Minor's compromise: how courts approve a child's injury settlement

A minor's compromise is the court proceeding that approves a settlement of a child's legal claim and decides how the money will be held until the child reaches adulthood. Because a minor cannot legally sign a binding release, a parent or guardian negotiates the deal, then asks a judge to confirm that the amount is fair, that the fees and liens are reasonable, and that the net funds are protected. Until the court signs the order, the settlement is not final and the defendant's insurer will not release the money.

The name varies by state. California calls it a petition to approve the compromise of a minor's disputed claim, New York uses an infant compromise order, and in Texas the same job is often done through a so-called friendly suit. The core logic is the same everywhere. This guide explains how the process works, what the court looks at, the main options for holding the money, and the financial points families tend to miss. It is general education, and court rules differ by state and often by county, so confirm the local requirements with the attorney handling the case.

Why a child's settlement needs a judge

Two legal facts drive the whole process. First, a minor lacks capacity to enter a binding contract, which includes a settlement release. Second, a parent's natural authority over a child does not extend to giving away the child's legal claims. Without court approval, a release signed on a child's behalf can be challenged when the child turns eighteen, which is why defendants and their insurers insist on a court order before paying.

The judge's role is protective. The court is not there to second-guess every litigation choice, but it does check that the child is not being short-changed by the adults around them, including, in rare cases, the parents themselves or their lawyer. Our companion article on structured settlements for minors covers how the payment schedule is designed once approval is in view. This page focuses on the approval proceeding itself.

What goes into the petition

The parent, guardian or guardian ad litem files a petition, usually verified under penalty of perjury, that sets out the full picture of the claim and the proposed settlement. Using California's Judicial Council form MC-350 as a representative example, along with the filing guidance published by courts such as Orange County Superior Court, a typical petition includes:

• The facts of the incident and the injuries. Medical reports or a physician's letter describing the injuries, treatment and prognosis, so the judge can judge whether the amount is reasonable.
• The gross settlement amount and who is paying it.
• Medical expenses and liens. Bills paid and outstanding, and any liens from health insurers, hospitals, Medicaid or Medicare. Lien handling is often the most contested part of the review; see our guide to medical liens on a settlement.
• Attorney fees and costs. The fee agreement and a declaration supporting the reasonableness of the requested fee. Courts review minors' fees independently and can reduce them even where the parent agreed to a percentage.
• The proposed disposition of the net balance. Where the money will go: a blocked account, an annuity, a trust, or a combination.
• Any claims by the parents. In many states the claim for a child's medical expenses belongs to the parents rather than the child, so the petition may need to show how the settlement is split between the child's claim and the parents' claim.

Some states and courts offer an expedited version for straightforward cases. In California, an expedited petition (MC-350EX) can be granted without a hearing where the case meets set conditions, such as the child having fully recovered and the settlement falling within the form's criteria.

The hearing and what the judge checks

In a standard petition, the court sets a hearing. The guardian ad litem or parent and the attorney normally attend, and some courts expect the child to appear unless excused. A probate examiner or research attorney may review the papers in advance and post notes listing missing documents, which the petitioner has a short window to correct.

At the hearing the judge typically works through four questions:

1. Is the gross amount fair given the injuries, the strength of the claim and the defendant's insurance limits?
2. Are the attorney fees reasonable for the work done and the result achieved? Many courts apply their own fee standards for minors.
3. Are the liens and costs properly documented and, where possible, reduced?
4. Is the plan for the net money adequately protective of the child until adulthood?

If the judge is satisfied, the court signs an order approving the compromise and directing how the money is to be paid and held. Payment to a blocked account or annuity issuer usually follows, and the depositing institution may have to file a signed receipt confirming the deposit before a compliance hearing is taken off calendar.

Where the money goes: the main options

The disposition order is where the financial decisions happen. The table below compares the common choices.

Option	How it works	Access before 18	Access at 18
Blocked account	Deposited in an insured bank account that cannot be withdrawn from without a court order	Only by court petition	Released in full to the young adult
Structured settlement annuity	Net funds buy an annuity that pays on a court-approved schedule	None, by design	Payments begin on the schedule, which can stretch into the twenties or beyond
Trust	Funds held by a trustee under court-approved terms	As the trust terms and court allow	As the trust terms provide; can continue past 18
Special needs trust	Holds funds without disqualifying the child from means-tested benefits	For supplemental needs, per trust terms	Continues under trust terms
Small amounts paid to a parent	Some states allow modest sums to be paid directly, subject to a threshold	Parent holds for the child	Depends on state rules

Blocked accounts

A blocked account is the simplest option and often used for smaller settlements. The money sits in a federally insured account titled for the minor, and the bank will not release it without a court order. The drawback is that the full balance becomes available at eighteen, in many states with no further oversight. Interest earned on a bank deposit is also taxable, even where the settlement itself is not.

