How to set up an annuity for settlement funds held for a child (Washington)

Disclaimer: I am not a lawyer. This is general information, not legal advice. Consult a Washington attorney and appropriate financial professionals before acting.

Short answer

If you have settlement funds that belong to a child in Washington, common ways to protect that money and provide future income include a court-approved structured settlement (annuity), a custodial account under the Uniform Transfers to Minors Act (UTMA), a trust (including a special needs trust if needed), or a blocked account. For larger or complex settlements a court petition is often required to protect the child’s interests and to approve an annuity or other long-term arrangement.

Detailed answer — step-by-step under Washington law

1. Confirm who legally controls the funds and whether court approval is required

If the funds are settlement proceeds for a minor (under age 18), many settlements require court approval to ensure the settlement is fair and that the minor’s money is protected. Washington handles matters for minors through its probate/juvenile/civil procedures (Title 11 of the Revised Code of Washington deals with probate and related matters). See RCW Title 11 for the statutes that govern guardianship, trusts and probate matters: https://app.leg.wa.gov/rcw/title11/.

2. Decide which vehicle best meets the child’s needs

• Structured settlement (annuity): You can convert a lump-sum settlement or future periodic payment rights into an annuity purchased from a licensed life insurance company. Structured settlements can provide guaranteed periodic payments (monthly, yearly, etc.) to the child, with options for guaranteed periods, inflation adjustments, or survivor benefits.
• Custodial account (UTMA): Washington’s Uniform Transfers to Minors Act lets an adult manage money for a child as custodian until the child reaches the legal age specified by the statute. For Washington statutes on UTMA and custodial transfers, see RCW chapter on transfers to minors: https://app.leg.wa.gov/rcw/default.aspx?cite=11.118.
• Minor’s trust or special needs trust: A trust can give fine-grained control over when and how funds are used. If the child receives means-tested public benefits (Medicaid, SSI), a properly drafted special needs trust can preserve eligibility while providing supplemental benefits.
• Blocked or court-supervised accounts: Courts can order funds placed in blocked accounts or under conservatorship/guardianship arrangements when needed to protect the child’s assets.

3. Typical process to set up a structured settlement (annuity) for a minor

1. Talk with the plaintiff’s attorney and the insurer or defendant: Decide whether you will convert the payment stream or use part of a lump-sum to buy an annuity. Many structured settlements for personal-injury claims use a qualified assignment and a life insurance annuity.
2. Obtain court approval if required: Ask the settling parties or your attorney whether Washington Superior Court approval is necessary. For many minor settlements courts will review the proposed arrangement to ensure it protects the child’s future needs.
3. Select a licensed insurance company and annuity product: Use an insurer licensed in Washington. Evaluate the insurer’s claims-paying strength and the annuity contract features (payment frequency, guaranteed period, survivor options, indexing/riders, transferability).
4. Draft settlement documents and any trust or custodial agreement: If the annuity is to be paid to a trust or custodial account, prepare the trust/custodial documents so the annuity pays into that vehicle. The court may need to review and approve those documents.
5. File the petition and get court orders: The court’s order should approve the settlement and direct how the funds will be managed (annuity purchase, trust terms, custodian’s powers, guardian ad litem report if required).
6. Complete the annuity purchase and implement the order: After court approval, the insurer issues the annuity and begins payments according to the contract and court directions.

4. Tax and benefit considerations

Federal tax rules affect whether portions of a settlement are taxable (for example, many personal injury awards for physical injury are not taxed under federal law). Structured settlement payments for physical injury are often tax-advantaged. Washington has no state income tax, but federal tax rules still apply. If the child receives public benefits, payments may affect eligibility unless routed through an appropriate special needs trust. Work with a CPA or tax attorney and an elder/benefits planning attorney for details.

5. Practical considerations when buying an annuity

• Choose a reputable insurer licensed to do business in Washington (see Washington Office of the Insurance Commissioner for licensed carriers).
• Compare annuity features: immediate vs deferred, life-contingent vs guaranteed-period, inflation riders, survivor benefits, and purchase price.
• Confirm whether the annuity is assignable or can be factored later (selling structured settlement payments has special rules and often requires court approval).
• Make sure any trustee/custodian has clear authority, reporting duties, and safeguards in the court order or trust instrument.

6. When to get an attorney

Hire a Washington attorney experienced in minors’ settlements, structured settlements, or trusts when a child’s settlement is significant, when public benefits are involved, or when court approval is likely. An attorney can prepare the petition, present the arrangement to the court, and coordinate among insurer, financial professionals, and the court.

Helpful hints

• Ask whether court approval is required before finalizing anything. If you skip court approval and it was required, the court may later modify or set aside the arrangement.
• Gather all documents: settlement agreement, insurance policies, medical reports (if applicable), and any guardianship or custody paperwork.
• Consider short-, medium-, and long-term needs: education, healthcare, daily living, and long-term security.
• If the child receives public benefits, consult a benefits-planning attorney to avoid disqualification for Medicaid or SSI.
• Get multiple annuity quotes and check insurer financial strength through rating agencies. Also check the Washington Office of the Insurance Commissioner for company licensing information: https://www.insurance.wa.gov/.
• Consider naming a successor beneficiary or trustee and include instructions for what happens if the child dies before payments finish.
• Document the court’s approval order and the annuity contract together so future guardians or financial institutions can verify the setup.

Where to read Washington law and find forms

• Washington Revised Code of Washington (Title 11—probate, guardianship, trusts): https://app.leg.wa.gov/rcw/title11/
• Washington statutes on transfers to minors (UTMA): https://app.leg.wa.gov/rcw/default.aspx?cite=11.118
• Washington Courts (general court information and forms): https://www.courts.wa.gov/
• Washington Office of the Insurance Commissioner (insurance company licensing and consumer information): https://www.insurance.wa.gov/

If you want, I can outline a sample checklist of documents to prepare before you see an attorney or provide a plain-language sample petition checklist for court approval in Washington.