Disclaimer: This is general information, not legal advice. Laws change and every case is different. Consult a licensed Alabama attorney or the probate court before acting.
Detailed Answer
When a child in Alabama receives a settlement (for example, from a personal-injury or medical-malpractice claim), the state treats that money as the minor’s property. Alabama law and the courts aim to protect a minor’s money until the child reaches legal age. That protection affects whether and how any of the money can be used before age 18 for things like college or medical costs.
Key legal mechanisms and practical routes to access a minor’s settlement funds before age 18 include:
- Probate court approval of the settlement or withdrawals. In Alabama, settlements for minors typically must be submitted to the probate court for review and approval. The court decides whether the settlement amount and the proposed handling of the funds are fair and in the child’s best interest. The court can also sign an order authorizing a partial distribution for specific needs (education, medical bills) or require the funds be placed under protective supervision (for example, in a blocked account or trust).
- Appointment of a guardian/conservator (guardian of the estate) or use of a custodial arrangement. If the settlement is payable to the minor, the probate court may appoint a guardian of the estate (sometimes called a conservator) to manage those funds. That guardian can petition the court for permission to spend money on the child’s benefit (education or medical expenses). Alternatively, the parties may structure the settlement so funds are paid into a custodial account or trust for the minor.
- Trusts and blocked accounts. The settlement can create a trust (revocable or irrevocable depending on goals) or order that proceeds be placed in a blocked/bonded account under the court’s control. A trust document or court order can authorize distributions for college tuition, medical care, or other specified items. Using a trust gives more control over timing and purposes of distributions than a simple custodial account.
- Structured settlements (periodic payments). The parties can arrange for an annuity or periodic payments. A structured settlement provides predictable income streams for the child over time. If a family needs cash earlier, courts will sometimes approve an advance or a specially tailored schedule, but changes typically require court approval and cooperation from the annuity issuer.
- Emergency or necessary medical expenses. Courts are generally more willing to allow immediate distributions for urgent medical care or to pay existing medical bills. For planned expenses such as college tuition, courts will review the request, supporting documentation (cost estimates, admission letters, invoices) and the child’s long-term interests before authorizing payment.
Typical steps a parent or guardian follows in Alabama to obtain some of a minor’s settlement funds for college or medical costs:
- Retain or consult a lawyer experienced with minor settlements in Alabama.
- File the proposed settlement paperwork and a petition with the probate court in the county of the child’s residence asking the court to approve the settlement and to authorize the requested distributions or creation of a trust/blocked account.
- Provide documentation supporting the requested disbursement (medical bills, treatment plans, college cost estimates, invoices, a budget, or evidence of urgent need).
- The court may appoint a guardian ad litem to represent the minor’s interests and may require a hearing.
- If the court approves, it will enter an order instructing how the funds must be held and disbursed (for example, payment directly to a university, payment of medical providers, placement in a trust, or appointment of a guardian of the estate with accounting requirements).
Where to file and who decides: probate courts in Alabama supervise compromises and distribution of minor’s settlements and decide whether early distributions are appropriate. You can learn more about probate procedures from Alabama’s judicial resources and the Code of Alabama:
Other important legal and financial considerations:
- Benefit programs: If the child gets public benefits (Medicaid, SSI), outright distributions can affect eligibility. In many cases, a special needs trust or other court-ordered arrangement preserves benefits while allowing use of settlement funds for supplemental needs.
- Taxes: Portions of a settlement for physical personal injury and medical expenses are generally not taxable, but you should confirm tax treatment with a tax professional.
- Financial aid: Money held in the child’s name or custodial accounts may reduce need-based financial aid eligibility. Trusts and how funds are reported on the FAFSA can affect aid. Talk to a financial aid advisor before making large distributions or transferring assets.
- Attorney fees and court costs: Alabama courts will review attorney fees and costs charged to a minor’s recovery. The court must find fees reasonable before approving the settlement.
Helpful Hints
- Start by contacting the probate court clerk in the county where the child lives to confirm filing requirements and local forms.
- Work with an Alabama attorney who routinely handles settlements for minors and who will prepare the petition, proposed order, and supporting paperwork.
- Gather written estimates or invoices (college tuition bills, room and board estimates, medical provider bills) to show why the early distribution is needed and how funds will be used.
- Consider a trust or structured settlement arrangement that permits controlled distributions for education and medical needs while preserving funds for later.
- If the child receives public benefits, ask about a special needs trust to avoid losing eligibility.
- Keep careful records and receipts of any court-authorized spending; probate courts typically require accounting by the guardian of the estate.
- Ask the probate judge or your attorney whether a guardian ad litem will be appointed to represent the child’s interests; be prepared for that step.
- Don’t rely on an insurer’s unilateral payment. Even if an insurer offers to pay a parent, the probate court usually must approve releases involving minor plaintiffs.
If you want next steps: gather documentation of the child’s settlement offer (settlement agreement, insurer correspondence), medical bills or college cost information, and contact an Alabama probate attorney to discuss filing a petition. The attorney can estimate local timelines and likely court outcomes.