How to Set Up an Annuity for Settlement Funds Held for a Child in Indiana

Short answer: In Indiana, money from a settlement on behalf of a minor is usually handled through a court-approved process (guardianship, minor settlement approval, or trust/custodial arrangement). A court can approve purchasing an annuity or placing funds into a structured settlement or other protected account so the child receives payments over time. You should expect to work with a lawyer, a guardian ad litem (if required), the probate court, and a licensed insurance company or structured-settlement broker. This article explains the common steps, options, and practical issues you will face.

Disclaimer

This article is informational only and is not legal advice. I am not a lawyer. Laws change and every case is different. Consult a licensed Indiana attorney and the probate court for specific guidance about your situation.

Detailed answer: steps, legal framework, and how an annuity solution typically works in Indiana

1. Why you often cannot simply hand the money to a child

Minors lack legal capacity to manage significant assets. Indiana’s probate and guardianship statutes authorize courts to protect minor claimants and to review and approve settlements, distributions, and trusts that affect a minor’s property. See Indiana probate laws (Title 29) and civil procedure provisions (Title 34) for the general statutory framework: Indiana Code – Title 29 (Probate) and Indiana Code – Title 34 (Civil Law & Procedure). Courts take steps to ensure the settlement is fair and that funds are used for the child’s best interests.

2. Common legal routes for settling and protecting funds for a child

• Judicial approval of the settlement – Many personal-injury or wrongful-death settlements for a minor require filing a petition with the probate or civil court to approve the settlement and distribution plan.
• Appointment of a guardian or guardian ad litem – The court may appoint a guardian to handle the property or a guardian ad litem to evaluate the settlement terms and protect the child’s interests in court proceedings.
• Establishing a trust or custodial account – A court can order funds placed into a guardianship account, a court-supervised trust, or, in some situations, a custodial account (under UTMA-like rules) or a special needs trust if the child receives public benefits.
• Structured settlement or annuity purchase – The court can approve buying an annuity from a licensed insurance company (a structured settlement) to convert a lump sum into a schedule of payments for the child.

3. How a structured settlement or annuity is set up (typical process)

1. Settle the underlying claim: Negotiate the total settlement amount with the defendant/insurer.
2. Engage counsel and, if required, a guardian ad litem: Your attorney will prepare paperwork and, if the court requires, obtain a guardian ad litem’s report recommending whether the settlement is fair.
3. File a petition for approval: File a petition or motion in the appropriate Indiana court asking the judge to approve the settlement and the proposed disposition of funds (for example, purchase of an annuity or funding of a trust). Attach the settlement agreement, proposed annuity contract or funding plan, and supporting documents.
4. Court hearing and approval: The court reviews the petition, considers the guardian ad litem’s recommendations (if any), and may hold a hearing. If the judge finds the settlement and distribution plan in the child’s best interest, the court issues an order approving the settlement and directing how funds should be handled.
5. Purchase the annuity: With a court order in hand, the responsible adult (guardian, guardian of the estate, or other designated party) arranges the annuity purchase from a licensed insurer or through a structured-settlement broker. The insurer issues an annuity contract naming the child as the beneficiary or specifying payment terms that the court approved.
6. Court retains limited oversight (if required): The court may require periodic accountings or reserve limited jurisdiction to enforce the terms. If funds are held in a guardianship estate, the guardian may need to file reports with the court.

4. Types of annuity/structured settlement arrangements you might see

• Periodic payments for a set period: Example: monthly payments until age 18, then larger payments later.
• Combination of periodic payments and lump sums: The structure could include a current income stream plus future balloon payments at milestone ages (18, 25, 30, etc.).
• Irrevocable annuity purchased from an insurer: Once purchased, the annuity guarantees payments per the contract, subject to insurer solvency and state insurance regulation.
• Trust-funded annuity: A trust (court-ordered) could own the annuity, giving additional flexibility for distribution conditions and protections for benefits-eligible children.

5. Who to involve and what professionals help

• Indiana personal-injury or probate attorney (recommended to prepare petitions and attend hearings).
• Guardian ad litem (may be court-appointed to represent the child in the settlement proceeding).
• Structured-settlement broker or life insurance/annuity salesperson (must be licensed in Indiana) to propose annuity solutions and obtain quotes from rated insurers.
• Financial advisor or trustee (to help select timing and structure of payments, invest lump-sum components, and advise on benefit interactions).
• Tax advisor (to clarify tax consequences—special rules apply for injury awards).

