Alan was involved in a car accident at the age of 15. He suffered significant fractures that kept him out of school for a long time. When he returned to school his lawsuit had been settled for a sizable amount of money involvinghundreds of thousands of dollars. Shortly afterward Alan got into the wrong crowd in high school.
He started experimenting with drugs and started to need money more often than he had in the past. He became demanding. He became obstructive. He wouldn't listen. Imagine if he was able to get his hands on hundreds of thousands of dollars to do whatever he pleased at the age of 16 or 17.
You might think this is an unusual scenario. It's not. The reality is that children under the age of majority in New York, may not be the most savvy financial planners. Teenagers tend to be impulsive and subject to much peer pressure. The laws of New York are designed to prevent impulse and frivolous spending.
When a parent brings a lawsuit on behalf of a child who's been injured, the law goes out of its way to make sure that that money that is recovered is protected until the child reaches the age of majority. They do that in order to give the child time to mature so that when he or she reaches the age of majority they will have more life experience and hopefully be better able to decide how best to use that compensation to further their life's goals and plans.
In order to accomplish that, the court is required to approved any settlement involving a child. Once the court has approved a potential settlement, there are strict instructions on what can and cannot be done with the money while the child is growing up. That money cannot be touched or used except in extremely limited emergency circumstances. The money will generally be invested in a court-approved investment vehicle seeking to conserve all the capital while at the same time generating interest.
The same thinking applies to a trust for a child. Estate planning lawyers often point out that if parents die leaving young children behind, it is never wise to entrust substantial sums of money to young children. They simply do not have the financial savvy, understanding and experience necessary to make good choices about what to do with that money.
The same applies here in cases that are settled involving children.
To learn more about this topic, I invite you to watch the quick video below...