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Delaware Settlements with Minors and the Uniform Transfer to Minor Act

Insurance Alert | October 16, 2014
By: Stephen J. Milewski

As a Delaware lawyer, one of the most frequently asked questions I get from insurance clients is: “Do all personal injury settlements with minors need to be approved by the Court?” The answer is and always has been yes. This is true regardless of the amount of the settlement. There have, however, been some recent changes under Delaware law which may help facilitate the process and even reduce the costs associated with settling small tort cases with minors. Traditionally, when settling cases with a minor, a Petition would be filed with the trial court (Superior Court) and then a hearing would be scheduled for the parties to present to the Court the terms of the settlement, explain the plaintiff’s injuries and itemize the fee breakdown. This would be the settlement approval process. After that, the plaintiff would be required to have a guardian appointed over the proceeds, which had to be approved by Chancery Court (Delaware’s Court of Equity). The purpose of this process was to ensure the settlement money going to the minor was managed properly; the net proceeds were generally placed into a bank account not to be used by the guardian or the minor until the minor reached the age of majority. To both the plaintiff, and the insurance carrier paying out the settlement, this process was burdensome and added disproportionate costs to small settlements.

In September 2014, the statute and court rules were amended in an effort to lessen the burden on the parties settling small personal injury cases with minors. 12 Del. C. §3901, which governs the appointment of guardianship with minors, has been amended to allow the Court to establish rules, including monetary thresholds, for the need to have a guardian appointed for settlement with minors. In turn, Superior Court Rule of Civil Procedure 133 was amended, setting the monetary threshold for guardianships of settlement with minors at $25,000. Thus, any settlement involving a minor for $25,000 or less, inclusive of any costs and attorney’s fees, no longer requires a Chancery Court appointed guardian over the settlement proceeds. Rather, the net proceeds for the minor of any settlement of $25,000 or less are placed into Uniform Transfer to Minor Act (UTMA) account for the benefit of the minor, which cannot be distributed until the minor reaches the age of majority. These $25,000 or less settlements still require court approval. However, an “in court” hearing is no longer a requirement, rather, the Court will consider these settlement approval petitions on the papers, which is expected to speed up the process and save costs of having a lawyer attend a hearing. Any settlement decided by the papers, has to be supported by sufficient evidence, including medical records or reports of the injured minor. If, after reviewing the submissions, the judge or commissioner feels there is insufficient evidence or some other good cause, a hearing can be ordered.

The amended court rules also allow the parties to bypass the guardianship process if the settlement proceeds are placed into a court approved annuity or a structured financial instrument. There is no monetary threshold for this rule to apply. The parties may also opt to combine these options, placing settlement proceeds of $25,000 or less into a UTMA and the balance into a court approved annuity or structure.

When the question arises, “do settlements with minors in Delaware still need to be approved by the Court?” The answer is always, yes. The rule changes only affect whether a hearing on court approval is necessary and whether a guardian needs to be appointed over the proceeds. Generally, if the settlement is for $25,000 or less, a hearing is not required; Court approval is decided on the papers; and the funds are placed in UTMA. If settlement is for more than $25,000, guardianship is required unless the funds are placed into a Court approved annuity or structured financial instrument..

For more information, please contact Stephen Milewski in our Wilmington office at 302-467-4502 or milewskis@whiteandwiliams.com.

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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