6. Common court concerns and what judges expect to see

Judges generally want to know that the settlement is fair, that the child’s future needs are addressed, and that funds are protected from misuse. Typical items courts want included with a petition:

• Copy of the settlement agreement and any releases
• Breakdown of how money will be paid (lump sum to a court account, annuity contract details)
• Information about the insurer issuing the annuity (financial rating, contract sample)
• Recommendation or report from a guardian ad litem or counsel for the minor
• Proposed court order describing the arrangement and any reporting requirements

7. Practical considerations: costs, timing, and trade-offs

• Timing: Court approval can take weeks to months depending on docket and whether the court requires a hearing or additional information.
• Costs: Attorney fees, guardian ad litem fees, court filing fees, and any broker or placement fees for an annuity. These costs are often paid from the settlement proceeds, subject to court approval.
• Flexibility vs. protection: Annuities provide guaranteed payments and creditor protection but are usually irrevocable and less flexible than a trust with discretionary distributions.
• Insurance company selection: Choose a highly rated insurer to limit credit risk. The court will expect documentation of the insurer’s rating and that the annuity terms are reliable.
• Public benefits: If the child receives Medicaid or SSI, a structured settlement or a properly drafted special needs trust may be necessary to preserve benefits. Consult an attorney experienced with public benefits and trusts.

8. Example (hypothetical) to illustrate

Hypothetical: A 10-year-old receives a $300,000 settlement for personal injuries. The parent’s lawyer petitions the Marion County probate court to approve the settlement, request appointment of a guardian of the estate, and ask the court to allow $200,000 to purchase an annuity that pays monthly income until age 21 and then increases payments until age 30, with a remaining $100,000 placed in a court-supervised trust for educational expenses. The court orders the arrangement after reviewing the guardian ad litem’s recommendation and evidence that the insurer is financially sound. The insurer issues an annuity contract payable to the child according to the court-approved schedule. The guardian of the estate files required accountings annually until the child reaches the age specified by the court.

Helpful Hints

• Start early: Court approval and annuity placement can take time. Begin the legal and financial planning as soon as a settlement is likely.
• Work with experienced Indiana counsel: A lawyer experienced in minor settlements or probate will know local judges’ expectations and paperwork requirements.
• Consider needs beyond income: Think about education, health care, special needs, and future purchases when designing the payment schedule.
• Verify insurer ratings: Ask for and document the annuity issuer’s financial strength ratings from agencies like A.M. Best, Moody’s, or S&P; the court will want that information.
• Budget for fees: Anticipate court, counsel, guardian ad litem, and placement costs. Ask the court to approve payment of reasonable fees from the settlement if needed.
• Protect public benefits if applicable: If the child has benefits eligibility, discuss special needs trust options with your attorney before finalizing distributions.
• Get written court approval: Do not rely on informal agreements. Obtain a written court order approving the settlement and directing how funds will be used and who must account for them.
• Keep records: Maintain copies of the settlement, court orders, annuity contract, and annual accountings; courts or future guardians may request them.
• Ask about tax issues: While many injury-based structured settlement payments are tax-favored under federal law, check with a tax advisor about your situation.

Where to find official Indiana resources

• Indiana General Assembly — Indiana Code (probate and civil statutes): https://iga.in.gov/. See especially Title 29 (Probate): https://iga.in.gov/laws/2024/ic/titles/29, and Title 34 (Civil Law and Procedure): https://iga.in.gov/laws/2024/ic/titles/34.
• Indiana Judicial Branch (court information and contacts): https://www.in.gov/judiciary/.

Final recommendations

If you are responsible for settlement funds for a child in Indiana, consult an Indiana attorney promptly to determine whether a court petition is required, whether a guardian or guardian ad litem should be appointed, and which protection (annuity, trust, or custodial account) best fits the child’s needs. With the right approvals and properly drafted documents, an annuity or structured settlement is a common and effective way to provide long-term financial security for a minor.

Remember: this is general information and not legal advice. Speak with a licensed Indiana attorney about your specific facts.