Raising children is a laborious task coated with love, sprinkled with support and dusted generously with encouragement. Unfortunately, parents do not have the luxury of being able to follow a simple recipe and 18 years later, “DING”, your child is ready! If it were only that simple.
If raising children is so daunting and complex then why, during the process of settling a case for a minor, do we default to such simplistic recommendations? Designing a settlement plan for minor children is always a challenge. Settlement Consultants should make recommendations based on these important goals:
- Protecting the child’s assets from
, family, friends, inflation and themselves.
- Preserving Public Benefits
- Leveraging settlement dollars
- Protecting Financial Aid Qualifications
- Growing Settlement Dollars
- Tax Efficiency
As a settlement consultant, one of my biggest pet peeves is getting a request from an attorney asking….. that I present a Structured Settlement quote for a minor, using the same payout ages of 18, 21, 25 and 30. These ages are so commonly requested by so many referring attorneys. Who picked these ages and why?
Age 18 is “The” age. The, “I can vote and die for my country!” age. The age of majority. Adulthood. I can understand why we would want some money to be given to our children at this age. They are, after all, considered adults at that age. Try to think back to when you were age 18 or just talk to a recent High School graduate. Are eighteen-year-olds mature enough to handle their own financial future in a society where it seems that the majority of adults struggle with money themselves?
If we address this issue from a different perspective, we may come up with some different ages and ideas. Financial Advisors have used “Needs Based Planning” techniques for many years. It is considered by many to be the most effective way to determine what is best for a client. Financial Advisors also analyze current information and use statistics to back up the reasoning for their recommendations. Drafting a solid settlement plan for a Minor is difficult to do because making decisions based on what “may” happen is like shooting at a moving target. The only thing that is consistent in life is change. Having said that, we need to make sure we do our best to make recommendations for our children based on realistic, if not absolute, facts.
After some research, I have found that ages 18, 23, 27 and 31 may be better years to target. Here are some recommendations for, and the reasoning behind, the dates of payments.
Age 18 – Transportation
Going off to college is a huge life changing event. I remember driving my 1972 Datsun 510 to college and when the motor started to die, I panicked. Alleviating worries of old used cars breaking down offer comfort to parents and students. Providing money to be paid out to them at age 18 will allow the children to purchase a safe car for work and school. Also consider a small monthly income stream to subsidize the increase in cost of auto insurance premiums through the college years.
Age 23 – College Debt Repayment
Instead of lump sum payments for college, it makes better sense to defer money until after college is completed. That way we are leveraging the minor’s money to assist in paying off student loans rather than taking the chance that the child chooses NOT to attend college because he/she was given a large lump sum of money too soon. Have the minor apply for college loans and write for grants, that they actually will have a better chance of qualifying for, without the additional settlement benefits having been paid out in their name prior to the completion of their studies. Financial Advisors refer to this as, using “O.P.M.” (Other People’s Money).
Why age 23? The U.S. Department of Education’s National Center for Education Statistics (NCES) tracked the progress of first-time students seeking a bachelor’s degree or its equivalent and attending a four-year institution full time in the 2000-2001 school years. It found that only 36 percent of students graduate from college within four years. Furthermore, the graduation class of 2008 carried an average debt of $23,200. [i]
Age 25 – 27 – Family Starter Funds
This is one of those “Moving Targets” that can be most challenging for settlement planners. Currently the average age of Americans starting a family is 26.8 years for men, and 25.1 years for women. Studies have shown that births by women between ages 25 to 29 has risen nearly one-third since 2007, which was already up 25% from the previous five years.[ii] Who knows when our children will start a family? When we are making these kinds of financial decisions for our children, we have to keep in mind that we don’t have a crystal ball to look into. We can not know for sure any outcome for our children. What we can take comfort in is that we are making these important decisions based on good information with the goal of enhancing the quality of their lives.
Age 30 – 35 – Down Payment for Home
Data from the most recent (2005) America Housing Survey (AHS), among the key findings is that first-time buyers were, on average, about 33 years old. So, if there are sufficient assets to allocate on behalf of the minor, why not take advantage of leveraging the settlement dollars to help with buying their first home? One of the most revealing questions I like to ask parents of an injured child is, “Given the same scenario, if you were in your child’s shoes, what opportunities would you want created for you?”
To summarize, raising children is hard work. Planning for their future is near impossible. Parents will never stop trying to help their children plan for a better life. Quite often the courts step in with their own method of protecting the rights of injured children in regards to how the settlement dollars are being invested and at what ages those settlement dollars will be disbursed.
If the case is large in value and trying to make these decisions for our children’s futures becomes daunting, consider establishing trusts that are much better at hitting those moving targets based on their flexible payout capabilities.
In the seven plus years I have been creating settlement plans for minors, the ages stated in the previous paragraphs were not only the most accepted ages by parents, but also the most frequently approved settlement plans by Judges during the Minor’s Compromise hearing.
My recommendations are that attorneys, the courts, and of course the parents of children involved in civil litigation settlements, reconsider the key ages in order to create an optimum settlement plan for minors. You get one chance to make this right! Take advantage of this unfortunate situation and seek the guidance of a Settlement Consultant to assist you making these crucial decisions.
i These figures appear in the latest study by the Project on Student Debt, an initiative of the Institute for College Access and Success, a nonprofit organization.
ii http://www.cdc.gov/nchs/data/nvsr/nvsr57/nvsr57_07.pdf
