by John Darer CLU ChFC MSSC CeFT RSP CLTC
With birthdays and holidays, it's not uncommon for parents to want to do something special for their children. But does that include selling a minor's structured settlement to buy an ATV recreational vehicle?
So what happens if a 10 year old child appeals to the parent for something like an ATV and the parent would get it for them if they could afford it right now, can the parent and guardian reach out to a structured settlement buyer and sell the minor's structured settlement payments earmarked for college, for cash now, to buy an ATV? If they could, would the deal make financial sense?
Structured settlements are common in settlements involving minors and are preferable to blocked accounts or the court's registry. Blocked accounts and the court's registry will earn little-to-no interest from the date of the settlement until the child reaches the age of majority. Upon reaching the age of majority, the child has unrestricted access to the entire amount of the settlement, at a time when he or she might not be financially responsible enough to make smart decisions about a substantial amount of money.
So what happens if a 9 1/2 year old child appeals to the parent for something like an ATV and the parent would get it for them if they could afford it right now, can the parent and guardian reach out to a structured settlement buyer and sell the minor's structured settlement payments earmarked for college, for cash now, to buy an ATV? If they could, would the deal make financial sense?
Settlement Agreements and Qualified Assignments Contain a Prohibition, Unless...
If you review any settlement agreement and release or qualified assignment agreement you will see a paragraph that looks something like this:
"Acceleration, Transfer of Payment Rights. None of the Periodic Payments and no rights to or interest in any of the Periodic Payments (all of the foregoing being hereinafter collectively referred to as “Payment Rights”) can be
i. Accelerated, deferred, increased or decreased by any recipient of any of the Periodic Payments; or
ii. Sold, assigned, pledged, hypothecated or otherwise transferred or encumbered, either directly or indirectly, unless such sale, assignment, pledge, hypothecation or other transfer or encumbrance (any such transaction being hereinafter referred to as a “Transfer”) has been approved in advance in a “Qualified Order” as defined in Section 5891(b)(2) of the Code (a “Qualified Order”) and otherwise complies with applicable state law, including without limitation any applicable state structured settlement protection statute."
Why the Restrictions?
- Tax Reasons Setting aside the part of the paragraph that deals with Section 5891, the the foundation of this language is the tax law that supports the tax exemption afforded structured settlement payees who are receiving periodic payments as damages.
- Protection If someone wants to sell their structured settlement payments, the transaction must be approved by a state court judge, in compliance with the settlement protection act in the state where the payee resides. It's not a perfect system but as the Barber case shows, one cannot always rely on structured settlement factoring companies (and sometimes parents) to be trustworthy.
Does It Make Sense?
1. Unlikely to be Approved by Judge It is highly unlikely that a judge would approve the sale of minor's structured settlement payment rights for pennies on the dollar to make a discretionary purchase such as an ATV for a minor.
Special needs may be considered, but only if there are no other sources available, such as insurance. Settlements involving minors must be approved by a court and can only be changed by court order, for good cause shown, and of course the petitioning party would have to convince the judge that any change is a necessity for the minor.
2. Selling a structured settlement, or part of it, to pay for an ATV for a minor makes no financial sense
Many states have laws about what types of ATV’s are approved for what ages. For instance, in Kentucky, any operator under the age of 12 must have a helmet, parent supervision and cannot operate an ATV that has an engine size of 70 cubic centimeters (cc). Harry Sheen addresses the subject in a 2019 article posted on Axle Addict says "When it comes to shopping for a brand new 70cc ATV, there are a lot of different models to consider from a range of different brands. ATVs this size are generally intended for kids around the ages of 6 to 10, but I would definitely recommend that you:
- check your four-wheeler manufacturer's recommended age guide)
- check for any local and state age limits for ATV riding.
Sheen says " considering your child's age and experience on a four-wheeler, you might want to get a 50cc four wheeler or even smaller for your kid".
An ATV for child aged 10 or under, would set you back perhaps $2,500 with a helmet and all the gear. If you have a structure with payments earmarked for college, you wouldn't want to touch that at all. Say your child has a lump sum at age 21 or 22, the ATV would have a net cost of at least double that to net out the $2,500 after the costs and profits of the factoring company are taken into account.
Whatever you do, do not call structured settlement buyers for advice about your minor's structured settlement
If you engage any structured settlement buyers by email, phone, text or other form of communication, you may be speaking with someone who is both unlicensed and unqualified to give advice. Furthermore, your child's information will go into their database, leaving your child open to abuse later. Stay safe.
According to the 2018 Annual Report of ATV-Related Deaths and Injuries, published by the U.S. Consumer Product Safety Commission in February 2020, children under 12 made up 48% of child fatalities and 52 % of the injuries involving ATVs in 2018 and 44% of the fatalities over the 37 year period from January 1, 1982 to December 31, 2018.