Disclaimer: This is educational information only and not legal advice. Laws and court practices change. Consult a Rhode Island attorney licensed in probate or personal-injury settlements before acting.
Overview
If you have settlement money that belongs to a minor in Rhode Island, the state generally requires special handling to protect the child’s funds. A common method is to use an annuity (often called a structured settlement) to convert a lump-sum into a stream of payments. This article explains the key legal steps in Rhode Island, the typical options, and practical steps for setting up an annuity for a child’s settlement funds.
Detailed answer — how the process works in Rhode Island
1. Confirm that the funds are for a minor and whether court approval is required
When a settlement or judgment names a minor as the payee, Rhode Island probate courts often must approve the settlement or the method of payment before funds are released. The probate court protects the minor’s property and may require a hearing or specific orders about how the funds will be held or paid.
To learn more about Rhode Island’s probate courts and procedures, see the Rhode Island Judiciary site: https://www.courts.ri.gov/. For statutory text generally, consult the Rhode Island General Laws: https://webserver.rilin.state.ri.us/Statutes/.
2. Common ways a court may order settlement funds handled
- Blocked or custodial account under court control (bank account that requires court approval for withdrawals).
- Appointment of a guardian of the child’s estate to manage the money (probate proceeding).
- Creation of a trust for the child (testamentary or inter vivos trust), including a special needs trust if the child is disabled.
- Purchase of an annuity or structured settlement contract that pays periodic amounts to the child or the child’s guardian/representative.
3. How an annuity (structured settlement) typically gets set up
Below is a practical step-by-step for using an annuity to handle a minor’s settlement funds in Rhode Island.
- Retain counsel and/or notify the court: Your attorney will prepare the settlement paperwork and file the petition or stipulation asking the probate court to approve the settlement and the proposed annuity arrangement.
- Get annuity quotes and a proposal: A defendant or insurer often purchases an annuity from a licensed life insurance company to fund the periodic payments. The annuity is typically assigned to the payee so the insurance company makes the periodic payments directly.
- Provide documentation to the court: The court will want a clear description of the annuity terms (payment amount, frequency, start date, guaranteed period, contingencies such as survivor benefits, and the insurer’s ratings/financial strength).
- Court approval: The probate court reviews the fairness and suitability of the arrangement for the minor. The court can approve the annuity purchase, require modifications, or order a different method of handling the funds.
- Purchase and implementation: Once approved, the insurer issues the annuity contract and begins payments according to the court-approved schedule. If periodic payments are paid to the guardian or a blocked account, the court usually retains oversight of major disbursements.
4. Types of annuities and key terms to consider
- Immediate vs. deferred: Immediate annuities begin payments right away. Deferred annuities begin at a future date. Courts weigh the child’s current needs against future protection.
- Period certain: Guarantees payments for a set number of years even if the annuitant dies young.
- Life-contingent or joint-life: Payments stop or reduce at death unless a survivor option is chosen.
- Cost-of-living or inflation riders: May protect purchasing power but often reduce initial payment amounts.
- Insurer quality: Choose a highly rated insurer because the annuity’s reliability depends on the insurance company’s financial strength.
5. When a trust is a better choice
If the child needs flexible access for education, medical care, or ongoing needs, a trust may be more appropriate. If the child is disabled and receiving public benefits, a special needs (supplemental needs) trust can preserve eligibility for Medicaid and SSI while using funds for extras not covered by benefits.
6. Tax and benefit consequences
Personal-injury settlement principal (damages for physical injury or sickness) is often income-tax-free under federal law. However, interest or investment earnings and some structured payment scenarios can have tax implications. Also, large assets may affect means-tested public benefits (Medicaid, SSI) unless protected through a special needs trust. Consult a tax advisor and benefits counsel.
For federal tax background on settlements and damages, see IRS resources: https://www.irs.gov/taxtopics/tc404.
7. Practical tips for working with the court in Rhode Island
- File a petition early. Probate schedules and required hearings can add weeks or months.
- Provide the court with written annuity proposals and insurer ratings so the judge can evaluate security.
- Be ready to explain why the annuity schedule is in the child’s best interest (education, long-term care, age when funds become available, etc.).
- If the child receives public benefits, show how the arrangement will preserve eligibility (e.g., special needs trust or other safeguards).
Helpful hints
- Talk to a Rhode Island probate attorney experienced with minor settlements and structured settlements before signing anything.
- Ask insurers for formal quotes and the contract language the court will review.
- Get several annuity bids and compare payment schedules, fees, and insurer ratings (A.M. Best, Moody’s, S&P).
- Consider a trustee or guardian of estate for ongoing oversight if large sums or complex needs exist.
- If the child has a disability, consult benefits counsel to determine whether a special needs trust is necessary to protect Medicaid/SSI eligibility.
- Keep a clear record of any court orders, annuity contracts, and communication with insurers—probate courts will expect documentation for accounting and future approvals.
- Plan for when the child will legally gain control of funds; many courts set staggered distributions (e.g., portions at ages 18, 21, 25, etc.). Discuss these options with counsel and the judge.
Where to get help
Contact a Rhode Island attorney who handles probate, guardianship, and personal injury settlements. The Rhode Island Judiciary website has information about probate courts and forms: https://www.courts.ri.gov/. For state statutes, consult the Rhode Island General Laws: https://webserver.rilin.state.ri.us/Statutes/.
Remember: This article provides general guidance only and does not replace advice from a qualified Rhode Island attorney who can analyze the facts and court requirements in your case.