How Do You Settle a Child’s Lawsuit in California?

By Darren Aitken

Here at Aitken*Aitken*Cohn, our Orange County personal injury attorneys represent many clients who are under the age of eighteen. These clients, due to their age, are considered minors under California law. While the rules governing claims for minors is identical to those for adults in most respects, the settling of a minor’s case is governed by its own set of unique rules. Under California law, no claim for a minor can be settled unless the terms of that settlement are approved by the Court.

The Court must approve both the amount of the settlement, and how the settlement money is being distributed (including an approval of any attorney’s fees and litigation costs that are being deducted from the minor’s settlement). In addition, the Court will supervise and approve the way the minor’s funds are being held until the minor reaches the age of adulthood. The rules governing a minor’s settlement apply whether a lawsuit is filed on behalf of a minor or whether the claim is settled before a legal complaint is filed.

These rules apply both whether the case is settled by the parties before trial or if the amount owed to the minor is determined by a jury after a trial. (In this article we will use the term “settlement” for simplicity, but the process is largely the same following trial.) In this article, we will outline the process governing the settlement of minor’s claims and explain what is expected from the parent of an injured minor after the settlement of a child’s claim.

The method to get a minor’s settlement approved is done through a legal filing called the “Petition For Minor’s Compromise”. The first step in this process is designating the adult who will represent the minor’s interests before the Court. This person is called the “Guardian Ad Litem” (or “GAL”). The GAL is typically the minor’s parent or legal guardian, but he or she does not have to be if the actual legal guardian prefers to designate someone else for that role.

At times, certain courts have prohibited the GAL from being a person who also had a claim arising from the same incident. For example, if both a mother and a child were injured in the same car accident and both brought a lawsuit against the other driver, certain courts would not let the mother serve as a GAL due to a potential conflict of interest.

That prohibition is uncommon, however, and most courts allow a parent to serve as the GAL even if that parent has his or her own claim stemming from the same matter.

The role of the GAL is to work with the attorney to negotiate the appropriate settlement with the attorney, determine how the minor’s money is to be preserved until the minor reaches the age of adulthood (within the limited choices that will be approved by the Court), and to review and approve the paperwork prepared by the attorney to be submitted to the Court.

This paperwork (called the “Petition”) outlines for the Court the circumstances of the case, the amount of the settlement, why this settlement is in the minor’s best interests, any deductions from the settlement (such as attorney’s fees and costs), and how the minor’s money will be safeguarded until the age of adulthood. The GAL is required to sign the Petition paperwork and accompany the attorney to the Court hearing where the Petition is heard and approved.

The complexity of the approval process is determined by the amount of the settlement. For amounts below $5,000, no separate Court approval is required. The GAL, however, is required to sign a declaration under oath promising that the minor’s funds will be put in a savings account on behalf of a minor and left untouched until the minor’s 18th birthday. There is an expedited process for settlements above $5,000, but below $50,000.

In expedited matters, the attorney involved fills out the simplified paperwork required by the Court. If the Court approves the paperwork, the requirement for an actual court hearing is often waived. For settlements above $50,000, both a complete Petition and a Court hearing is required. At this hearing, both the GAL and the injured minor must be present (unless the Court excuses in person presence upon request).

When working with our adult clients on these Petitions, the most common discussions we have concern where the Court will allow the minor’s money be placed until the minor reaches the age of adulthood. The options are quite limited. In financial terms, and pursuant to California Probate Code, the Court is almost exclusively concerned with the preservation of capital (meaning, the money is guaranteed to be there when the minor turns 18) and does not take into account the rate of return (the amount of investment returns the money can earn during the minor’s childhood).

In most cases, the only financial vehicles the Court will approve will be either a blocked savings account that will revert to the control of the minor at age 18 or a tax-free guaranteed annuity that pays during the minor’s young adulthood. Neither of these options will have a rate of investment return comparable to a stock-based account or other higher return financial instrument; instead, the courts (applying the Probate Code) insists on a guaranteed return.

Further, in the case of larger settlements, the courts typically prefer that the all or the bulk of the money be placed in the annuity since annuities can be designed to pay periodically over the course of years (e.g., ages 18-25). Periodic payments can avoid the potentially disastrous situation where the minor client gains full access to a large sum of money on his or her 18th birthday. While some teenagers will responsibly invest and spend a large sum of money, others may irresponsibly squander it.

The annuity can alleviate that issue by allowing multiple payments over time, with larger sums being paid out when the minor is in his or her mid-twenties. In certain limited circumstances, such as a profoundly injured minor reliant on government-funded health services, the court may require a more sophisticated legal guardianship over the funds such as a special needs trust. The establishment of such trusts require the services of probate specialists and separate filings within the probate court.

When a hearing date for the petition is set, the Court will typically require both the injured minor and the GAL to attend with the attorney. The presence of the GAL and the minor is to assist the judge presiding over the hearing to determine whether the proposed settlement and the disposition of the funds are in the minor’s best interests. During the hearing, the judge will often ask the minor how he or she is doing, and whether they still have any lingering issues stemming from the Incident.

The judge will also often ask the GAL whether they understand and approve of the terms of the settlement, and whether they understand that the settlement of the matter will be a full and final disposition of the claim. If good cause is shown, the courts will waive the requirement that the GAL and minor personally appear. A common example is where the GAL and minor live outside of California and it would be a hardship to travel back. These waivers are the exception, not the rule, however.

In sum, the settlement of a minor’s claim is a joint effort between the child’s guardian and the attorney, acting under the supervision and with the approval of the court system. Any significant monetary recovery will require the preparation of a sophisticated packet of documents, and the guardian’s presence at a court hearing is required. The effort is worth it, however, as the system ensures that funds owed to minors are fairly allocated and safeguarded until their adulthood.