What Happens to the Money a Child May Receive From A Settlement

child in carseat

Car accidents that result in personal injuries are traumatic events, especially when children are involved. The emotional and physical toll can be overwhelming for the entire family. In such unfortunate circumstances, what happens to the money a child may receive from the settlement of a personal injury lawsuit? This is a question that many parents and concerned family members have, and it's worth exploring in detail.

A Brief History

Interestingly, the issue of financial compensation for minors is not unique to personal injury cases. Dating back to the early 20th century, there have been situations where children earned substantial amounts of money, only for it to be mismanaged or spent by their guardians. Prominent cases include child actors whose earnings were squandered by their parents. Because the funds of children are uniquely vulnerable to mismanagement or theft by adults, laws have been enacted to protect the financial interests of minors.

Legal Safeguards for Children’s Compensation

Today, almost every state has specific laws in place to ensure that if a child receives money—whether from an acting gig, an inheritance, or because of a personal injury lawsuit—that money is protected for the child’s benefit. These laws sometimes involve the appointment of a financial guardian or a trust to manage the funds until the child reaches the age of majority. 

The Age of Majority

The age of majority varies from state to state but generally falls between 18 and 21. This is the age at which the child is legally considered an adult and gains control over their finances, among other rights and responsibilities. In the context of a personal injury lawsuit, any financial compensation awarded to a child is usually kept in a protected account until they reach this age. 

Supervision of Funds

Typically, the court appoints a responsible adult, sometimes a parent or legal guardian, to supervise investments and disburse funds. In most cases, there are strict regulations about when and how the money can be used before the child reaches the age of majority. Using these funds usually requires court approval to ensure it serves the child’s best interests. 

The Colorado Context

 Suppose you're in Boulder, Colorado, your child is injured in an accident, you hire an attorney, and you reach an agreement with the responsible parties to settle all of your child’s claims for damages. In that case, the laws of Colorado mandate that any proposed settlement of a minor’s injury claim be approved by a court.  If approved, the funds are usually held in a restricted account until the child reaches the age of majority, which is 18 in Colorado.

Here is an outline of how it works:

First, in Colorado a minor cannot settle their own claim. Instead, a representative acting on the minor’s behalf enters into a settlement agreement, if approved by the court.

 These types of settlements usually occur in:

-Personal Injury Cases

-Wrongful Death Cases

-Distribution of Life Insurance Proceeds

-Distribution of Decedent’s Estates, or

-Other cases involving settlements of minor’s claims

Rule 16 of the Colorado Rules of Probate Procedure (“Rule 16”) sets forth the requirements for filing a Petition with a court for Approval of a such a Settlement.  

In our practice, representing victims of car wrecks and other accidents that involve children, Rule 16 petitions are often filed by counsel for the parents of the injured child.

The Law requires that a Rule 16 petition (or request) for approval of settlement be:

-Submitted in writing

-Signed by everyone acting for the child

-Be determined to be Just and Reasonable by the court

* Rule 16 Request will include the following information:

-The name and age of the minor

-The minor’s residence

-An explanation of the accident, the injuries, and any future damages

-The name(s) of the defendants

-The names and residences of the parents or legal guardians of the minor

-Custody information for the child

-The total settlement amount including what damages are covered

-A statement showing how attorney’s fees were calculated and deducted

-An affirmation that the minor and his representatives understand the proposed settlement is full and final and bars any future claims

All Rule 16 petitions are set for an evidentiary hearing.

These hearings are protective proceedings designed to safeguard the vulnerable and they require strict compliance with the law, including notice.

Once the hearing date is set, notice must be given to all interested parties. In a personal injury case this includes:

-The Defendants or Responsible Parties

-The Insurance Companies

-The Parents

-Any Conservator or Guardian

-Anyone seeking a Conservatorship or Guardianship

-Anyone having a subrogation right

-Any Government Agency paying or potentially paying benefits to the minor

-Any other person ordered by the court

The judge in charge will decide how to conduct the hearing but the agenda will include:

-Consideration of the information that has been provided to the court

-The Nature of the case

-The Proposed settlement agreement

-Whether the agreement is in the best interests of the minor child

-How the child’s funds will be managed if the settlement is approved

The court has options as to how the settlement funds will be managed. Depending on the amount of the settlement, the circumstances of the parties, the potential benefits of structured payments, and other factors, the judge may order the funds be placed in a:

 -Restricted Account (We see this often.)



-Trusts or other Third-Party Management


-Structured Settlements

-A combination of the above such as a Trust originally funded with cash and receiving future annuities

Ultimately the decision on whether to approve a Minor Settlement Agreement will be based on it being in the best interest of the child.

Why Consult an Attorney?

The emotional ordeal of seeing a child injured is incomparable, but knowing their financial compensation is legally safeguarded offers a small solace. If your child has been involved in a car accident, legal advice is indispensable. At Chris Parks Law, we provide a free consultation to address any concerns you may have about securing your child’s financial future.

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