How to set up an annuity for settlement funds for a child in New Jersey — FAQ

Short answer: You can fund an annuity for a child either as part of a structured settlement paid by the defendant/insurer or by purchasing an annuity in a court-approved custodial or guardian-managed account. New Jersey court approval is often required before settlement funds for a minor are released. This article explains how each path works, the legal steps you’ll likely face in New Jersey, and practical tips to protect the child’s money.

Disclaimer

This is general information, not legal advice. I am not a lawyer. Laws and court practices change. Consult a New Jersey attorney who handles minor settlements or guardianship before you make decisions.

1. What are the common ways to hold settlement money for a child?

• Structured settlement (periodic payments): The defendant or their insurer agrees to buy an annuity that pays the child (or the child’s guardian) a schedule of payments over time. These are often used in personal-injury cases and can be designed to provide guaranteed income for medical care, education, or living costs.
• Custodial account under state transfer-to-minor law (UTMA/UGMA): A responsible adult holds the funds for the child under New Jersey’s transfer-to-minor rules. The custodian manages the money until the child reaches the statutory age (check New Jersey’s law for the specific age of termination).
• Blocked or protected account with court approval: A court may order settlement proceeds placed in a blocked account or other protected vehicle that restricts access without further court permission.
• Guardianship or conservatorship: In some cases the court appoints a guardian of the person or guardian of property to manage the funds until the child reaches majority or for longer if a court order permits.

2. How does a structured settlement work?

A structured settlement uses an annuity contract to convert a lump-sum settlement into a sequence of payments. Typical features:

• Payments can start immediately (an immediate annuity) or be deferred.
• They can be lifetime, for a set term, or a mix (e.g., monthly for life plus lump sums for college).
• When created under federal tax rules for qualified assignments, many structured settlement payments are tax-free for personal-injury recoveries.
• The defendant/insurer usually funds the annuity; the judge often approves the arrangement as part of the settlement process for a minor.

3. What steps will you likely follow in New Jersey to establish an annuity for a child?

1. Determine whether the insurer/defendant will offer a structured settlement: Often parties negotiate a structured set of payments instead of a lump sum. If they agree, a qualified assignment and annuity purchase may follow.
2. Talk to the child’s lawyer or guardian ad litem: In many New Jersey cases involving minors, the court requires a guardian ad litem or attorney to review and recommend whether the settlement is fair.
3. Get court approval if needed: New Jersey courts commonly require approval of settlements involving minors so a judge can ensure the child’s interests are protected. Approval is usually required before funds are paid out or an annuity begins making payments.
4. Decide how payments will be received and managed: Options include (a) payments directly to the child once of age, (b) payments to a court-ordered blocked account, (c) payments to a custodian under New Jersey’s transfer-to-minor rules, or (d) payments to a guardian managing property under court supervision.
5. Choose an annuity product and provider: Consider insurance company ratings, contract terms, inflation protection, and guaranteed periods. An attorney or financial advisor who knows New Jersey practice can help evaluate proposals.
6. Obtain court documentation and orders: If the settlement must be approved, the final court order should specifically authorize the annuity or custodial arrangement and name the payee and any restrictions.
7. Set up ongoing oversight: The court may require periodic accountings or limits on how money can be used. Follow those orders carefully.

4. What are pros and cons of a structured settlement vs. a lump-sum annuity purchased by a custodian or guardian?

• Structured settlement pros: Often tax-advantaged for personal-injury claims, guaranteed payments, creditor protection in some cases, and can be tailored (e.g., payments for school or medical care). The insurer often buys the annuity, shifting investment risk away from the family.
• Structured settlement cons: Payments are generally not easily changed or sold. They offer less liquidity if the child has an urgent, large expense and court approval may be required to alter payments.
• Custodial/guardian annuity pros: More control over the principal and choices of annuity products. If the custodian or guardian can invest a lump sum, they might select a product that fits the child’s needs.
• Custodial/guardian cons: The custodian/guardian faces investment and management obligations and the funds may be more exposed to creditor claims depending on circumstances. The court may impose restrictions and require oversight.

5. What kinds of annuities and contract terms should you consider?

• Immediate vs. deferred payments.
• Fixed vs. variable vs. indexed annuities (understand risk and fees).
• Guaranteed minimum periods or survivorship features, as appropriate for a child.
• Escalation or cost-of-living adjustments to protect against inflation.
• Options for lump-sum payments at certain ages (e.g., college-age disbursements).

6. What will the New Jersey court likely require before approving payment arrangements?

Procedures vary by county and the judge, but common requirements include:

• A written settlement or stipulation explaining the terms and how payments will be handled.
• A report or recommendation from a guardian ad litem or the child’s attorney describing whether the settlement serves the child’s best interest.
• A proposed court order that names the payee, designates any custodial or blocked account, and sets limits on access.
• Evidence that the annuity provider is licensed and financially sound.

7. Practical tips before you agree to any annuity plan

• Hire a New Jersey lawyer experienced with minor settlements or guardianship matters. They can prepare the necessary court papers and advise on tax and custody issues.
• Ask for a full, written description of any annuity contract and have your lawyer or a fee-only financial advisor review it.
• Confirm who will pay for the annuity (insurer vs. settlement principal) and whether the arrangement triggers any tax consequences.
• Check the insurance company’s financial strength ratings (A.M. Best, Standard & Poor’s, Moody’s) before relying on long-term payments.
• Plan payment timing around the child’s expected needs (medical care, education, housing) and include lump-sum payments at key ages if needed.
• Keep documentation: court orders, annuity contracts, account statements, and court-required accountings.
• Understand your reporting obligations if you serve as custodian or guardian; many courts require regular accountings.

8. When should you consult attorneys and other professionals?

Consult at least one New Jersey attorney as early as possible—before you accept settlement terms. Also consider a fee-only financial planner and a tax advisor if the settlement is large or if the structure has complicated tax effects.

9. How to find a New Jersey lawyer who handles these matters

Search for attorneys with experience in minor personal-injury settlements, guardian/conservator practice, or structured settlements. Look for lawyers who regularly obtain court approval for minor settlements in New Jersey and who work with local judges and court procedures.

Helpful Hints

• Do not accept or move settlement funds for a minor without checking whether a court order is required in New Jersey.
• If a defendant offers a structured settlement, confirm the annuity vendor and terms in writing before finalizing the settlement.
• Keep the best interests of the child as the primary goal—flexible access for education and medical needs is often important.
• Ask the court to specify how and when funds may be accessed if circumstances change (e.g., major medical needs).
• Get any guardian ad litem or attorney reports in writing and include them in the court record so a judge can rule efficiently on approval requests.
• Document all transactions and maintain copies of annuity contracts and court orders indefinitely.
• Before signing, have a lawyer review any release language to make sure it does not unintentionally bar future necessary claims for the child.

If you want, tell me whether this settlement is from a personal-injury case, insurance claim, or another matter and whether you know if the insurer will fund an annuity. I can then outline the specific documents and court steps commonly used in New Jersey for that situation.