Detailed Answer
This FAQ explains what parents, guardians, or representatives generally must do to place settlement funds for a minor child into an annuity under New Hampshire law. It describes common options, the typical court steps, practical considerations when buying an annuity for a child, and documents you will need. This is general information only and not legal advice. Consult a New Hampshire probate attorney before making decisions.
Overview: why an annuity is used for a child’s settlement funds
Minors cannot generally enter binding long‑term contracts or manage substantial sums safely on their own. For personal‑injury or other settlement proceeds meant to benefit a child, parties commonly use one of these approaches:
- Purchase a structured settlement (an annuity) that pays periodic sums to the child over time.
- Create a court‑approved minor’s trust (sometimes called a conservatorship or guardianship of the estate) and have the trustee use the settlement to buy an annuity or invest the funds.
- Use a custodial account under a uniform transfers/gifts to minors statute, where available, if the settlement amount and timing make that practical.
Who must approve the arrangement in New Hampshire?
Because a minor lacks the legal capacity to accept or manage a large settlement, the New Hampshire probate court (or the judge with jurisdiction over minor settlements) commonly must approve the compromise and the proposed method of protecting the child’s funds. In practice that means filing a petition asking the court to approve the settlement and any proposed annuity or trust for the child. The probate court will look to ensure the child’s best interests, that attorney fees are reasonable, and that the proposed structure protects the child’s funds.
For general information about probate and guardianship matters in New Hampshire, see the New Hampshire Judicial Branch website: https://www.courts.state.nh.us. For statutory text and rules, see the New Hampshire Revised Statutes Annotated index: https://www.gencourt.state.nh.us/rsa/html/.
Step‑by‑step process (typical)
- Work with counsel. Have the plaintiff’s attorney (or the attorney handling the settlement) draft the settlement agreement to include the proposed annuity or trust arrangement and a request for court approval for the minor’s benefit.
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Decide the structure. Common choices:
- Structured settlement (annuity purchased from an insurer to deliver periodic payments).
- Minor’s trust or conservatorship under court supervision with the trustee authorized to buy an annuity or otherwise invest funds.
- Custodial account if the amount and circumstances fit statutory custodial rules.
- Prepare court filings. The petition submitted to probate should attach the settlement agreement, a proposed order (describing how funds will be paid and protected), and evidence that the arrangement serves the child’s best interests. The court may require a guardian ad litem or independent review in some cases.
- Court hearing and approval. The probate court reviews the settlement, attorney fees, and the proposed protection (annuity/trust). If the court approves, it will issue an order authorizing the settlement and directing how funds must be handled (for example, payment directly to an insurer to purchase an annuity or to a trustee).
- Purchase the annuity or fund the trust. After the court order is entered, the defendant/insurer or the settling parties pay the approved amounts to the annuity issuer or to the trust/trustee per the court order. The annuity contract is issued naming the child (and any contingent payee or trustee) as payee under the court order.
Key legal and practical considerations
- Court approval is often required. Do not accept a settlement that purports to place large sums directly with a minor without a court order. New Hampshire probate courts routinely require petitions in these cases.
- Tax treatment. Payments that replace physical injury or illness are often tax‑free to the recipient under federal law; other portions (punitive damages, interest, investment earnings) may be taxable. Ask a tax advisor about the settlement’s tax character.
- Choose a financially strong insurer. For structured settlements, select an insurance company with high financial strength ratings (A.M. Best, Moody’s, S&P). Annuities are only as secure as the issuer.
- Payment design. Consider timing (immediate versus deferred), frequency (monthly, yearly), inflation protection, cost‑of‑living adjustments, and survivor/contingent payee provisions if the child predeceases the payee term.
- Trust vs. direct annuity. A court‑supervised trust gives more flexibility (investment options, discretionary distributions for education or health) but adds court supervision and trustee fees. A direct structured settlement provides predictable payments but is less flexible.
- Attorney fees and expenses. The court will review and approve any attorneys’ fees taken from a minor’s recovery to ensure they are reasonable under New Hampshire practice.
- Sales/transfers are restricted. Structured settlement payment rights often cannot be sold or transferred without court approval, and factoring transactions can reduce payment value dramatically.
Common documents you will need
- Settlement agreement spelling out total settlement, allocations, and what portion will fund the annuity.
- Petition to the probate court asking for approval and proposed order for how funds will be handled.
- Evidence of the child’s guardian or parent status.
- Proposals or quotes from annuity issuers (including contract terms and payment schedules).
- Proposed trust document if using a court‑created trust or conservatorship.
Practical example (hypothetical)
Suppose parties settle a child’s injury case for $500,000. The settlement agreement allocates $400,000 to fund a structured settlement that will pay the child $1,500 a month for 20 years beginning at age 10. The parties submit a petition to the local probate court requesting approval of the settlement and asking the court to direct the insurer to pay $400,000 to an annuity issuer to fund the periodic payments. After a hearing, the court approves the arrangement and signs an order directing payment to the annuity issuer and confirming the schedule. The insurer purchases the annuity and the structured payments start per the contract.
Who to talk to
Before finalizing anything, consult:
- A New Hampshire probate attorney experienced with minor settlement approvals and structured settlements.
- A licensed insurance or financial professional familiar with structured annuities for minors.
- A tax advisor about federal and state tax consequences of the settlement structure.
Resources
- New Hampshire Judicial Branch (probate/guardianship information): https://www.courts.state.nh.us
- New Hampshire Revised Statutes Annotated (index to state statutes): https://www.gencourt.state.nh.us/rsa/html/
Important disclaimer: This article is for informational purposes only and does not constitute legal advice. Laws change and every situation is different. You should consult a licensed New Hampshire attorney and a tax advisor before taking action.
Helpful Hints
- Start early: court approval and annuity procurement can take weeks to months.
- Always obtain a proposed court order before the insurer sends funds.
- Ask for written annuity quotes and compare issuer ratings and contract language (guarantee period, escalation clauses, commutation rules).
- Include a contingency plan in the trust or annuity for the child’s disability, death, or needs not anticipated at settlement.
- Be cautious about factoring offers to sell structured payments; they usually reduce value substantially and courts scrutinize transfers involving minors.
- Document everything: keep copies of the settlement, court filings, annuity contract, and payment confirmations in a secure place.
- Discuss whether a trustee or conservator should have limited distribution authority for education, medical care, and special needs.
- Confirm who will receive payments if the child dies before the payment term ends and ensure the court order matches the parties’ intent.