Detailed answer — what to know and steps to take

If you received settlement funds on behalf of a minor in Michigan, purchasing an annuity can be a practical way to provide long‑term, steady payments and protect the principal from being spent all at once. The path to a court‑approved annuity typically involves several legal and financial steps. Below is a clear, step‑by‑step overview of how this commonly works under Michigan procedures.

1. Understand the role of the court

When a settlement involves a minor, Michigan courts usually must approve the settlement or the terms for how those funds will be held and used. The Michigan Court Rules include procedures for compromise and settlement of a claim by a minor or an incompetent person. See Michigan Court Rule 2.222 for the court’s authority and process for approving settlements and protecting the minor’s interests: MCR 2.222. In many cases the judge will require a proposed investment plan (for example, an annuity purchase), an independent evaluation, and paperwork showing the annuity issuer is licensed and suitable.

2. Determine the legal vehicle that will hold the funds

There are common options for how funds for a minor are held:

• Guardianship or guardianship of the estate — If a guardian or conservator is or will be appointed by probate court, that person may be authorized to manage or invest the settlement proceeds subject to court supervision.
• Minor’s compromise with court approval — The court may approve a settlement and direct how the money is to be invested or distributed (for example, by ordering an annuity purchase or creation of a trust).
• Trust for the minor — The parties or court can establish a trust that specifies payment schedules, trustee duties, and protections for the child.
• Custodial account (UGMA/UTMA) — For smaller sums, a custodial account may work but offers fewer protections and may allow the custodian more control once the minor reaches the age of majority.

Which vehicle is appropriate depends on the settlement size, the child’s needs, and the court’s requirements.

3. Choose the right type of annuity

Common annuity choices for settlement funds:

• Immediate vs. deferred annuity — Immediate annuities begin payments soon after purchase; deferred annuities delay payments to a future date.
• Life‑contingent vs. period certain — A life annuity pays as long as the annuitant lives; a period‑certain annuity guarantees payments for a fixed term even if the annuitant dies.
• Structured settlement annuity — Often used in personal‑injury settlements, these are typically purchased from a life insurance company and can be designed to produce tax‑preferred periodic payments under federal rules (a qualified assignment may be used).

Your attorney and a qualified financial advisor can explain which annuity structure fits the child’s long‑term needs, inflation protection requirements, college funding goals, and survivor protections.

4. Work with licensed, reputable providers

Use an insurer or annuity issuer licensed to do business in Michigan. The Michigan Department of Insurance and Financial Services (DIFS) regulates insurers and can help verify licensing and complaint history: Michigan DIFS. Keep written quotes, product illustrations, and terms to submit to the court.

5. Obtain court approval and file required documents

To implement an annuity purchase, you will typically need to:

1. Prepare a proposed order and supporting documents for the probate/civil court explaining the settlement, the recommended annuity structure, and why it is in the child’s best interest.
2. Attach the annuity contract, insurer licensing confirmation, any expert or financial statements, and a proposed distribution schedule.
3. Attend the court hearing. Judges commonly ask whether alternatives were considered and whether the annuity protects the child’s needs.

Follow the court’s specific instruction. The Michigan court rules at MCR 2.222 describe procedures and safeguards the court commonly expects for minors’ settlements: MCR 2.222.

6. Purchase the annuity and comply with reporting rules

After court approval, the settlement payer or the guardian/trustee uses the court order to purchase the annuity from the insurer. Many courts require periodic accountings or ongoing court approval for large withdrawals or changes in investment strategy. Keep accurate records and be prepared to report to the court or the judge who approved the settlement.

7. Tax and benefit considerations

Structured settlement payments arising from personal injury claims often have favorable federal tax treatment, but tax outcomes vary by case and by type of compensation. Verify effects on means‑tested public benefits (Medicaid, Supplemental Security Income). Consult a tax advisor and your attorney before finalizing the annuity.

8. When to use specialized help

Because minors’ settlements involve legal, financial, and sometimes medical‑care decisions, consider retaining:

• A probate or personal‑injury attorney experienced with minor settlements and court approval in Michigan.
• An independent structured settlement consultant or financial advisor (fee arrangement should be transparent and court‑approved if required).
• An accountant or tax advisor for tax and benefit planning.

These professionals can prepare the court filings, evaluate annuity offers for solvency and guarantees, and explain tax consequences.

Key Michigan resources

• MCR 2.222 (settlement of a minor’s claim): https://courts.michigan.gov/administration/scoa/rules/pages/mcr.aspx?MCR=2.222
• Michigan Department of Insurance and Financial Services (consumer and insurer information): https://www.michigan.gov/difs
• Michigan courts — probate/guardianship general resources: https://courts.michigan.gov/administration/scoa/Pages/Probate.aspx

Helpful hints — practical tips for a smooth process

• Start early: court approval, insurer underwriting, and annuity paperwork can take weeks to months.
• Get more than one structured‑annuity quote and review the insurer’s ratings (AM Best, S&P) and Michigan complaint history via DIFS.
• Avoid high‑pressure brokers offering non‑transparent fees. Any broker fees should be disclosed and, if necessary, approved by the court.
• Keep a clear record of the child’s needs (medical, education, living expenses) to justify the annuity design to the court.
• Consider inflation protection and survivor benefits — fixed nominal payments can lose purchasing power over many years.
• Discuss how changes will be handled: if medical needs change, if the child is disabled, or if expenses increase, confirm how the annuity or trust can adapt.
• If public benefits are involved, structure payments to avoid disqualifying the child; discuss alternatives like pooled special needs trusts with your attorney.
• Ask the court whether it needs copies of the annuity contract, the insurer’s financial statement, or periodic accountings from the guardian/trustee.