Detailed answer — how the process generally works in Delaware

When a child receives settlement funds (for example from a personal injury or wrongful-death recovery), Delaware courts and financial institutions treat those funds differently than money paid to an adult. The courts focus on protecting the child’s financial interests. You generally have three common approaches to preserve and manage settlement proceeds for a minor in Delaware:

1. Court-approved structured settlement (annuity):

   A structured settlement uses an annuity purchased from a life insurance company or an annuity issuer. Instead of one lump sum, the insurer pays the child periodic payments (monthly, yearly, or in scheduled lump sums). For many personal-injury recoveries, structured settlement payments can provide long-term stability and may have favorable tax treatment for certain types of damages.

2. Court-ordered trust or custodial arrangement:

   The court may approve placing funds into a trust (e.g., a trust established specifically for the child) or into a custodial/blocked account under applicable Delaware rules so a trustee/guardian controls distributions for the child’s benefit.

3. Blocked account or guardian/conservator management:

   If a guardian or conservator holds the funds, a Delaware court may require the funds go into an interest-bearing blocked account or other protected account so the funds cannot be spent without court permission.

Which option is best depends on the child’s age, medical needs, the size of the recovery, the payer’s policies, and the family’s goals (income vs. access, inflation protection, creditor protection, special-needs planning). In Delaware, many settlements for minors require court approval so a judge can confirm the arrangement is in the child’s best interest. For general information about Delaware courts and guardianship processes, see the Delaware Courts website: https://courts.delaware.gov. For Delaware statutes and code resources, see the Delaware Code database: https://delcode.delaware.gov.

Typical steps to set up an annuity for a child’s settlement funds

1. Discuss goals with counsel and a financial planner:

   Decide whether you want guaranteed periodic income, a lump-sum reserve, flexibility for education/medical needs, inflation protection, or special needs considerations.

2. Include structured settlement language in the settlement:

   The settlement agreement should state that the payer will purchase an annuity (or fund a trust) and identify the timing and amount of payments, beneficiary designations, and contingencies (for example, what happens if the annuity issuer becomes insolvent).

3. Obtain annuity quotes and insurer documentation:

   A structured settlement usually involves a life insurance company quote that demonstrates the cost to purchase the payment stream. Ensure the insurer is licensed to do business in Delaware and check ratings and financial strength.

4. File a petition for court approval (if required):

   Because a minor cannot legally give informed consent, the plaintiff’s attorney or guardian often files a petition with the appropriate Delaware court asking the judge to approve the settlement and the annuity or other arrangement. The petition typically explains why the payment schedule is in the minor’s best interest. See Delaware Courts for guidance: https://courts.delaware.gov.

5. Obtain a court order approving the plan:

   The court will review the settlement terms, the annuity quotes and other supporting documents. If satisfied, it will enter an order approving the settlement and directing how funds must be paid or invested.

6. Payer or insurer purchases the annuity or funds the trust/account:

   Once the court order is in place, the defendant or their insurer typically pays the annuity premium directly to the annuity issuer or transfers funds to the trustee or blocked account. The annuity issuer then issues the guaranteed payment stream per the settlement schedule.

7. Ongoing administration:

   The guardian, trustee or payee receives the annuity payments and uses them for the child’s benefit under the court’s orders and/or the trust terms. The court may require periodic accounting or further court permission for large expenditures.

Key legal and practical considerations

• Court approval: Delaware courts commonly require approval of a minor’s settlement or a guardian’s compromise to ensure the child’s interests are protected.
• Tax treatment: Portions of personal-injury settlements (like compensation for physical injury or illness) may be tax-free under federal law, but other components (like punitive damages or interest) may be taxable. Consult a tax advisor — see the IRS: https://www.irs.gov.
• Trust vs. annuity vs. custodial accounts: Each has different levels of flexibility, creditor protection, cost, and control. Trusts can be tailored (including special-needs trusts). Annuities provide guaranteed payments but limit access to the principal.
• Insurer strength: Choose a reputable, well-rated annuity issuer that is licensed in Delaware.
• Death contingencies: Determine who receives remaining payments if the child dies or whether payments convert to a lump sum.
• Costs and fees: Structured settlements often reduce administrative costs but confirm any broker fees, actuarial fees, or trustee fees.
• Age of termination or distribution triggers: Decide whether the child receives a final lump-sum at a certain age or continues to receive lifetime payments.

When a trust or special arrangement may be better

If the child has a disability, expect higher future medical costs, or you want strict control over how funds are used, a trust (including a special-needs trust) might be preferable. Trusts allow tailored distribution rules, successor trustees, and additional protections that an annuity alone may not provide.

Who to involve

• A Delaware attorney experienced with minors’ settlements and guardianship proceedings.
• A financial planner familiar with structured settlements and annuity products.
• An actuary or structured-settlement broker who prepares pricing and annuity quotes when appropriate (confirm any broker’s compensation and relationship with annuity issuers).
• A tax advisor to review potential federal and state tax consequences of the settlement structure.

Where to find more Delaware-specific procedural information

Use these official resources to research court rules and statutes that apply to guardianship, conservatorship, and minors’ settlements in Delaware:

• Delaware Courts: https://courts.delaware.gov
• Delaware Code (state statutes and searchable database): https://delcode.delaware.gov

Helpful hints

• Start the conversation early with your attorney and financial advisor so settlement language can accommodate a structured settlement or trust before you finalize the deal.
• Ask for multiple annuity quotes and compare insurer financial strength ratings (e.g., A.M. Best, Moody’s, S&P).
• Request that the settlement agreement specifically identify who will purchase the annuity, which insurer will issue it, the payment schedule, and how future contingencies are handled.
• Confirm whether Delaware court approval is required in your case — many courts require a petition and hearing for a minor’s compromise.
• Consider a trust if you need tailored control (e.g., educational expenses, health care, disability needs) rather than fixed periodic payments.
• Document everything: keep copies of the settlement agreement, annuity contract, court order, insurer quotes, and correspondence about fees.
• Beware of immediate-cash buyout offers. Selling future payments can reduce value and has legal and financial consequences; court approval is often required to sell a minor’s structured settlement payments.
• Ask the insurer about inflation protection options and survivors’ benefits so the plan matches the child’s long-term needs.
• Budget for administration: trustees, guardians, or blocked-account custodians may charge fees or require bond/security ordered by the court.

Next steps: Contact a Delaware attorney who handles minors’ settlements and guardianship matters to determine whether a court petition is required and to draft protective language into the settlement. Also speak with a financial planner and tax advisor before finalizing any annuity purchase.

Disclaimer: This article is educational only and does not provide legal, tax, or financial advice. It does not create an attorney-client relationship. For legal advice specific to your situation, consult a licensed Delaware attorney and a qualified tax professional.