Detailed answer — can I put my child’s settlement into an annuity in Illinois, and how?

Yes — you can often arrange for settlement funds for a minor to be paid as periodic payments (an annuity) or for the funds to be invested in an annuity by a court-approved guardian or trustee. Doing this preserves the money, gives predictable income, and can protect the child from having a large lump sum under a parent’s control. The exact route depends on whether the case is a personal-injury (physical injury) claim, whether the minor already has a guardian or trustee, and whether court approval is required.

Key legal steps and options

1. Determine whether you need court approval.

   In Illinois, settlements on behalf of minors commonly require court approval so that the court can review attorney fees, liens, and whether the settlement is in the child’s best interest. Check Illinois court rules and your local circuit court procedures for minor-compromise hearings. See Illinois Courts (rules and local procedures): https://www.illinoiscourts.gov/rules/.

2. Decide between structured periodic payments and a trust/custodial arrangement.

   Typical approaches include:

   • Structured settlement (periodic payments): The defendant (or its insurer) funds an annuity issued by a licensed life insurer to make scheduled payments directly to the minor (or to a guardian/trustee on the minor’s behalf). Structured settlements can be designed to begin immediately or at a future date and can include cost-of-living adjustments, lump-sum future payments, or changing payment schedules.
   • Trust or guardianship with annuity purchase: The court approves a guardian of the estate or a special needs trust or a trustee. The guardian/trustee invests the settlement funds; one option is to purchase an annuity contract under the trust so the trustee receives regular payments for the benefit of the child.
   • Custodial account (UTMA/UGMA): For smaller settlements, funds may be placed in a custodial account that transfers to the child at the statutory age. Custodial accounts generally give the custodian direct control and do not offer the same protection as a court-supervised trust or a structured settlement.
3. Tax and legal consequences to consider.

   Settlements for physical injuries are often excluded from federal income tax under IRC Section 104(a)(2). Periodic payments from a structured settlement that arise from personal physical injury claims usually retain that tax treatment if properly structured. See IRS guidance: https://www.irs.gov/taxtopics/tc415. Work with counsel and a tax advisor to preserve favorable tax treatment.

4. Choose a reputable, licensed insurer and document everything.

   If the settlement will be paid using an annuity, the annuity must be issued by a licensed insurance company. Use insurers with strong financial ratings and confirm licensing with the Illinois Department of Insurance: https://insurance.illinois.gov/.

5. Prepare the court paperwork for a minor-compromise hearing.

   The court usually asks for a settlement agreement, an accounting showing attorney fees and liens, a proposed distribution plan, the proposed annuity contract or provider, and a suggested plan for future money management (guardian/trust instrument). Expect the judge to ask whether the arrangement protects the minor and whether fees are reasonable.

6. If the child receives government benefits, protect eligibility.

   If the child receives Medicaid, SSI, or other means-tested benefits, unrestricted lump sums can jeopardize eligibility. Consider a special needs trust or a pooled trust so annuity payments or trust distributions do not disqualify the child from benefits.

Practical step-by-step example (hypothetical)

Hypothetical facts: a parent settles a $300,000 personal-injury claim on behalf of a 7-year-old child.

1. Hire an Illinois attorney experienced in minor settlements.
2. The parties negotiate a settlement and decide the insurer will buy an annuity that pays $2,000/month beginning immediately, plus a lump-sum at age 18 and age 25.
3. The attorney files a petition with the county court asking the judge to approve the minor’s compromise and the proposed structured settlement/annuity arrangement. The filing includes the settlement agreement, itemized fees and liens, the annuity offer, and a draft order.
4. At the hearing the judge reviews the terms, ensures medical liens and attorney fees are reasonable, verifies the insurer is licensed, and signs an order approving the settlement and directing the insurer to purchase the annuity as specified.
5. The insurer issues the annuity contract to the payee designated by the court (the child, guardian of the estate, or trustee) and periodic payments begin per the contract.

Common pitfalls

• Failing to get court approval when required — that can expose the parent to future liability or result in the court rejecting the arrangement.
• Choosing an annuity from an uninsured or poorly capitalized company — check insurer ratings and licensing.
• Not protecting government benefits for children with disabilities — use a properly drafted special needs trust if needed.
• Overlooking tax consequences — involve a tax advisor when large structured settlements are involved.

For general Illinois statutes and resources, start with the Illinois Courts website for procedural matters: https://www.illinoiscourts.gov/rules/, and the Illinois General Assembly statutes portal: https://www.ilga.gov/legislation/ilcs/ilcs.asp.

Helpful hints

• Consult an Illinois attorney experienced in minors’ settlements early — they’ll know local court practice and typical judge expectations.
• Ask the insurer for a formal annuity quote and sample contract language before court so the judge can approve exact terms.
• Prefer ironclad protections: require court approval for future changes to payment schedules or for the sale/transfer of payment rights.
• Get a written benefits plan if the child receives public benefits; coordinate with a special needs planner if appropriate.
• Verify the insurance company’s strength (AM Best, S&P, Moody’s) and Illinois licensing via the Department of Insurance.
• Keep receipts, medical bills, and lien releases — the judge will want to see a clear accounting of how settlement money is distributed.
• Consider staggered payouts tied to major life events (education, completion of treatment, reaching adult age) rather than a single large payment at majority.
• Remember that changing or selling future payments usually requires court approval; transfers may be restricted to protect the minor.