Settlement for 5yo. What would you do?

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Allegra

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So, today we were informed that a judge has decided to award our 5yo $33,000 from a lawsuit regarding a life-threatening injury she sustained three years ago. We need to decide how we want the money to go to her. The law requires that she not receive any of it until she is 18, however, we can choose to have her receive a lump sum on her 18th birthday, or start receiving small amounts ($400-500) a month, which will ultimately result in her getting a slightly higher amount due to interest. Then when she turns 23, she will be given a lump sum of the remaining amount. My initial instinct is that no 18yo needs to get that amount of money and there is no possible positive outcome if she did. But maybe I’m wrong? Can anyone think of a reason why that choice would be preferable? And on a related note, when do I tell her this money is coming? Her 18th birthday will fall in October of her senior year in high school. If I had my choice, I would want her to finish high school without knowing this money was coming, however, that isn’t really presented as an option.
 
Not many 18-year-olds could handle getting a windfall like that. I do not expect that my son, age 12, could handle that six years from now. An extremely responsible 18-year-old, with clear life goals, maturity, and focus on the future, might be able to handle it. $33K would be a tidy down payment on a modest home.

I vote for the smaller payments until age 23.
 
The second option is much better. At 18 most (not all) youth are just not responsible enough. I had a similar situation when my father died and left a good chunk of change to my two children. My son surprised me…he was 23…and invested half his money and made a down payment on a house. I tended to think he would be less responsible than my daughter. I was wrong. My daughter was 19 and even though we gave her several good options on what to do with the money, including investing some, down payment on a condo, even upgrading her car to a better used one, she instead spent it on clothes, vacations and her boyfriend. She had literally nothing to show for it! The amount was similar to yours but 20 years ago.

Of course, a few years later she regretted it completely. She did learn a good life lesson, however, but the money was gone.

When the time approaches, have a good talk with her. Give her choices and advice. The longer she has to wait, the more mature she will be and at some point, you have to accept that it is her money and hope for the best! Good luck to you. I do hope she has no ongoing medical or other problems due to this!
 
I agree with the others that a monthly drawdown would be preferable to the lump sum. However, I don’t see why you would want to keep it a secret from her. My grandson was seven when he inherited a (much smaller) legacy from an aunt. He can’t touch it until he is eighteen, but he has always known all about it.
 
I’ve been a tax advisor for 20 years and helped in several such cases, just so you understand where my opinion comes from, but in keeping with forum guidelines, I’m not offering “advice” per se.

Set up the payments over time. The lump sum at 18 - or even the remainder lump sum at 23 - could be reinvested to deliver payments on a longer term and grow/protect the ‘principal’. There are tax advantages all around to delaying full depletion (usually) as well as just the pure logic of giving someone that age that amount of cash.

Furthermore, if you have (name removed by moderator)ut (and the court or other parties may say you don’t), I would say explore your options between now and then. Trust funds are “safe” but have many or often higher fees relative to say an IRA or other structured, restricted investment account.

Feel free to PM me if you like.
 
First of all, you’re already assuming that your daughter won’t be responsible with the money at age 18. Where’s that leave you, mom?

Why not tell her about the money now, and spend the next 13 years teaching her about money management?
 
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I also agree with the small amounts.

This will give her time to mature and to determine what she wants to do with the money. Depending on what she decides to pursue as a career, that could translate into a nice little nest egg for college, if she goes a little later, or even a down payment on a home.
 
That seems like a lot of money to a kid. I don’t want her to get any silly ideas like she doesn’t have to study because she has a “free ride” to college, or worse, that she doesn’t have to finish her education because she a move out and live off this money. She’s only five, so I don’t know what sort of attitudes she’ll develop as a teen. I want her to expect to have to pay her way and be responsible.
 
I wish I had that option, but she’ll start receiving the money right after she starts her senior year. I don’t know if there’s any way to legally hide it from her. On the other hand, I would have loved to have that money when I was a senior. I would have been able to afford to go on my class’ trip to France. I would have been able to take classes during the summer. I would have been able to go on a choir trip to New Orleans. I would have used it pretty responsibly. So, I guess I just have to wait and see what sort of kid she turns out to be!
 
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I’d teach her about money management either way. She’s already got an insane amount of cash in her back account because her dad’s side of the family all live out of state and send her money for every occasion in lieu of a check. I’m not assuming she’ll be irresponsible, I’m just being realistic that there’s a chance she will be and an irresponsible young person with a false sense of financial independence can do a lot of damage to themselves. I wish the worst thing I could imagine her doing is spending it all on candy, clothes, and trips to Six Flags.
 
According to my attorney, there is a law that specifies the kind of account the money can go toward.
 
There may be - there are tons of factors involved. That’s why I said you may not get a choice, but often people are pushed into trust funds when there are other alternatives simply because the attorneys don’t understand the options or because people look for the easiest path (which doesn’t always mean best). Prayers for your situation.
 
on_the_hill said:
Why not tell her about the money now, and spend the next 13 years teaching her about money management?
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I agree with this. Tell her about the money right away and spend the next several years teaching her anoint money management and teach her about how much stuff (like houses cost).

Help her to see how saving that money for a first home would be awesome for her adult life

God Bless & Godspeed
 
When it cones to money…Jesus had plenty to say in the gospels. I would suggest you meditate deeply on the passages in the new testament as well as the old. And ask God what he wants for your child…she belongs to God and he has a plan for her life. 🙏 🙏 for you
 
on_the_hill said:
First of all, you’re already assuming that your daughter won’t be responsible with the money at age 18. Where’s that leave you, mom?

Why not tell her about the money now, and spend the next 13 years teaching her about money management?
Click to expand...
She’s not assuming that her daughter will be irresponsible. She’s worried that many 18-year-olds in that situation would be irresponsible.
Why can’t she teach the child good money management over time without telling her about the windfall waiting for her till she’s about to receive it?

Also, what Divine3 said.
 
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If your daughter is 5 years old now, do you plan investing the money for the next 33 years or putting it in an interest bearing account? I would maybe tell her when she is 15 or 16 so you can sit down with her and develop a mature plan for what she wants to do with the money which I would hope over
13 years would grow. Maybe she would want to use it for school or for a new car or a newer used car. I think there should be a plan in place before she graduates and I think 16
is a mature enough age to tell her.
 
I can’t invest the money or do anything with it at all. The only thing I decide is whether she gets it all at 18 or over time, starting at 18. I would hope that she would use it for her education or as others suggested, save it for a down payment on a home.
 
Yes, those are both good ideas.

I don’t know if you should ask her when she is
16 or 17 if she wants the lump sum at 18 or
if she wants small monthly payments until she is 23.
 
I got word from the attorney this morning that he can request the money be given to my daughter on her 19th birthday, instead of her 18th birthday, but he doesn’t know if the judge agree to that order or not. I’d be much more comfortable with that though. She would have full access to the money which would be great if she has a great plan for using it. On the other hand, she wouldn’t have it at all until she graduated high school. The attorney isn’t sure that a judge will accept that plan though.
 
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