By Melisa M. W. Mysliwiec
Fraser Trebilcock
If you read last month's column, published August 22, you now know that as a parent, you do not have the authority to settle your minor child’s personal injury claim without prior review and approval of the settlement by a probate court. That article discussed the procedure for settling a minor's claim before an action is commenced, which is governed by the Estates and Protected Individuals Code. This article discusses who has the authority to settle a claim, how to settle, and options for distributing settlement proceeds for a minor after a lawsuit has been commenced in circuit court.
Picture this: John's son, Adam, who is 7 years old, was recently injured in an automobile accident. John has commenced a personal injury suit on Adam's behalf in circuit court. The parties have reached a settlement of $200,000. Now what? John will need to obtain approval of the proposed settlement from the circuit court judge to whom the personal injury claim is assigned. Assuming the court determines that the terms of the settlement are fair and in Adam’s best interest, how are settlement proceeds over $5,000 paid? They cannot be paid outright to Adam because he is a minor, and they cannot be paid to John as Adam's parent because by law no more than $5,000 can be paid in any one year to a parent with whom the minor child resides.
To proceed, John will first need to obtain probate court approval on how the settlement proceeds will be distributed prior to the circuit court approval of the settlement. For example, he may need a conservator appointed for Adam who would be authorized to hold and manage the settlement proceeds for Adam’s benefit until he turns 18. A conservator is an individual appointed by the probate court to protect and manage the financial affairs of another individual. Alternatively, John could petition the probate court for a protective order establishing some other appropriate protective arrangement such as an irrevocable trust for Adam's benefit to hold the settlement proceeds or a structured annuity contract that would provide for payments to be made to Adam over a specific period of time. No matter the protective arrangement sought, it will require probate court involvement.
Once the probate court has either appointed a conservator and passed on the sufficiency of the bond of the conservator, or entered a protective order for some other type of protective arrangement, John is ready to seek approval of the proposed settlement from the circuit court judge to whom the personal injury claim is assigned. Because the claim is for damages because of personal injury to a minor, Adam will need to personally appear in court to allow the judge an opportunity to observe the nature of his injury unless, for good cause, the judge excuses his presence. The circuit court judge is the one who will pass on the fairness of the proposed settlement. If the judge approves of the settlement, his or her order will depend on what transpired in the probate court. For example, if a conservator was appointed, the circuit court's judgment must require that payment be made payable to Adam's conservator on his behalf. Alternatively, if an irrevocable trust for Adam was established and approved by the probate court, the circuit court judge will order that the payments be paid to the trust.
In summary, settlement of a personal injury suit commenced on behalf of a minor can only occur after prior review and approval of the proposed settlement agreement by the circuit court. However, before the circuit court will enter judgment on the settlement, the probate court must first appoint a conservator or enter a protective order directing how the settlement proceeds will be held and used for the minor's benefit. Essentially, once a lawsuit has commenced, settlement involves a two-step process which requires involvement of both the probate court and the circuit court.
For more information, contact Melisa Mysliwiec at Fraser Trebilcock, 40 Pearl Street NW, Suite 910, Grand Rapids, Michigan 49503, (616) 301-0800, or e-mail her at mmysliwiec@fraserlawfirm.com. You may also reach Melisa, or any other member of Fraser Trebilcock's Trusts and Estates Department, at its Lansing office, located at 124 West Allegan Street, Suite 1000, Lansing, Michigan 48933, (517) 482-5800.
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