How to Set Up an Annuity for Settlement Funds Held for a Child — Vermont

Short answer: In Vermont, you will typically need a court-approved plan to place settlement funds for a minor into a structured annuity (or another protected vehicle). The process usually involves getting approval from the probate court (or family/juvenile court depending on the arrangement), choosing a licensed insurance company to issue the annuity, and documenting the payment schedule, beneficiaries, and court orders governing the funds.

Disclaimer

This article is informational only and does not create an attorney-client relationship. It is not legal advice. Consult a Vermont attorney or the probate court before acting.

Detailed answer — what you should know and the usual steps in Vermont

1. Why courts are usually involved

When settlement money is paid for injuries, wrongful death, or other claims on behalf of a minor, Vermont courts generally protect the minor’s interests. A court will often have to approve the settlement or the plan for handling the proceeds to ensure the money is used for the child’s benefit and preserved until an appropriate age.

See the Vermont statutes governing probate, guardianship, and fiduciary responsibilities in Title 14 of the Vermont Statutes: Title 14 — Probate, Trusts, and Fiduciaries.

2. Typical options for holding settlement funds for a child

• Structured settlement annuity: A life insurance company purchases an annuity that pays the child periodically (e.g., monthly, yearly, or in milestones). Payments can be scheduled for specific ages, education expenses, or needs. Structured settlements are often used when the settlement is for personal injury or wrongful death.
• Court-ordered trust: The court can approve the creation of a trust (including a testamentary or guardian’s trust) that holds the settlement and pays for the child’s needs under trustee control.
• Custodial account or transfer-to-minor statute vehicle: For smaller amounts, a custodian account under Vermont’s laws for transfers to minors may be used (custodian manages funds until the child reaches the statutory age). Check Title 14 for the relevant statutes and rules.

3. Steps to set up a structured annuity for a child in Vermont

1. Talk to the settling parties and insurer or defendant: Settlement documents must usually identify the portion allocated to the minor and whether a structured settlement is part of the agreement.
2. Consult a Vermont attorney experienced in minor settlements or probate: An attorney helps prepare the petition, identify the proper court (probate court or family court depending on the case), and draft the proposed order or trust language for court approval.
3. File a petition for court approval of the settlement or of the administrator/guardian’s plan: The court will review whether the settlement and the proposed annuity protect the minor’s best interests. The petition typically includes the settlement terms, the proposed annuity contract or trust instrument, and a recommendation for approval.
4. Work with a structured settlement broker or annuity issuer: If the court approves the plan, the defendant or insurer often purchases an annuity from a licensed life insurer. The annuity issuer takes on the obligation to make the periodic payments outlined in the court order.
5. Court issues an order directing payment disposition: The court’s order will direct payment to the annuity issuer, name any guardian or trustee who manages the child’s remaining or other funds, and set conditions (e.g., purposes for which funds may be used, ages for final payout).
6. Confirm ongoing administration and documentation: Keep copies of the court order, annuity contract, and insurer correspondence. The guardian or trustee must follow the order and file any required accounting with the court.

4. Key contract and design choices to make

• Payment schedule (monthly, annually, lump milestones at ages)
• Start date and duration (e.g., payments until age 25, or life contingent to the child)
• Cost-of-living adjustments or inflation protection
• Death benefit design: who receives remaining payments if the child dies (contingent payee)
• Guarantee periods and insolvency protections

5. Tax and federal law considerations

Structured settlements for personal physical injury or sickness often qualify for tax-free treatment under federal law (generally IRS Code §104(a)(2)). That is federal, not Vermont law, but it frequently affects how settlement dollars are structured. For tax questions, consult a tax professional.

For general IRS background on settlements and taxation see the IRS website: IRS.

6. Alternatives and special situations

• Smaller settlements: A custodial account or UTMA-style vehicle may be simpler and less costly than a structured annuity. Check Vermont law and court practice for thresholds and approvals.
• Special needs: If the child has a disability, consider a special needs trust to preserve eligibility for public benefits. That typically requires specialized drafting and court approval.
• Guardian or trustee oversight: If a parent or guardian will control payments, the court may require routine accountings to make sure funds are used properly.

Helpful hints

• Start early: seek legal guidance as soon as settlement negotiations begin so the court and annuity design can be part of the negotiations.
• Use a licensed annuity issuer: confirm the insurer is authorized to sell annuities in Vermont and check its financial strength ratings.
• Get clear court language: have your lawyer draft an order that precisely states payment timing, purposes, and who handles administration and accountings.
• Consider inflation: if payments will last many years, add cost-of-living adjustments or design milestone payments tied to likely needs (education, housing, etc.).
• Document everything: keep copies of the settlement, court order, annuity contract, and any trustee/guardian accountings.
• Ask about fees: structured settlement brokers, trustees, and attorneys charge fees. Confirm who pays them and whether fees reduce payments to the child.
• Think about contingencies: choose contingent payees and death-benefit terms that reflect family wishes and any public-benefit considerations.
• Check Vermont probate rules and forms: use the Vermont Judiciary and Vermont statutes as primary resources; you can start at the Vermont statutes Title 14 page: https://legislature.vermont.gov/statutes/title/14 and the Vermont Judiciary: https://www.vermontjudiciary.org/.

When to hire a lawyer

If the settlement is substantial, involves ongoing payments, affects benefits, or the parties disagree about how to protect the child’s interests, hire a Vermont attorney skilled in probate, guardianship, or settlement approval. An attorney can draft the court petition, propose suitable trust language or annuity terms, and represent the child’s interests to the court.

Practical next steps

1. Contact an attorney licensed in Vermont who handles minor settlements or probate matters.
2. Gather settlement paperwork, medical records, and any proposed annuity or trust documents.
3. File the required petition with the appropriate Vermont court and request a hearing for approval.
4. Choose an annuity issuer only after the court’s preliminary approval or as the court directs.

If you would like help finding a Vermont attorney who handles minor settlement approvals or structured settlements, consider contacting your county bar referral service or the Vermont Bar Association for referrals. The Vermont Judiciary website and Title 14 of the Vermont Statutes are good starting resources for court procedures and statutory background.

Again — this is general information, not legal advice. Consult a Vermont attorney before taking action.