Many parents will feel a distinct sense of relief upon entering mediation. After months or years of stressful litigation, the attorneys are hopeful that a resolution is on its way – one that could reduce the risks and pressures of a trial. This comfort, however, can be short-lived once a host of new concerns surface. After a settlement is reached, what should we do with our child’s money?
How An Experienced Settlement Planner Can Help
There is no one correct answer to this question. Financial management should, in every case, be highly-individualized. In short, your choice of financial strategy should take into account your child’s short- and long-term needs into account. Properly managed, a financial settlement can be protected for decades, while allowing a child to benefit from the use of their assets.
Finding an experienced settlement planner is often the best choice families can make. Settlement planning is based on the fundamental belief that every aspect of an individual’s life – both now and into the future – should be factored into major financial decisions. Settlement planners take a holistic view, in which considerations of lifestyle are joined by predictions for future healthcare needs and estimations of long-term risk.
Obviously, we can’t tell you what the best option is for your child’s future. No article can do that. Beyond the unique circumstances surrounding your child’s injuries, which may lead to temporary or permanent disability, certain state laws can also restrict your options. It’s a good idea to find a settlement planner with extensive experience making financial decisions in your jurisdiction. Ensuring that your child’s settlement is managed in compliance with state regulations is paramount.
Three Options For Managing A Child’s Settlement
In the vast majority of states, the proceeds of a minor’s settlement are intended solely to benefit the minor. Most states have strong laws protecting a child’s settlement from misuse or misappropriation, defining the duties of parents and other adults involved in the lawsuit and ensuring that the settlement proceeds ultimately benefit the minor.
The courts also exert significant control over how and when a child’s settlement can be used. In Oregon, for example, the court must approve disbursements for all settlements over $25,000. In most cases, that means parking the money in a frozen bank account, which means no withdrawals can be made without court approval, until the minor reaches the age of 18. Distributions are generally allowed when the money is going to be used to help the child in a way that directly involves their injury, or to reimburse parents for certain losses incurred as a result of caring for the child.
Again, these laws only apply in Oregon and the laws in your own state may be substantially different. At the least, you should now have a taste for how complex this issue can be. There is little room for error and none for outright misuse of a minor’s funds. The situation, however, becomes even more complex if your child is currently the beneficiary of a government assistance program.
1. Put The Money In A Bank
For many parents, placing a child’s settlement in a bank account is the first, and most natural, option. Some families will find that, despite the risks, parking the money in a savings account is actually the best choice. But if your child is currently receiving government benefits, like Supplemental Security Income (SSI) or Medicaid, opening a bank account for the settlement might not be the most appropriate thing to do.
Medicaid and SSI are means-tested benefits programs. As such, assistance is only available to individuals with little income and few assets. It should be obvious that coming into a settlement could significantly affect your child’s eligibility, if not disqualify them from benefits entirely.
2. Spend It Down
Most states provide a work-around for beneficiaries of means-tested public assistance who are set to receive a settlement or inheritance. This method, called a “spend down,” involves using most of the settlement to purchase approved goods and services within a set time frame. “Spend down” enough to meet the maximum allowable resources limits for SSI or Medicaid and there should be no risk of losing benefits.
Of course, many families find the “spend down” technique unfeasible. After all, most parents want their child’s settlement to last well into the future. Identifying a sufficient amount of needs that can be purchased now, and also happen to be approved by the court, is another problem. Spend downs are generally considered a strong choice for children expected to receive relatively small settlements or when several high-value items are needed right away.
3. Establish A Special Needs Trust
Our third option, a special needs trust, was specifically designed to allow people with disabilities to benefit from the proceeds of a settlement, without losing government benefits. Instead of being placed in a savings account, the money will be used to fund a trust, managed by a third party who will invest the money and approve disbursements to cover the beneficiary’s “supplemental” needs. When appropriately-drafted, a special needs trust will ensure that the trust’s funds can only be used on goods and services that government benefit programs don’t cover, so-called “supplemental” needs.
In our experience, most parents who expect a settlement opt to establish a trust for their child in order to preserve SSI and Medicaid benefits.