When a birth injury case settles or results in a verdict, one of the most consequential decisions a family faces is how the money will be paid out. A structured settlement for a minor in Illinois delivers compensation as periodic payments over time rather than in one lump sum. A lump sum provides the full amount at once. Both options are recognized under Illinois law, and both involve court oversight when a child is the injured party. Understanding the trade-offs before accepting any settlement offer is essential.
This article provides general legal information; consult a licensed Illinois attorney for advice specific to your situation.
Why Court Approval Is Required for a Minor’s Settlement
Under 755 ILCS 5/19-8 of the Illinois Probate Act, any settlement or judgment in favor of a minor must be approved by a court. The judge reviews the terms to ensure they are in the child’s best interest. That review covers not just the total amount but the structure of payment — whether the money will be paid as a lump sum, placed in trust, converted into an annuity, or some combination. Neither a parent nor a guardian can unilaterally decide how settlement proceeds are held or paid without judicial sign-off.
This protection exists because a child cannot legally contract or manage large assets. The court’s role is to stand in for the child and evaluate whether the proposed arrangement will realistically meet the child’s needs over the course of their lifetime.
How a Structured Settlement Works
In a structured settlement, the defendant or its insurer funds an annuity contract that pays the injured party according to a predetermined schedule. Payments might be monthly, quarterly, or annual, and the schedule can be tailored to anticipated future costs — larger amounts timed to when the child is expected to need major medical interventions, for example, or payments that increase as care needs grow with age.
One of the most significant advantages of a structured settlement is the federal tax treatment. Under 26 U.S.C. § 104(a)(2), compensation received for personal physical injuries or physical sickness — including payments from a structured settlement — is excluded from gross income. A child receiving structured payments over decades typically owes no federal income tax on those payments, which substantially increases the effective value of the settlement compared to an equivalent taxable investment.
For a family planning around a child’s lifetime care needs, see our overview of birth injury life care planning and costs to understand how structured payments can be aligned with projected long-term expenses.
Protections Against Future Transfer: 215 ILCS 153
Illinois law governs what happens if the recipient later wants to sell or assign future structured settlement payments. The Structured Settlement Protection Act, 215 ILCS 153, requires court approval before any transfer of structured settlement payment rights can occur. A factoring company cannot simply purchase a minor’s future payments without a judge finding that the transfer is in the best interest of the payee. This protection prevents families from being pressured into giving up future payment streams in exchange for a discounted lump sum without judicial review.
How a Lump Sum Settlement Differs
A lump sum delivers the full settlement amount at once. For a minor, this typically means the money is placed in a court-supervised trust or a blocked account until the child reaches adulthood, at which point control transfers to the child. The lump sum approach offers more flexibility — a trustee can adjust investments and respond to unanticipated needs — but it also introduces investment risk and requires disciplined management over what may be a 20-year or longer horizon.
A lump sum may also be subject to investment returns that are taxable, unlike structured settlement annuity payments. Depending on how trust income is managed, some earnings may be treated as taxable investment income even though the underlying principal came from a personal injury settlement. Families considering a lump sum should work with an independent financial advisor and an attorney familiar with special needs trusts, particularly if the child may qualify for government benefits programs that have asset limits.
Key Factors to Weigh
No single structure fits every situation. The right choice depends on the severity and permanence of the child’s injury, the projected cost and timing of future care, whether the child will need government benefits (which can be affected by lump sum asset limits), the family’s capacity to manage a trust, and the total amount of the settlement. A life care planner or settlement planning professional can model different payout scenarios against the child’s projected needs. An independent settlement planner — someone who does not represent either side in the litigation — can provide objective analysis before you agree to any structure.
This article does not constitute financial or investment advice. The tax treatment described reflects current federal law and should be confirmed with a tax professional before relying on it in settlement negotiations.
Talk to a Chicago Attorney — Free Consultation
Structuring a settlement correctly for a child with a birth injury is one of the most important decisions in the case. Phillips Law Offices represents birth injury families throughout the Chicago area and works closely with life care planners and settlement professionals to evaluate payment structures. Call (312) 346-4262 or visit our contact page to schedule a free consultation. Attorney review is required before any settlement structure is finalized.