Setting Up an Annuity for Settlement Funds Held for a Child in South Carolina

Short answer: In South Carolina, using an annuity (often called a structured settlement) to manage settlement funds for a child is a common option, but it usually requires court involvement, approval of the settlement plan for the minor, and the purchase of an annuity contract from a licensed insurer. This process protects the child’s long‑term financial interests, preserves tax advantages in many injury cases, and reduces the risk of premature dissipation of funds.

Detailed Answer

1. Why an annuity (structured settlement) is often used for children

An annuity converts a lump-sum settlement into a series of guaranteed payments over time. For minors, this helps ensure funds remain available for future needs (medical care, education, housing). Annuities can be tailored (monthly, annual, or milestone payments) and can include inflation adjustments or lump amounts at important life events.

2. Who must approve the arrangement in South Carolina?

Because a child (minor) cannot typically enter legally binding contracts or control significant settlements, South Carolina courts generally must approve settlements involving minors to make sure the agreement is in the child’s best interest. That oversight commonly involves a petition to the probate or family court and sometimes the appointment of a guardian ad litem to represent the child’s interests. See South Carolina’s probate and guardianship framework for more on judicial oversight: South Carolina Code, Title 62 (Probate).

3. Typical steps to set up an annuity for a child in South Carolina

1. Talk to an attorney experienced with minors’ settlements and structured settlements. The attorney prepares the settlement documents, drafts the petition for court approval, and works with actuarial/structured settlement professionals to design payment options.
2. Decide on the payment design. You and the child’s representative (parent/guardian) choose timing (periodic payments, deferred start, lump sums at certain ages), frequency, and inflation or cost‑of‑living features.
3. Get annuity quotes from licensed insurers. The responsible party, often with a structured settlement broker or certificated consultant, obtains firm quotes from licensed life insurance companies authorized to sell annuities in South Carolina. The insurer issues a binding annuity contract to fund the payments.
4. File for court approval. The petition typically includes the settlement agreement, proof of the annuity purchase (or firm undertaking), a proposed order, and a report by a guardian ad litem when one is appointed. The court evaluates whether the arrangement is in the child’s best interest and may require additional protections (e.g., blocked accounts, surety).
5. Complete the purchase and obtain the court order. After review, the court signs an approval order. The defendant/insurer or responsible party then transfers funds to the annuity issuer or to a qualified assignment to fund the annuity as ordered.
6. Maintain records and compliance. Keep copies of the annuity contract, court order, and payment schedule. The guardian or custodian must manage any ancillary duties (tax reporting, tracking income if necessary).

4. Common legal and tax considerations

• Court approval: South Carolina courts generally must approve settlements involving minors so the court can protect the child’s interests (see Title 62: Probate for the state’s probate and guardianship rules: https://www.scstatehouse.gov/code/t62.php).
• Qualified assignment and tax treatment: Structured settlements for physical personal injury or sickness are often tax-favored. Federal tax rules applicable to structured settlement assignments are in the Internal Revenue Code; commonly cited federal provisions include 26 U.S.C. §104 (exclusion for personal injury damages) and 26 U.S.C. §130 (qualified assignments for structured settlements): 26 U.S.C. §104, 26 U.S.C. §130. Discuss tax implications with a tax advisor and your attorney.
• Insurer licensing and state oversight: Annuities must be purchased from insurers authorized to do business in South Carolina. You can verify company licensing and consumer protections with the South Carolina Department of Insurance: https://doi.sc.gov.

5. Alternatives and additional protections

If an annuity is not suitable, courts sometimes approve other safeguards, such as a blocked bank account, custodial accounts under the Uniform Transfers to Minors Act (UTMA), or appointment of a conservator/guardian with court supervision. Each option has tradeoffs in cost, flexibility, and protection.

Helpful Hints

• Start early: Designing a structured settlement and getting court approval takes time. Begin planning well before the expected settlement closing.
• Hire an attorney familiar with minors’ settlements in South Carolina. They can prepare the required petition and work with the court and annuity providers.
• Use a reputable structured settlement consultant or broker. They can present multiple annuity offers and explain pros and cons of various payout schedules.
• Get written, firm annuity quotes and the proposed annuity contract terms before asking the court to approve the settlement plan.
• Confirm the annuity issuer is licensed to sell in South Carolina via the Department of Insurance: https://doi.sc.gov.
• Consider future needs (education, medical care, living expenses) when choosing payment timing and amounts. Build in milestone payments (age 18, 21, 25, etc.) if appropriate.
• Ask whether any portion of the settlement is taxable. Consult a tax advisor about the potential tax treatment of periodic payments.
• Keep thorough records: court orders, annuity contracts, payment schedules, and correspondence.
• If the case is a medical malpractice, personal injury, or wrongful death matter, make sure your attorney addresses both court approval and tax treatment before finalizing the annuity purchase.

When to contact an attorney

Contact an attorney as soon as you are negotiating for a settlement for a child. An attorney will advise whether a structured settlement, blocked account, or guardianship is most appropriate, draft the necessary petitions for court approval, coordinate with annuity providers, and help ensure compliance with South Carolina court requirements.

Disclaimer: This article is for general information only and does not create an attorney-client relationship. It is not legal advice. Laws change, and facts can change legal outcomes. Consult a licensed South Carolina attorney for advice about your specific situation.