April 1, 2021
Annuities have traditionally been attractive vehicles to hold funds for injured minors. Tax free future income for the injured child is appealing to parents, and when rates are good, single premium annuities can provide considerable return. However increased scrutiny by Florida courts regarding court approval, in addition to recent market developments have given annuities for Florida child injury settlements significant downside. Here we will explore the disadvantages of annuities in this context.
Florida Statute 744.387First, it is important to realize that the purchase price of an annuity (even when purchased directly by the insurance carrier) is considered part of the “net settlement” paid to the minor to resolve an injury claim under F.S. 744.387. Therefore, the purchase of an annuity for Florida a child injury settlement does not abrogate the need for court approval or the appointment of a guardian of the property pursuant to Florida’s rules for the settlement of minors’ claims (see our flowchart on minor settlement rules here). Cases like Montalvan and Auerbach demonstrate how costly it can be to run afoul of the guardianship rules, and when purchasing an annuity, only a court appointed “guardian of the property” can sign a binding release for a child receiving a net settlement greater than $15,000.00. When using an annuity for a child injury settlement, a Circuit Court must approve both the adequacy of the settlement, andthe annuity contract and payment structure. Many Florida courts have become savvy that the “guaranteed” annuity payout to the minor is not in fact guaranteed, and are applying increased scrutiny to proposed annuities for children.
The Elephant in the Room: 877-Cash-NowThrough catchy and ubiquitous advertising, JG Wentworth and other “cash now” companies maintain top of mind awareness with anyone holding an annuity but needing an immediate windfall. For a child turning 18, the proposition of a large immediate payout is often too tempting to resist. Many children reaching the age of majority elect to cash in their annuities instead of receiving the more modest regularly scheduled payments guaranteed by their structured settlement. This often leaves the settlement beneficiary with half (or less then half) of the original negotiated settlement amount.
Florida courts have become wise to this dynamic, and some judges now require annuities for child injury settlements to allow for a disbursement of the full purchase price of the annuity immediately upon the child reaching the age of majority, to avoid such the annuity being sold at a discount. This can be a difficult clause to negotiate with an annuity provider, and may result in significant wasted time when neither the court nor the structured settlement vendor will budge on the issue, causing the annuity deal to be scrapped.
Falling Annuity ReturnsThe annuity market took a significant dip in 2020, and does not seem poised to quickly bounce back. If you were shopping annuities in mid 2020, you may remember that the drop in promised returns was both sudden and precipitous. Where in the first half of 2020 annuity rates would allow significant returns, those returns became marginal by the end of the year and have continued to be unimpressive into 2021. These falling rates, combined with the risk of minors electing to take early payouts and the related scrutiny being applied by the courts, combine to make annuities less attractive than ever. While there are still situations when an annuity will work well, changes to the legal and financial landscape mean this financial tool is losing utility in many cases.
Florida Probate Law Group has experience counseling injury firms and their clients regarding the resolution of child injury claims. Whether ultimately placing a settlement in a restricted depository, an annuity, a special needs trust, or some combination thereof, we are here to offer guidance. We work statewide on a flat fee basis with no fees upfront. Call anytime for advice on guardianship, probate, or government benefit matters affecting your settlements – (352) 354-2654. You can also email info@floridaprobatelawgroup.com anytime to get confidential advice.