Detailed answer: Steps to set up an annuity for settlement funds for a child in California

When you receive settlement money on behalf of a child (a minor under 18), the state has procedures to protect the minor’s interests. The most common ways to preserve settlement proceeds for a child are: a court-approved structured settlement (an annuity), a blocked or restricted bank account, a trust (including a guardianship estate or special needs trust if applicable), or a combination. Below are practical steps and important legal considerations under California law and common practice.

1. Confirm whether court approval is required

Many personal-injury settlements for minors require court approval before funds can be disbursed to a parent or guardian. California courts generally require approval to ensure the settlement is fair and that funds will be preserved for the child. A petition to the court (often called a petition to compromise a minor’s claim) will describe the settlement, proposed use of funds, and any recommended protections for the money.

See procedures for court approval of compromises for minors, for example California Code of Civil Procedure provisions dealing with minor compromises: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=372&lawCode=CCP

2. Decide whether a structured settlement (annuity) is appropriate

An annuity (structured settlement) provides periodic payments to the child over time instead of a lump sum. Advantages commonly include predictable income, protection from immediate dissipation, and in many personal-injury cases favorable tax treatment for periodic payments under federal law. Consider an annuity when you want ongoing income, court comfort that funds are protected, or when the payer (insurer/defendant) prefers a structured solution.

3. Determine who must petition the court and what form of protection to request

The petition typically asks the court to approve the settlement and the proposed funding vehicle (for example, an annuity contract to be purchased from a licensed life insurer, or a trust or blocked account). The court will evaluate whether the arrangement is in the child’s best interest and may impose conditions (e.g., requiring a guardian of the estate, a blocked account, periodic accounting, or a qualified assignment facilitating a structured settlement).

4. Structured settlement mechanics and qualified assignments

If the settlement will be funded with periodic payments, the defendant’s insurer often buys a fixed annuity from a licensed life insurance company to guarantee payments. In some cases a qualified assignment (under federal rules used by insurers) shifts future payment obligation to an annuity issuer; that mechanism is used to make the annuity tax-efficient and contractually secure. Ask whether the insurer will use a qualified assignment and which annuity provider it will use.

5. Choose the right annuity design

Common structured settlement options include:

• Level periodic payments (e.g., monthly or yearly until a fixed age).
• Deferred schedule (larger payments begin later in life).
• Combination of an initial lump-sum small payment and later periodic payments.

The court will evaluate whether the schedule meets the minor’s needs. The parent or guardian should explain expected expenses (education, medical, living needs) to the court and propose a schedule that matches those needs.

6. Consider guardian or trustee oversight

Often a guardian of the estate or a trustee manages funds for a minor. Guardianship petitions and accountings are governed by California probate procedures. If the court appoints a guardian of the estate, that guardian has fiduciary duties and must manage the annuity proceeds in the child’s best interest. You can also propose a trust (testamentary or inter vivos trust) or a blocked account administered by a bank with court oversight.

General information on guardianship and management of a minor’s property appears in the California Probate Code; courts commonly require accountings and paperwork to protect the minor’s property. See the California Probate Code pages for guardianship topics: https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=PRC

7. Prepare the court filing

A petition to the court should include:

• A copy of the settlement agreement or offer;
• Explanation of why the settlement is fair and reasonable;
• A proposed plan for protecting the proceeds (annuity contract, trust document, blocked account instructions);
• Biographical and financial information about the minor and the guardian;
• If required, a guardian ad litem or attorney for the minor to represent the minor’s interests in court.

8. Court hearing and order

The court will hold a hearing to confirm the settlement and the funding mechanism. If the judge approves, the court signs an order authorizing the settlement and the distribution method (for example, ordering that the insurer fund an annuity or that funds be deposited in a blocked account). The court’s order is necessary to protect the guardian and the party making the payment.

9. Implementation and ongoing obligations

Once the annuity is purchased or funds are placed in the approved vehicle, keep records and follow any court-ordered accounting schedule. Guardians and trustees have continuing duties to manage funds prudently and to file accountings with the court when required. If circumstances change (medical needs, education, unexpected costs), you may petition the court to modify distributions.

10. Tax and benefit considerations

Many personal-injury award payments allocated for physical injuries are tax-free under federal law; structured settlements purchased using a qualified assignment can preserve favorable tax treatment for periodic payments. However, other portions of a settlement (punitive damages, interest) may have different tax consequences. Also consider how settlement income affects eligibility for means-tested public benefits (Medi-Cal, SSI). Consult a tax professional and an attorney to coordinate tax and benefits planning.

Key California resources

• California Code of Civil Procedure — court procedures for minor compromises: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=372&lawCode=CCP
• California Probate Code (guardianship and fiduciary duties): https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=PRC
• California Department of Insurance — consumer information about annuities and insurers: https://www.insurance.ca.gov/

If you plan to ask a court to approve an annuity or other protections for a minor’s settlement, talk to a California trial attorney who handles minor settlements or a probate/guardianship attorney. They prepare the petition, represent the minor at the hearing (often through a guardian ad litem or counsel for the minor), and ensure the court’s order protects the minor’s money.

Helpful hints

• Start early: court approval can take weeks to months. Begin the process as soon as the settlement is reached.
• Ask the insurer for its proposed structured settlement paperwork early so the court can review it before the hearing.
• Request and compare annuity quotes only from licensed life insurers with strong financial ratings; request the annuity contract and disclosure before court submission.
• Consider a combination: a small lump sum for immediate needs and periodic annuity payments for long-term protection.
• Document the child’s expected needs (education, therapy, medical) to justify the payment schedule to the court.
• Watch benefits interactions: a lump-sum distribution may affect public benefits; structured payments sometimes preserve eligibility better than a lump sum.
• Get written fee agreements: if you hire an attorney to represent the minor or a guardian, confirm how fees will be paid and whether the court must approve attorney fees from the settlement.
• Keep annual records and file required court accountings on time to avoid disputes or sanctions.