Settling a Case Involving a Minor Child—Issues Every Plaintiff’s Lawyer Should Examine

When a minor child receives a settlement payment from a lawsuit (such as a lawsuit involving personal injury or medical malpractice claims), the law requires court approval of the settlement if the amount exceeds $10,000 per annum.[1]  The purpose of the approval is to ensure the settlement is fair, reasonable and in the best interests of the child.

A plaintiff’s lawyer can seek court approval of the minor’s settlement in one of two ways:  (1) the lawyer can petition the court in the underlying personal injury lawsuit for approval of the settlement, or (2) the lawyer can file a separate probate action requesting approval of the settlement.  If a conservator or special conservator is being appointed for the child to manage the settlement funds on an ongoing basis, then many probate attorneys would recommend the latter option as the proper method.[2]  Moreover, the laws of many states require a minor’s settlement be filed as a probate action and a conservator be appointed for the child.  The Utah trend may be heading in that direction as well.[3]  In recent years, some Utah state court judges have expressed concern about approving minor settlements for cases they know little about, and are requiring a conservator or special conservator be appointed to make those decisions on behalf of the child.

[1] The statutory authority governing the appointment of conservators, special conservators and other protective arrangements is set forth in Utah Code Ann. §§ 75-5-401 and 75-5-409.

[2] The conservatorship appointment process has come under recent scrutiny culminating in the creation by the Judicial Council (headed by Chief Justice Christine Durham) of an “ad hoc” Committee on Probate Law and Procedure.  The committee has put together extensive guidelines governing the conservatorship approval process, which guidelines will likely be refined again before the 2011 legislative session.  It is anticipated the guardianship and conservatorship statutes will be amended by the legislature at some point in the future.

In evaluating a minor’s settlement, the court (and/or the court-appointed conservator, or special conservator) is required to examine the reasonableness of the settlement in three general areas:  (1) the total settlement, as compared to the costs and uncertainty of continued litigation, (2) the lawyer’s fees and costs expended to secure the settlement, and (3) the investment of the net settlement funds for the benefit of the child.[4]  While most plaintiff’s lawyers are confident in addressing the first two areas, some neglect the third area—the investment of the child’s settlement funds.  Typically this is because they don’t feel adequately trained in the settlement approval process itself, and resolving the settlement investment issues can be additionally time consuming and difficult.  But ignoring the tax advantages associated with proper structuring of a child’s settlement, for example, or failing to take the necessary steps to ensure ongoing eligibility for government assistance programs as part of the settlement process, could be a mistake and have adverse consequences.  Plaintiff’s lawyers and conservators may be held accountable to the child for not presenting a structured settlement offer as part of the overall settlement process,[5] or by failing to ensure ongoing eligibility for SSI or Medicaid through the creation of a Supplemental Care Trust (also known as a Special Needs Trust).[6]   Moreover, conservators are now subject to more stringent reporting requirements in certain circumstances (adopted by the legislature effective Nov 1. 2007) which are being actively enforced by the courts.  Plaintiff’s lawyers need to make sure they are adequately advising the conservator regarding the reporting requirements, if applicable, or both the lawyer and the conservator may receive notices from the court regarding missing or inappropriately filed conservator reports.  Finally, upon conclusion of the settlement approval process, the

[4] The court also needs to be advised of any medical liens (and, if a lien has been negotiated, the negotiated lien amount), any reimbursements for out-of-pocket expenditures made by the parents (or others) on behalf of the child during the course of the underlying lawsuit, and any other fees or payments that will be made from the child’s settlement proceeds. 

[5] A properly structured settlement can provide significant tax benefits in that not only is the initial principal settlement amount exempt from federal income tax, but the interest over time is also exempt from income tax.  This tax benefit can be achieved only at the time of settlement if the structured annuity is purchased directly by the defendant in the underlying lawsuit and other requirements set forth in the Internal Revenue Code are satisfied.  See, Internal Revenue Code §§ 104(a), 130 and 5891.

[6] The purpose of a Supplemental Care Trust is to provide supplemental and extra care over and above that which is available through government assistance programs.  In a properly drafted Supplemental Care Trust, a child’s settlement assets are not considered countable assets for purposes of qualifying for SSI or Medicaid.  The receipt of the personal injury settlement in an unprotected form, however, could result in disqualification for government benefits until the settlement assets are consumed. 

plaintiff’s lawyer should ensure the settlement petition, order and related pleadings are sealed to protect the privacy interests of the child and parties to the underlying lawsuit.[7]

In sum, many factors need to be addressed when negotiating a settlement on behalf of a child.  Plaintiffs’ lawyers should seek appropriate guidance, if they are unfamiliar with the issues involved in a minor’s settlement, to ensure the settlement is fair and reasonable and that the overall settlement investment strategy is in the best interests of the child. 

[7] Rule 4-202.09(9)(B) of the Utah Rules of Judicial Administration provides that “[i]f a person believes that a record qualifies as a non-public record, the person may file with the record a motion to classify the record as private, protected or sealed.”  Rule 4-202(2)(A) states court records may be selectively closed or classified as “non-public” in order to serve “important objectives,” such as “to protect personal privacy.”  Moreover, the common law provides that the court may seal a court file to protect the privacy rights of the affected parties.  Finally, although common law suggests there is a general public right to inspect and copy public records and documents, this right is not absolute, and is subject to each court’s “supervisory power over its own records and files.” Nixon v. Warner Communications, Inc., 435 U.S. 589, 597-98 (1977).