How to set up an annuity for settlement funds held for a child (Wisconsin)

Disclaimer: I am not a lawyer. This article provides general information only and is not legal advice. Consult a Wisconsin attorney and tax advisor before acting.

Detailed answer — step‑by‑step overview

If you have settlement funds on behalf of a child and want to place them in an annuity, Wisconsin law generally requires steps to protect the child’s interests. The basic path looks like this:

1. Identify the nature of the settlement and who holds the money

   Is the payment from a personal injury, medical malpractice, workers’ compensation, or another type of claim? Who is negotiating and receiving the funds now: a parent, guardian, insurer, or court custodian? The answer affects required approvals, tax treatment, and what the court will allow.

2. Determine whether you need court approval

   Wisconsin courts routinely review and approve settlements that involve minors. If a settlement resolves a claim by or for a minor, the court may require a petition and hearing to approve the compromise to ensure the terms serve the child’s best interest. The court will also supervise how funds are managed for a minor. See the Wisconsin Courts site for information on guardianship and court supervision: https://www.wicourts.gov. The statutes and court practice provide the court authority to protect a minor’s assets; see general statutes and court resources at the Wisconsin Legislature and Wisconsin Courts sites: https://docs.legis.wisconsin.gov and https://www.wicourts.gov.

3. Consider whether a guardianship or conservatorship (guardian of the estate) is needed

   If the child does not already have a court‑appointed guardian of the estate (sometimes called a conservator), the court may require one before approving long‑term management of settlement funds. A guardian of the estate has authority to make financial decisions for the minor within limits set by the court. Ask your attorney whether a guardian appointment or a specific court order approving an annuity purchase is required in your case.

4. Choose the annuity structure that fits the goals

   Common options to deliver settlement funds over time include:

   • Structured settlement annuity (periodic payments paid by an insurer): Often used in personal injury settlements. The payer or assignee purchases an annuity from a life insurer that provides the periodic payments to the child.
   • Immediate annuity purchased with settlement proceeds: A lump sum buys an immediate annuity that begins payments right away and continues according to the schedule.
   • Trust with annuity funding: A trust for the child can receive the settlement, and the trustee can buy an annuity as a trust asset. This lets you add trustee controls and distribution rules.

   Each choice affects flexibility, creditor protection, taxation, and court approval needs.

5. Negotiate settlement language and payment routing

   When you finalize settlement terms, include clear language describing how the periodic payments will be made, who will receive them, who may act on the child’s behalf, and whether payments are assignable. If the parties plan a structured settlement, include terms that require the defendant/insurer to purchase an annuity from an agreed insurer or to make a qualified assignment to an annuity issuer.

6. Pick a licensed annuity issuer and plan for protections

   Buy an annuity only from an insurer licensed to sell annuities in Wisconsin. Check the Wisconsin Office of the Commissioner of Insurance for licensing and consumer information: https://oci.wi.gov. Consider these protections:

   • Confirm the insurer’s financial strength and licensing.
   • Decide whether payments should be payable directly to the child, to a parent/guardian for the child’s benefit, or to a court‑appointed guardian/trustee.
   • Include successor payees or contingent beneficiaries (for example, if the child dies or a payee can no longer receive payments).
   • Consider using a trust plus annuity for additional control and spendthrift protection.

7. Obtain court approval and enter an appropriate order

   Submit a petition to the circuit court (usually the county where the minor resides or where the claim was filed) requesting approval of the settlement and the proposed annuity arrangement. The court will want:

   • A copy of the settlement agreement;
   • A report or recommendation from a guardian ad litem or the minor’s attorney;
   • A proposed order showing how funds will be paid and protected (for example, ordering that the insurer purchase an annuity directly payable to the child or to a guardian/trustee); and
   • Evidence that the proposed arrangement is in the child’s best interest and that fees or lawyers’ costs are reasonable.

   Once approved, the court order gives the insurer, trustee, or payor the legal authority to finance and make scheduled payments.

8. Complete annuity purchase and document everything

   After court approval, complete contracts and buy the annuity according to the court’s order. Keep copies of all insurance policies, assignment documents, trust instruments, and the court order in the child’s permanent records. The court may require periodic accountings.

9. Address tax and public‑benefit issues

   Tax rules can vary by type of settlement (for example, many personal‑injury compensatory damages received for physical injury are excluded from federal income tax). Federal tax rules (IRS) often govern the tax treatment of structured settlement payments — consult a tax advisor or CPA. Also evaluate how annuity payments may affect public benefits the child receives (for example, Medicaid). Coordinate with benefit counsel before finalizing payment timing or structure. For federal tax guidance, see: https://www.irs.gov.

10. Plan for long‑term administration and modification

    Include instructions for how future changes (e.g., relocation, changed needs, insurer problems, or requests to commute or sell future payments) will be handled. If someone later asks the court to modify payment terms or sell future payments, the court has authority to approve or deny such requests. Keep good records and involve the court when changes are needed.

Key Wisconsin resources

• Wisconsin Courts — general information, forms, and self‑help resources: https://www.wicourts.gov
• Wisconsin Office of the Commissioner of Insurance — annuity and insurer licensing info: https://oci.wi.gov
• Wisconsin Legislature (statutes and session laws): https://docs.legis.wisconsin.gov
• Federal tax rules (IRS guidance on settlement and discrimination between taxable and non‑taxable awards): https://www.irs.gov

Helpful hints

• Talk to a Wisconsin attorney early. A lawyer will advise whether you need court approval and can draft the petition and proposed order the court will want.
• Ask the court to order payments to an annuity or to a trust for the child’s benefit to avoid future disputes.
• Use an insurer licensed in Wisconsin and check their financial ratings and complaint history on the OCI site before you buy an annuity.
• Consider a trust plus annuity if you want more control over distributions (education, health, maintenance) and protection against misuse.
• Get a guardian ad litem or independent attorney advocate appointed if the court requires it; that person protects the child’s interests during settlement approval.
• Check how the annuity payments will affect any public benefits your child receives and consult benefit counsel if the child is on Medicaid or SSI.
• Document everything: court orders, annuity contracts, communications with insurers, and receipts for payments. Courts require clear records when minors’ funds are involved.
• Before considering a lump‑sum sale of future payments (a transfer of structured settlement payments), consult counsel: transfers typically require court approval and are strictly reviewed to protect the minor.

When to contact an attorney

Contact a Wisconsin attorney if any of the following apply:

• The settlement is for a large amount or involves life‑care or long‑term needs;
• You are unsure whether the court must approve the settlement;
• You want to create a trust, appoint a guardian of the estate, or draft detailed distribution rules;
• You need help selecting a suitable annuity product or interpreting insurer proposals; or
• You want to understand tax and public‑benefit consequences.

With a lawyer’s help and a properly drafted court order, an annuity can provide predictable, protected payments to meet a child’s long‑term needs while complying with Wisconsin court supervision rules.

Again, this is general information, not legal advice. Consult a Wisconsin attorney experienced in minors’ settlements, guardianship, and structured settlements before making decisions.