for it.
In having a child’s settlement money paid to the Clerk of Court for the county in which the Judgment was approved, the Clerk will be the responsible party, and that is less responsibility on your shoulders. Once money has been paid to the Clerk, the Clerk will invest the money for the benefit of the minor child in secure conservative investments. This will allow the interest on the settlement money to accrue over time, and also prevent the taxation of the settlement money. One thing to note is that this avenue does require a 5% holding fee be paid to the Clerk for their work, and that money comes out of the child’s settlement money. However, this 5% fee may be worth the easing of your mind, avoidance of taxation, and long-term security of the funds. And once the child reaches majority, they will be able to apply for receipt of the funds that have been held. Once this is approved by the Clerk, the money will be released to the child to do with as they please.
A structured settlement is when a series of payments are made to the Plaintiff over a period of time. This can be beneficial because you can structure the settlement payments to be made in connection with certain ages or events. A structured settlement may be used in conjunction with settlement planning tools to help preserve a Plaintiff’s Medicare benefits.
Often times the at-fault insurance company will purchase an annuity in connection with a structured settlement. This allows them to take care of their end of the settlement and move on with their lives instead of having to worry about having the money and making the payments at the appropriate times in the future. These annuities are purchased from an insurance company who makes the settlement payments to the Plaintiff on Defendant’s behalf at the scheduled times as defined by the settlement.
It is important to ensure that if you do decide to utilize a structured settlement that the obligation to pay continues in the event of the minor’s untimely demise. While the structure settlement can be favorable for several notable reasons, there are several reasons that make it a poor choice. Most notably, an annuity company is not strictly liable for any loss of funds, like a Clerk of Court would be. As such, if the annuity company files bankruptcy or simply doesn’t protected the funds properly, there may be very little recourse available to the minor or their Guardian on their behalf.
Still, as the guardian of the injured minor child, you should be weary of these annuities. Although facially appealing, there are still variables that should be considered in connect with which Insurance Company the annuity is bought from. Smaller, less known insurance companies may not be as secure as larger, highly known insurance companies. And, you are not the one who gets to actually choose the insurance company, although ideally you can make suggestions as part of the settlement agreement. In addition, every insurance company may offer a different interest rate. Often times this can be lower than the interest rates offered through the other methods of payments. Therefore, one of the other forms of settlement payment might be more appealing just based on the interest rate attached, and the security of knowing exactly where the money is.
Under N.C. Gen. Stat. § 35A-1232, the Guardian of the Child’s Estate may receive the payments directly which are to be “deposited in an account with a financial institution upon condition that the money will not be withdrawn except on authorization of the court.” However, under N.C. Gen. Stat. § 35A-1231, “[b]efore issuing letters of appointment to a general guardian or guardian of the estate the clerk shall require the guardian to give a bond payable to the State.” The value of this bond is determined based on the value of the ward’s personal property and the rents and profits of the ward’s real estate. If you are unable to pay this bond, this may not be the option for you.
If the bond is not an obstacle for you and you are in fact comforted by having more control, then there are benefits to this form of payment. Most importantly, you are able to invest assets of the ward as a reasonably prudent business person would. This allows you greater flexibility in where and with who the settlement money is placed. As the guardian, you can find the highest interest rate offered and then place the money for safe keeping with that financial institution.
It should be emphasized again that the Court protects the money from the Child’s settlement to ensure the best interest of the child. This means that any withdrawal from the account that you deposit the money in must be approved by the Court. In addition, you cannot use these funds to pay for the child’s ongoing needs, since this is deemed by the Courts to be a parental obligation, and the other side of the settlement that came directly to you covered medical expenses.
In sum, there are options as to how minor’s settlement payments can be made. These should be determined and submitted to the Court for approval as a part of the Settlement Agreement. The court will review the settlement and the desired payment methods, and upon approval, that method will govern how and to where the money will be distributed. Then once the child reaches majority or an agreed upon age beyond that, the money will be ready for them to access. Until then, it will sit idly and hopefully continue to accrue based on the interest rate attached to the chosen method.