How to Set Up an Annuity for Settlement Funds Held for a Child (Montana FAQ)

Short answer: In Montana, you generally cannot simply give a minor a large lump sum. To provide long‑term financial security you can ask the court to approve a structured settlement or the purchase of an annuity, or use a custodial/guardian/conservatorship arrangement. A judge will typically need to review and approve the settlement terms for the child’s protection. This article explains the common routes, the steps to take, pros and cons, and resources you will likely need.

Disclaimer

This article is educational only and is not legal advice. I am not a lawyer. For personalized guidance and to file court papers, consult a Montana attorney experienced in minor settlements, guardianship/conservatorship, and structured settlements.

Detailed Answer — How it works in Montana

When settlement money belongs to a child, Montana courts and state law prioritize protecting the child’s money. The most common legal paths are:

• Court‑approved structured settlement or annuity purchase. The parties agree to convert all or part of the settlement into a stream of periodic payments (an annuity) and ask the court to approve this arrangement as in the child’s best interest.
• Custodial account under Montana’s custodial/minor property rules (UTMA-style). Some or all funds can be placed in a custodial account for the child until the child reaches the statutory age of majority.
• Guardianship/Conservatorship (Guardianship of the Estate). If the child already has a court‑appointed guardian or conservator of the estate, that fiduciary can manage and invest settlement funds (including buying an annuity) subject to the court’s supervision.
• Trust (minor’s trust or special needs trust). If appropriate, the court or parties can create a trust (often with a trustee) for the child’s benefit; the trustee can invest in or buy annuities consistent with the trust terms and court approval.

Relevant Montana law and where to look

Montana’s probate/guardianship and minor property provisions govern how a court supervises settlements for minors. For reference to the Montana Code Annotated, see Title 72 (Probate and Trust Code): https://leg.mt.gov/bills/mca/title_72/. If you need exact statute language about guardianships, conservatorship, or the court’s power to approve compromises involving minors, look under the Probate and Trust chapters of the MCA on that site or ask an attorney to point to the precise sections.

Typical court approval process

1. Hire an attorney: Use a Montana lawyer with experience in minor settlements. The attorney prepares the settlement paperwork and a petition to the court requesting approval for the settlement and the annuity or other protective arrangement.
2. Prepare supporting documents: The petition should describe the settlement, explain why an annuity or structured payments are in the child’s best interest (including life expectancy, needs, and safeguards), and attach the proposed annuity contract or trust/custodial agreement and insurer details.
3. Provide valuations and comparisons: Courts often want to see actuarial computations, present‑value comparisons, and multiple options (e.g., lump sum vs. annuity). This demonstrates reasonableness and that the proposed insurer is financially sound.
4. File the petition and notify interested parties: The court will set a hearing and require notice to the child’s other parent, the opposing party, and sometimes the child (through counsel) or a guardian ad litem depending on circumstances.
5. Court hearing and order: At the hearing the judge will decide whether to approve the settlement and the annuity purchase. If approved, the judge signs an order directing how funds will be paid and managed (for example, ordering insurer to issue periodic payments to the child or to a trustee/guardian).
6. Purchase of the annuity: After the court order, the settling party or insurer purchases the annuity from an approved insurance company. The annuity provisions should match the court order and may name a payee (the child) and a successor payee if the child dies before amounts are paid.
7. Ongoing reporting: Many Montana courts require periodic accountings or reports to remain on file so the judge can monitor the funds’ use.

Choosing an annuity: options and issues

Common annuity choices and important considerations:

• Immediate (fixed) annuity: Payments begin right away for a set period or for life. Good for predictable income needs.
• Deferred annuity: Payments start later (e.g., at age 18, 21, or another age). Useful for protecting funds until a child is older.
• Period certain vs. life contingent: Period‑certain pays for a fixed number of years; life contingent pays as long as the annuitant lives. For minors, courts often prefer period‑certain or mixed options with successor provisions.
• Inflation protection: Some annuities include cost‑of‑living adjustments; others do not. Lack of inflation protection reduces real value over decades.
• Insurer strength and regulation: Check the insurer’s financial ratings and whether they are licensed to issue annuities in Montana. The Montana Commissioner of Securities and Insurance maintains licensing/regulatory info.
• Fees and surrender charges: Understand any fees, administrative costs, and whether the annuity can be commuted (converted to a lump sum) later only with court approval.

When guardianship or a trust may be better

Sometimes an annuity alone is not sufficient. A trust or guardianship may provide additional fiduciary oversight and flexibility to pay for education, health care, or special needs. If the child has a disability, the right type of trust can preserve eligibility for public benefits while allowing settlement funds to be used for supplemental needs.

Taxes

Structured settlement periodic payments arising from physical injury claims are often tax‑favored under federal law, but tax consequences depend on the settlement type. An annuity’s investment earnings can have tax implications. Always consult a tax advisor with experience in structured settlements and minors.

Hypothetical example

Example: A 10‑year‑old receives a $200,000 settlement for an injury. The parents and the defendant agree to purchase a deferred fixed annuity that pays $1,000 per month beginning at age 18 for 20 years. The parties submit actuarial numbers, the annuity contract, and a petition to the county district court asking for approval. The court reviews the proposed deal, holds a hearing, and issues an order approving the settlement and requiring the insurer to make payments as ordered and requiring the guardian to file annual accountings until the child turns 18. The insurer then funds the annuity and the payments begin at age 18 as ordered.

Helpful Hints

• Hire a Montana attorney experienced with minor settlements and structured settlements early—this reduces errors and speeds court approval.
• Get at least two annuity quotes and independent actuarial comparisons so the court sees the arrangement was chosen reasonably.
• Choose an insurer licensed in Montana with high financial strength ratings (A.M. Best, S&P) and be ready to present that information to the court.
• Consider a deferred schedule tied to ages (for example, partial payments at 18, larger amounts at 25) to reduce risk that the child will receive a large sum as a young adult.
• If the child has special needs, ask about a special needs trust to protect eligibility for government benefits and consult attorneys who handle disability planning.
• Anticipate court accountings and include them in the proposed order so everyone understands reporting obligations.
• Discuss tax treatment with a CPA or tax attorney—structured settlements from personal injury often have favorable federal tax treatment, but not always.
• Prepare a successor payee plan (who receives payments if the child dies) and ensure the annuity contract and court order reflect that plan.
• Keep all receipts and records of how funds are used; courts can require detailed accounting from guardians or trustees.

Where to find help in Montana

• Montana Code Annotated (probate/guardianship titles): https://leg.mt.gov/bills/mca/title_72/
• Montana State Bar or local county bar referral services to find an attorney who handles minors’ settlements and guardianship matters.
• Montana Commissioner of Securities and Insurance (for insurer licensing and consumer help).

Final steps

To proceed: consult a Montana attorney, evaluate structured settlement vs. other protective devices, obtain annuity quotes and actuarial summaries, and prepare a court petition for approval. The court’s approval is typically required for most settlements that would give the child significant control of funds before reaching the age of majority.

Again, this is general information, not legal advice. Contact a Montana attorney to discuss the specific facts and to draft and file the necessary court papers.