Society generally expects that parents or legal guardians safeguard minors’ interests. However, when a minor receives a personal injury settlement or judgment award, the legal system is designed to protect those funds from those adults.
Typically, state law establishes a system through which such funds are kept in special custody until the beneficiary reaches the age of majority. Here are the legal requirements in Virginia, Maryland and the District of Columbia as to how those funds are safeguarded and under what conditions the law allows withdrawal of certain amounts from those funds.
When minors receive large personal injury settlements, the funds are handed to the Circuit Court’s Clerk to keep for the child’s benefit until the child is 18. This is handled in accordance with Virginia Code 8.01-600.
The court can use its discretion to entrust the settlement funds to the child’s fiduciary to administer without having to file any further accounts with the court if the amounts are less than $25,000 or if in any given year the income to the child’s fund is not more than $25,000. This is under Virginia Code 8.01-606.
To use this avenue, some personal injury settlement agreements structure the settlements for children so that the fiduciary can meet the $25,000 threshold of the Virginia Code 8.01-606. The benefit of such arrangements is that the minor’s funds can be placed in more flexible accounts. The downside is that the funds are infused into the minor’s account in amounts of less than $25,000 per year.
The procedure is easier when a minor’s parent is recognized by the court as his or her legal guardian. When the minor’s guardian is what Virginia Code §64.2-1700 names as the minor’s “natural guardian,” basically his parent, that person shall have the possession, care and management of the minor’s estate, real and personal. After the guardian takes into account the minor’s other sources of income, support rights and other reasonably available resources, the guardian shall provide for the minor’s health, education, maintenance and support from the income of the minor’s estate. If that income is not sufficient, the guardian can draw from the corpus of the minor’s estate.
However, there are still substantial limitations on how those funds can be spent. Section 64.2-1801 establishes that a guardian of a minor’s estate shall not make any distribution of income or corpus of the minor’s estate to or for the benefit of a ward who has a living parent, whether or not the guardian is the parent. The exception is if the distribution is authorized by the circuit court if it finds that:
- the parent is unable to completely fulfill the parental duty of supporting the minor, or
- the parent cannot for some reason be required to provide such support, or
- a proposed distribution is beyond the scope of parental duty of support in the circumstances of a specific case.
The law leaves an avenue for parents or guardians of minors with a personal injury settlement or award funds to petition the court to recognize hardships and allow the child’s parent to withdraw some amounts to meet the child’s needs. They must show that the withdrawal is necessary to meet parental expenses above the ordinary ones of parental obligations due to the parent’s poverty or due to higher than normal costs of looking after the child, including burdensome medical costs. The courts allow withdrawals for unusual expenses, such as large medical bills that could not be reasonably anticipated to fit into the parent’s usual budget of expenses for that minor.
The relevant case law establishes that the custodian of a minor’s funds cannot reimburse herself either for expenditures she makes for her own benefit or for expenditures that she is legally obligated to make from her own funds for the minor. Parents spend money to raise their children and the courts would generally not allow the parents to use their children’s personal injury awards to cover the ordinary expenses of raising a child.
Generally, Maryland laws do not require a court’s approval for claims settlement with minors if the minor’s “next friend” for the claim is his living parent. However, if the next friend is not a parent or the person in loco parentis of the child, the settlement is not effective unless approved by the parent or other person responsible for the child. Md. Code Ann., Cts. & Jud. Proc. §6-405.
The funds recovered by the minor are protected. It is the state’s public policy that any substantial sum of money paid to a minor because of a claim, action or judgment in tort should be preserved for the minor’s benefit. Md. Code Ann., Est. & Trusts § 13-402.
A minor is defined as a person who is under 18 and who either lived in the United States at the time of the accident or lives in the United States at the time of receiving the money for a tort claim. Md. Code Ann., Est. & Trusts § 13-401.
If a minor recovers more than $5,000, the payment by a responsible person has to be made either to the court-appointed guardian for the minor, or a check needs to be issued to the order of the trustee for the minor. Md. Code Ann., Est. & Trusts § 13-403. The trustee then needs to deposit that check either in a financial institution chartered and supervised under the state or federal laws, or invest that money in general obligations of the United States, Maryland or its subdivisions, or invest it in an open-end management investment company that needs to meet specified requirements aimed at ensuring that those investments are sound and non-speculative. Md. Code Ann., Est. & Trusts § 13-404.
Except upon the order of a circuit court, the financial institution keeping the proceeds for the minor’s benefit may not allow the withdrawal of any of the money except to pay it to the minor when he or she reaches age 18 or to pay to the personal representative of his estate if the minor dies before reaching age 18. Md. Code Ann., Est. & Trusts § 13-405.
The trustee has to petition the court in the county where the money is on deposit for any withdrawal of money from that trust account. If money is desired for any purpose other than to pay for medical expenses of the minor, or to further the education of the minor, including reasonable expenditures for room and board, the court shall require a strong showing of necessity by the trustee in a hearing. Md. Code Ann., Est. & Trusts § 13-406.
District of Columbia:
In any case where the net value of the money and property due to the minor exceeds $3,000, a guardian must be appointed by a court of competent jurisdiction for the estate of the minor to receive the money and/or property on behalf of the minor. D.C. Code §21-120(b).
Similar to Virginia and Maryland, the guardian of the minor’s funds is to keep those funds for the best interests of the minor, and the law requires that the guardian settle an account of his trust under oath at least once a year. D.C. Code § 21-143.
The age of majority is 18. D.C. Code §46-101. In the District of Columbia, the settlement of a claim involving a minor is controlled by D.C. Code §21-120(a) and (b).
The person who is bringing a legal action on behalf of the child is also allowed to reach a settlement agreement in that legal action on that minor’s behalf, but such a settlement agreement needs approval by a judge of the court where the legal action is brought. D.C. Code §21-120(a).
The following limitations are placed on the expenditures from the custodian funds held for the benefit of a minor (D.C. Code § 21-143):
“The court shall determine the amounts to be expended annually in the maintenance and education of the infant, regard being had to his future condition and prospects in life; and if it deems it advantageous to the ward, may allow the guardian to exceed the income of the estate and to make use of the principal and sell it or part thereof, under the court’s order, as provided by this subchapter; but a guardian may not sell any property of his ward without an order of the court previously had therefore.” D.C. Code § 21-143. -0-