Structured settlement annuities

For larger settlements, courts often favour a structured settlement, where the net funds buy an annuity from a life insurer and the payments start at eighteen or later. Some courts set minimum insurer financial-strength ratings for the issuing company and require the annuity to name the minor as the measuring life with the minor's estate as beneficiary. Where the claim is for physical injury, the payments generally keep their income-tax-free character under IRC §104(a)(2), including the growth built into the annuity. That is a material advantage over a bank account, whose interest is taxable.

Trusts

A trust gives the most flexibility over timing. A court may approve a trust that continues past eighteen, which can be sensible for a large award or a child who will need long-term support. Where the child receives or may need means-tested public benefits such as SSI or Medicaid, a special needs trust is usually considered, and some states require notice to state benefit agencies before the court approves it.

Withdrawals before the child turns eighteen

Once money is blocked or placed in a court-supervised arrangement, getting any of it out early requires a further petition. Courts generally approve withdrawals only for expenses that clearly benefit the child and that the parents cannot reasonably be expected to cover from their own resources. Ordinary living costs are usually the parents' legal responsibility, so requests for routine expenses are often refused.

Requests that have a better chance of approval tend to be specific and documented: a therapy programme not covered by insurance, adaptive equipment, or a particular educational need. Expect to provide receipts or quotes. An annuity, by contrast, cannot be accessed early at all, which is exactly why some families and judges prefer it.

The financial points families tend to miss

As an accountant, the issues I see overlooked are rarely the legal ones. They are the money ones.

The release date is a planning date. A blocked account opens at eighteen. That is a large sum handed to a young adult, often with no preparation. Many courts will approve a staggered annuity schedule that delays part of the money into the early or mid-twenties. It is worth discussing before the petition is filed, because the disposition is hard to change afterwards.

Tax on growth depends on the vehicle. The settlement for physical injury may be tax-free, but bank interest on a blocked account is taxable to the child each year and may need reporting. Annuity payments under a qualifying structure generally keep their tax-free character. Investment returns inside a trust have their own rules. Check the tax treatment of each option with a professional.

Benefits eligibility matters. A blocked account or annuity paying directly to the child can affect eligibility for means-tested benefits now or in adulthood. This is the main reason special needs trusts exist.

Liens can be negotiated. Health insurers and government payers often reduce liens, particularly where the settlement is limited by policy limits. The petition should show the reductions obtained, and the court may ask.

Selling an annuity later is possible but costly. Once the child is an adult, they gain the same rights as any payee, including the ability to seek court approval to sell future payments under the state Structured Settlement Protection Act. Factoring companies buy those payments at a discount. That is a decision for the adult payee to weigh carefully later, with the court applying a best-interest test; see the structured settlement court approval process.

How long the process takes

Timelines vary widely by court. A straightforward expedited petition can be resolved in weeks, while a contested lien or a fee dispute can stretch a standard petition over several months. Delays usually come from missing medical documentation, unresolved liens, or an incomplete annuity quote. Gathering those items before filing is the single most useful thing a family can do to shorten the wait.

Frequently asked questions

What is a minor's compromise?

It is the court proceeding that approves the settlement of a child's legal claim. A parent or guardian files a petition setting out the claim, the settlement amount, the fees, the liens and the plan for the money, and a judge decides whether to approve it. Without that approval, the release signed for the child may not be binding.

Can parents use a child's settlement money?

Not freely. The court decides where the money is held, usually a blocked account, an annuity or a trust, and withdrawals before eighteen need a further court order. Courts typically approve them only for specific needs that benefit the child and that the parents cannot reasonably cover.

Does a court have to approve the attorney's fee in a minor's case?

In most states, yes. The court reviews the fee independently as part of the petition and can reduce it, even where the parent signed a contingency agreement. Some courts publish their own standards for what they consider reasonable in minors' cases.

What happens to the money when the child turns eighteen?

It depends on the vehicle the court approved. A blocked account is generally released in full at the age of majority. An annuity pays on its fixed schedule, which may start at eighteen or later. A trust follows its own terms and can continue beyond eighteen.

This article is general education, not legal, tax or financial advice. The handling of minors' settlements is governed by state law and local court rules, which vary considerably. Speak to a qualified attorney and tax professional about your family's circumstances.