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Utilizing Support Trusts for Litigation Proceeds for a Minor

by: Thomas D. Begley, Jr.

Situations often arise where a minor plaintiff is receiving a significant personal injury award or settlement.  As a general rule, the proceeds are placed in an account with the surrogate of the county in which the minor resides.  To withdraw funds from the surrogate’s account, the parent must make an application justifying the reason for the withdrawal.  At age 18, the minor is free to withdraw all of the funds.  In many instances, this is a significant amount of money.

Trust

An alternative solution to handling this problem is to establish a support trust for the minor.  As a part of the friendly hearing, the court orders the establishment of the trust.  Typically, the custodial parent and a professional trustee serve as co-trustees.  The trustee is authorized to make distributions from the trust for the health, education, maintenance and support of the minor child including distributions to buy a home or start a business, if appropriate.  This enables the parent to access the minor’s funds for the minor’s benefit without an application to the surrogate’s office in each instance.

More significantly, the trust is usually drafted to continue beyond age 18.  While 18 is the legal age of majority, it is certainly not the age of maturity.  Eighteen year olds tend to make bad choices, particularly financial decisions.  Depending on the size of the trust, the minor might be given withdrawal rights at age 30, or if the trust is larger, perhaps half at 30 and half at 35.  The ages for withdrawal rights are flexible.

Structured Settlement

Monies in the trust should not be used to discharge a parent’s legal obligation of support.  In many instances, the parent is able to support the child and the monies in the trust are not needed on an ongoing basis.  An ideal way to fund these trusts is through a structured settlement.  The payments from the structure may be deferred.  Typically, a large sum (i.e., $100,000) might be paid out on a child’s 18th birthday for college or $25,000 per year may be paid out at ages 18, 19, 20 and 21 to pay for college education.  If the child elects not to go to college, the monies remain in the trust subject to the control of the trustee.  If the monies remain in the structure until the child reaches age 18 or even age 30, the child will receive significant benefits when the distributions begin.  Because the funds are invested, the actual payout may be double or even triple the amount of the initial settlement.