Setting Up an Annuity for Settlement Funds Held for a Child — FAQ

Short answer: You can use a structured settlement annuity to turn a lump-sum settlement for a minor into scheduled payments, but in Minnesota you normally must protect the child’s money through a court process or a recognized custodial vehicle (for example a UTMA account, a court-approved blocked account, a conservatorship/guardianship trust, or a special needs trust if applicable). You should get court approval when required and coordinate with an insurance company that issues annuities. This is not legal advice; it is general information.

1. What decisions must I make first?

Before buying an annuity for settlement proceeds for a child, decide these basic things:

Why the money is being set aside (personal injury, wrongful death, settlement for future care, etc.).
Whether the child has special needs or public benefits that require a special-needs trust.
Whether you want periodic payments (structured settlement) or a lump sum invested under a custodial arrangement.
Whether the court must approve the settlement or the particular arrangement for safeguarding the funds.

2. Who can legally receive or control the settlement for a minor?

In Minnesota, parents frequently negotiate and sign releases on behalf of their child, but courts and state rules exist to protect minors’ funds. Depending on the situation, the options include:

Custodial account under the Uniform Transfers to Minors Act (UTMA) — a custodian manages funds until the statutory termination age.
A court-ordered blocked or supervised account — funds are deposited under court control until the child turns 18 (or a later age if the court extends protection).
Conservatorship or guardianship — the court appoints a conservator (sometimes called a guardian of the estate) to manage funds long-term when appropriate.
A trust (including a special needs trust) — a trust can control distributions and protect public benefits for children with disabilities.
A structured settlement annuity — periodic payments from an insurance company, often funded by a qualified assignment from the defendant/insurer.

3. Do I need court approval in Minnesota?

Often yes. Courts routinely review and approve settlements for minors to ensure the settlement is fair and that the child’s money will be protected. If a lawsuit was filed, or if the settlement releases claims for a minor, a petition may be required asking the court to approve the settlement and to authorize the method of safekeeping (UTMA, blocked account, conservatorship, trust, or annuity). Check Minnesota court resources for guardianship and settlement procedures:

Minnesota Judicial Branch — Guardianship and Conservatorship information: https://www.mncourts.gov/
Minnesota Statutes and Legislature site (official codified law): https://www.revisor.mn.gov/statutes/

4. How does a structured settlement annuity work for a child?

A structured settlement converts (all or part of) the defendant’s obligation into periodic payments from an insurance company. Typical features:

Payments can be for a fixed number of years, for life, or a combination (e.g., certain monthly payments for 20 years then lifetime smaller payments).
Payments can begin immediately or be deferred to start at a future date (useful to create lifetime income or to fund future education needs).
Structured settlements often enjoy favorable tax treatment under federal law for personal injury recoveries (the periodic payments themselves are generally tax-free if tied to personal physical injury), but tax consequences vary with the facts.
The annuity issuer is typically a licensed life insurance company; the defendant or insurer may purchase a qualified assignment from a third party who then buys the annuity.

Because the child cannot manage the funds, the court will want a plan showing who will receive the periodic payments for the child (for example, paying directly to a custodial account or to a trustee) or how the payments will be preserved until the child is older.

5. Steps to set up an annuity for your child’s settlement funds in Minnesota

Talk with the plaintiff’s attorney handling the settlement (or hire one if you don’t have one). Attorneys who handle minors’ settlements know how Minnesota courts typically require protection of proceeds.
Decide the protection vehicle: structured settlement annuity, UTMA custodial account, blocked account, conservatorship, or trust. If the child receives public benefits, strongly consider a properly drafted special-needs trust.
If a structured settlement is chosen, request structured settlement proposals. A qualified settlement consultant or the defense insurer’s structured settlement broker can prepare annuity illustrations (insured by licensed life companies). Compare carriers, rates, and protections.
Prepare the court petition. The petition should describe the settlement amount, the recommended vehicle (annuity details or account/trust terms), and request court approval. Courts may require a guardian ad litem or independent attorney to represent the child’s interests in some cases.
Obtain court approval and follow court instructions for distribution or deposit of funds. If the court orders funds to be deposited into a blocked account or trust, do that promptly with the title and docket information required by the order.
Purchase the annuity if directed/approved. Work with the insurer to ensure the annuity payer and payment schedule conform to the court order and settlement terms. Keep documentation of the qualified assignment and annuity contract for the record.
Maintain records and comply with reporting or accounting requirements the court imposes for the guardian/guardian of estate/custodian/trustee.

6. Practical considerations and common pitfalls

Medicaid and other liens: confirm whether medical liens, Medicare conditional payment liens, or public-benefit liens must be resolved before approval.
Tax and public-benefit consequences: structured settlements can be tax-advantageous for physical injury settlements, but different rules may apply for other types of recoveries. Also consider how public benefits may be affected.
Inflation and flexibility: annuities provide predictable payments but may not keep up with inflation. Consider escalators, cost-of-living adjustments, or mixed approaches (some lump-sum invested; some annuitized).
Issuer security: buy annuities only from licensed insurers in good standing. Check the insurer’s ratings and Minnesota licensing through the Minnesota Department of Commerce.
Court delays and costs: obtaining court approval, a conservatorship, or drafting a trust requires time and often filing fees and legal fees. Plan accordingly.

7. Documents and information you will typically need

The settlement agreement and release language.
A proposed plan for protecting the funds (annuity contract, trust document, or custodial account paperwork).
Proof of the child’s identity and the guardian’s identity (birth certificate, guardianship papers if already in place).
Any lien or subrogation statements (medical bills, Medicaid/Medicare notices).
An actuarial or annuity illustration showing payment schedules and issuer details, if using a structured settlement.

8. Where to get help in Minnesota

Contact a Minnesota attorney experienced in minors’ settlements, guardianship/conservatorship, and structured settlements. If the matter involves disability benefits, look for experience with special-needs planning.
Use the Minnesota Judicial Branch site for forms and local rules: https://www.mncourts.gov/
Check Minnesota statutes and look up particular statutes that apply to guardianships, conservatorships, and fiduciary responsibilities: https://www.revisor.mn.gov/statutes/
For questions about insurance companies and annuity sellers, contact the Minnesota Department of Commerce consumer resources: https://mn.gov/commerce/

Helpful Hints

Start early. Court approvals and annuity purchases can take several weeks to months.
Ask for written annuity illustrations and the insurer’s licensing information before you commit.
Get the court’s approval language in writing and follow it exactly when purchasing the annuity or opening accounts.
If the child has a disability or receives government benefits, consider a properly drafted (and court-approved) special-needs trust to avoid jeopardizing benefits.
Keep careful accounting of all transactions and file any reports the court requires for guardians or conservators.
Don’t sign releases or accept funds into a personal account without court approval or confirmed legal authority—doing so can jeopardize the child’s recovery and expose you to liability.

Disclaimer: This article provides general information about Minnesota procedures and options for protecting settlement funds for a minor. It is not legal advice and does not create an attorney-client relationship. Because facts and laws vary, consult a Minnesota attorney experienced in minors’ settlements, guardianship/conservatorship, and structured settlements to get advice tailored to your situation.