My son had an injury at a friends house that he's received a settlement for from the home insurance.

The lawyers presented us some different options on what to put the money into. The options are annuities through a life insurance company with different options as to how it gets paid out when he turns 18. IRR is 4.4%.

My son is 2 years old. I was hoping to get this money in the market for him so it can hopefully keep up or our pace inflation for the next 16 years. The lawyer is saying there aren't really options for that and that Texas requires these annuities. Is that true?

Appreciate any advice.

Can it not go into a UTMA?

Not as I understand it. Parents are generally custodians of those accounts correct? Courts will not allow parents to have any access to minors funds.

MAS444 said:

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Not as I understand it. Parents are generally custodians of those accounts correct? Courts will not allow parents to have any access to minors funds.

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Yeah, but the funds have to be used for the kids benefit and then the whole thing goes to them when they're of age. I'm not familiar at all with settlements for minors but if I minor gets an inheritance or is the beneficiary of a life insurance policy then UTMA's are an option

MAS444 said:

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It's absolutely true. I do this all the time. I've had judges approve specific amounts be paid out directly for very specific hardships - but that is very difficult. No way a judge is gonna let parents have kids money to invest in the market. Nor should they.

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Thank you for your reply.

I certainly understand that the money has to be protected so that the child actually gets it one day. I don't want access to the money, I just want it to be invested. We're talking about 16 years of growth.

This is a fair settlement today, but if the money doesn't go into something that keeps up with inflation, he'll never receive full benefit of it. I just feel like he'd be short changed in that situation.

If it is what it is then that's fine. I just wanted to see if there were options.

Can it not be put in a trust and invested as approved by a trust committee so it could have a moderate to aggressive growth objective? That way the parents never touch it and it can be released to the kid at 18/21/25, however determined by the court.

khkman22 said:

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Can it not be put in a trust and invested as approved by a trust committee so it could have a moderate to aggressive growth objective? That way the parents never touch it and it can be released to the kid at 18/21/25, however determined by the court.

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Thank you for the reply. The lawyer said that the amount is not enough for a trust. He said companies won't set one up until the amount is up around $500k

Edit to add: settlement is $118k

I wonder if it would be worth getting an advisor if you don't have one yet. I was always in the "don't need one camp", but the tax organization advise, estate planning, etc intel and assistance has been really useful. I'd bet they'd know how to handle it. Not sure what your personal net worth is but undoubtedly it will get better, and hopefully at some point will be too complicated for you to manage on your own- on that day, you'll definitely see the benefits... but if they can figure out how to shield this 118k for 16 years it would definitely be with the management fees.

Their lawyers will have retained an expert at structured settlements for minors. But again, there's not many options - especially at that settlement amount. And the returns won't be great - but they'll be gauranteed (for all practical purposes) and protected. The point isn't maximizing the return - it's making sure the minor has access to it when they turn 18 (and/or whenever the structure provides thereafter).

Would the courts allow the parents to set aside some percentage into a 529 plan? That will at least A) be in the market and B) outside of individual stock picking control.

No. The parents sitll have access to it.

Interesting and I didn't realize that homeowners insurance covered injuries unrelated to any defects in the home. If a kid threw hot water on another, then will homeowners cover? I am glad your kid got some compensation but I didn't realize homeowners were that broad. Was it some umbrella policy?

The allegations is negligent supervision of the parents and yes homeowners generally covers.

Not to derail, but homeowners insurance covers alot of weird things. I had a neighbor who was mowing his property, hit a golf ball and it busted out my vehicle window on my property. His homeowners insurance covered the cost of repairs.

You mean his deductible did…

It's my understanding in this situation the homeowners didn't have to pay a deductible. Which is really weird to me.

OnlyForNow said:

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You mean his deductible did…

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No deductible applies to personal liability claims.

Medaggie said:

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Interesting and I didn't realize that homeowners insurance covered injuries unrelated to any defects in the home. If a kid threw hot water on another, then will homeowners cover? I am glad your kid got some compensation but I didn't realize homeowners were that broad. Was it some umbrella policy?

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Possibly.

Was it intentional and what age was the kid?

aggieland09 said:

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Not to derail, but homeowners insurance covers alot of weird things. I had a neighbor who was mowing his property, hit a golf ball and it busted out my vehicle window on my property. His homeowners insurance covered the cost of repairs.

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There's far weirder than that out there. Think of the Bonfire case.
https://www.abajournal.com/news/article/final_settlements_reached_in_bonfire_accident_at_texas_am_that_killed_12_an

I've also seen defamation cases defended under homeowner's as well as on campus hazing by the child of the policy holder.

I am late to the thread but I find it insane that the court wouldn't let you invest this in an index fund and throw away the key for 16 years.

Why is this any different than if hed inherited $100k from grandpas will?

K_P said:

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I am late to the thread but I find it insane that the court wouldn't let you invest this in an index fund and throw away the key for 16 years.

Why is this any different than if hed inherited $100k from grandpas will?

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I don't know, to me it's pretty different. This is a legal decision that I'm assuming it's based on some kind of damages of future income or hardship. They aren't just going to award someone a few hundred k because they had their feelings hurt. Being that's the case, especially the lost future income, it makes a little more sense to protect the money.

Now I agree that it should be invested. But again understand why it isn't. They should at least have options. But how many people would just invest it in high risk scenarios seeing as you can't touch it for 16 years?

I'm just surprised the law wouldn't allow for conservative, supervised investment.

K_P said:

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I'm just surprised the law wouldn't allow for conservative, supervised investment.

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I would imagine the IRR of the permissible investments is also used to calculate the NPV of future damages. This gives courts and insurance companies a standard when they are trying to put a dollar amount on things that have absolutely no baseline value. Arguing that you can get a higher percent return would mean you want a lower settlement amount.

That's not the way it works.

K_P said:

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I'm just surprised the law wouldn't allow for conservative, supervised investment.

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Under traditional economic times, 4.4% is conservative supervised investment.

I was an FA for a long time and court settlements are often locked in stone. I had a client with a $250K CD paying about 1%, I rec'ed an insured muni bond paying about 3% and the judge said since the principal fluctuated he wouldn't allow it. Also met with a guy who received $15mm and all of it was in an annuity, not a penny in the market. If I remember correctly he was being paid $175K/year and every other year he got a $200K bonus.

OnlyForNow said:

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That is wild that they said file a claim.

Isn't that going to follow them around forever? A negligent accident in their home?

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I don't know but I'd imagine the OP would have known to do it anyway. It's a bit more than a bump or bruise and would be kinda pricy for medical care. Insurance liability covers all kinds of stuff like this and it's A good thing.

There are protections afforded if you have animals or a farm/ranch. If anyone has any amount of land with any animals or ag stuff, I highly encourage looking into signage and waivers.

For us, our insurance limits a visitors ability to claim anything. Everyone that comes out signs a complete liability release. With the passage of the recent clarification of the farm law and agritourism, we also have to post signs just about everywhere that make it clear that if you or your kid gets injured or killed by any livestock, or you trip on a mesquite stump and break your neck….