SETTLEMENTS INVOLVING MINORS
Litigation involving someone under the legal age imposes requirements as to how any settlement is to be achieved and distributed. This is set by State law and is the topic of this article.
The Basic Law:
Court approval is required for all settlements involving minors, no matter how small the sum. [Probate Code (Hereafter “P.C.”) §§2504, 3500, 3600 et seq.; Code of Civil Procedure (“CCP”) §372.]
A verified petition, called a Minor’s Compromise, is a Judicial Council form, and is usually filed by the guardian ad litem. The attorney, the minor and the guardian are required to attend the hearing. The Court may dispense with the need for such court appearance for good cause shown. [CRC 7.952.]
Alternatively, an Expedited Minor’s Compromise, which does not require an appearance, may be filed if the case meets the nine requirements set forth in CRC 7.950.5.
Attorney fees and costs must be approved by the Court when settlement involves a minor. A declaration is filed, with the fee agreement attached. [Prob.C. §3601.] Courts vary as to whether itemized time records must be included, or whether the judge will accept the typical one-third or forty percent fee request of most contingency fee agreements in personal injury litigation.
Managed Settlements for Minors:
California Probate Code §3602 and §3611 provide for the only options available to manage settlement proceeds on behalf of a minor. They are:
1. Blocked Accounts
a. Funds deposited into FDIC insured account
b. Funds distributed outright when minor becomes 18
c. Prior to 18, funds available for withdrawal only by court order
d. Best for sums $25,000 or less, where funds will not be needed before 18
2. Deferred Annuities
a. Funds invested in single-premium deferred annuity insurance policy
b. Carriers rated A+ by A.M. Best Co.
c. Annuities can be fixed or variable
d. Taxed upon distribution
3. Payment to a Guardianship or Conservatorship
a. Guardian ad litem is NOT the same as a Guardian of the estate of the minor
b. GAL not authorized by law to handle proceeds of settlement or judgment once litigation is concluded [CCP §372]
c. Guardianship created by separate proceeding in Probate
d. Court supervised: trustee bond, accountings & approval of investments required
e. Fiduciary has greater flexibility and powers than with Blocked Accounts
f. All funds available when minor becomes 18
4. Payment to Revocable Trust
a. Revocable by minor upon reaching 18
b. May not contain provisions disposing of remaining assets upon minor’s death because minors lack testamentary capacity
c. Court supervised: trustee bond, annual accountings required
d. Trustee has some discretion, but is bound by “prudent investor standard”
e. Also called “Minor’s Settlement Trust’ or 3611(g) trust
5. Special Needs Trust
a. For disabled individuals to retain eligibility for government assistance
b. Court supervised: trustee bond, accountings & approval of extraordinary expenses required
c. Substantial limitations on use of funds
6. California Uniform Transfers to Minors Act (“CUTMA”)
a. Funds irrevocably transferred to custodian
b. Limited to $20,000 or less
c. Possession transferred to minor upon reaching 18 unless a later distribution date, not to exceed age 25, is designated at time of original transfer
d. Specific custodial duties set forth, but no court supervision or accountings required
e. Many courts prefer the protection of a Blocked Account or 3611(g) Minor’s Settlement Trust
It sometimes is a shock for a parent or guardian, doing their best to maximize the damages paid to an injured child, to find that the Court will “second guess” their decision and insist upon disposition of the monies along the lines described above. Most parents think that they are the best judge of how to achieve the maximum settlement and how to distribute it.
But those upset parents should realize that the law has seen countless examples of children exploited by parents or parents not protecting the money for the children. This writer well remembers how an alcoholic father made unwise investments with the proceeds of his child’s recovery in another jurisdiction and by the time the child came to our office for relief, the father was again bankrupt and there was no real recovery possible.
This law is good law, however frustrating it may seem to the parent or guardian.