Arkansas: How to Set Up an Annuity for Settlement Funds Held for a Child

Overview

This article explains how to put settlement funds for a minor into an annuity or similar long‑term arrangement under Arkansas law. It covers the common legal steps, practical options, tax considerations, and the role of the court and guardian. This is educational information only and is not legal advice.

Detailed Answer

When a child receives settlement money (for example, from a personal injury, medical malpractice, or wrongful death settlement), Arkansas courts and financial professionals commonly use annuities or trusts to protect the money and provide long‑term support. In most cases, you cannot simply hand settlement checks to a minor or an unapproved guardian and let the child invest them alone. Instead, the typical path in Arkansas looks like this:

1. Get the settlement approved by a court.

   Courts generally must approve settlements made on behalf of a minor before final distribution or conversion to an annuity. Approval protects the minor by ensuring the settlement is fair and that funds are properly protected. To seek approval, a petition is filed in the appropriate Arkansas court (often the circuit court in the county where the litigation is pending or where the minor lives). The court may appoint a guardian ad litem or require additional documentation about the proposed use of funds.

2. Decide how to hold and manage the funds.

   Common options include:

   • Structured settlement annuity: An insurance company issues an annuity that pays the child periodic amounts (monthly, annually, or in lump sums at set ages). Structured settlements are frequently used for personal injury cases because they can provide a guaranteed income stream and transfer of the defendant’s future payment obligations to an insurer.
   • Payout annuity purchased with settlement proceeds: Direct purchase of an annuity contract through a licensed insurer to convert a lump sum into scheduled payments.
   • Minor trust or custodial account: A trust (often directed by the settlement terms and approved by the court) or a custodial account under the Arkansas version of the Uniform Transfers to Minors Act (UTMA) if applicable. Trusts let you specify when the child may receive principal and income and can include provisions for education, health care, and other needs.
   • Guardianship/conservatorship-managed funds: If a court appoints a guardian or conservator, that fiduciary may be authorized to manage the funds and buy an annuity or open a trust account, subject to court supervision and reporting requirements.
3. Choose the product and provider carefully.

   If you set up an annuity, pick a financially strong, licensed insurance company. For structured settlements, many jurisdictions require or recommend using a qualified assignment and an annuity issuer to guarantee long‑term payments. Make sure the annuity features (payment schedule, survivor benefits, inflation adjustments, surrender rights, and fees) match the child’s anticipated needs.

4. Address tax and public benefits impacts.

   Some parts of a settlement (for example, compensation for physical injury) may be tax‑free under federal law, while interest or punitive damages may be taxable. How you structure payments can affect tax treatment and eligibility for means‑tested public benefits (Medicaid, Supplemental Security Income). Consider speaking with a tax professional and an attorney who understands benefits planning.

5. Submit documentation to the court and follow reporting rules.

   The court will want to see the proposed disposition: the annuity contract, trust instrument, or guardianship plan. After approval, most courts require periodic reports (accountings) to show the funds are being managed according to the order.

Practical step‑by‑step checklist

1. Hire an Arkansas attorney experienced in minor settlements or family/probate law.
2. Obtain a guardian ad litem if the court requires one to represent the minor’s interests.
3. Negotiate settlement language that specifies how the funds will be handled (structured settlement, annuity, trust, or guardianship account).
4. File a petition for court approval of the settlement and proposed disposition of funds.
5. Once the court approves, purchase the annuity or establish the trust/custodial account as ordered.
6. Provide the court with the annuity contract or trust documents and comply with any reporting or accounting required by the order.

When an annuity makes sense

An annuity is often a good choice when you want:

• Guaranteed periodic payments to cover long‑term care, education, or living expenses.
• Protection from poor investment decisions or the risk that a large lump sum will be spent prematurely.
• Predictable budgeting for the minor’s future needs.

When a trust or custodial account may be better

A trust or UTMA account may be preferable when you need more flexibility (investment choices, discretionary distributions for education or extraordinary needs, or a tailored distribution schedule linked to age or milestones).

Who must be involved

• An Arkansas trial attorney or probate lawyer to prepare and file the petition and appear in court.
• A guardian ad litem if the court orders one to protect the child’s interests.
• A licensed annuity/insurance company if you buy an annuity; consider working with a structured settlement broker or consultant for the technical steps.
• A tax advisor if you need help understanding federal tax consequences or impacts on benefits.

Timing and costs

Court approval can add weeks to months to the settlement timeline depending on the court’s schedule and whether a hearing is needed. Expect legal fees for preparing the petition and possibly fees for a guardian ad litem, annuity purchase costs, and trustee or custodial fees. The court will review fees to ensure they are reasonable.

Relevant Arkansas resources

• Arkansas Judiciary (general court resources and contact info): https://www.arcourts.gov/
• Arkansas General Assembly (search statutes and code): https://www.arkleg.state.ar.us/

Helpful Hints

• Start by consulting an Arkansas attorney who handles minor settlements. This avoids procedural delays and keeps funds protected.
• Ask the insurer or annuity issuer for their financial rating (AM Best, S&P). Choose stable companies for long‑term payments.
• Consider a hybrid approach: an annuity for basic living needs plus a small trust reserve for education or unusual expenses.
• Clarify who will have authority to request distributions and who will manage tax filings for the funds.
• Document everything provided to the court: settlement agreement, proposed annuity contract, proof of insurer licensing, and any trust instruments.
• If the minor receives means‑tested public benefits, get advice about special needs planning to avoid jeopardizing eligibility.
• Keep all court orders and annuity/ trust documents in a safe place and provide copies to the guardian or trustee.

Next steps

If you are handling settlement funds for a child in Arkansas, contact a local attorney as your first step. They will tell you exactly what petitions to file, what the court in your county requires, and how best to structure an annuity or trust to protect the child’s interests.

Disclaimer: This article is informational only and does not constitute legal advice. Laws change and every case is different. Talk with a licensed Arkansas attorney before taking action about settlement funds for a minor.