So, picture this: John’s 7 year old son, Adam, was recently bit by a dog and suffered damages as a result. John and the dog owner discussed Adam’s personal injury claim, but no complaint was actually filed. Instead, in order to avoid litigation, the dog owner offered to pay Adam $10,000 to settle Adam’s personal injury claim. John agrees that this would be better than litigating the claim and agrees to the settlement.
But, can he do that? No – he can’t. Adam can’t sign the settlement agreement himself either since he’s only 7 years old. Who can settle on behalf of Adam?
John can enter a settlement on behalf of Adam, but only after the settlement is first reviewed and approved by the probate court. Until John has court approval, he has no authority to bind Adam. Because of this, in order to fully protect himself, the dog owner should insist on a court order approving the settlement and authorizing John to sign the settlement agreement on behalf of Adam.
Since there is not a personal injury case pending before a court (because no claim had been commenced yet), John will need to submit the proposed settlement to the probate court for review and approval and request authority to settle the matter on Adam’s behalf. Often times, a guardian ad litem will be appointed by the court to represent Adam’s interests. Assuming the court determines that the terms of the settlement are fair and that settlement is in Adam’s best interest, how are the proceeds paid? The dog owner cannot simply give $10,000 outright to Adam because he is a minor, and he can’t give it outright to John as Adam’s parent because it exceeds $5,000, which is the most that can be paid in any one year to a parent with whom the minor child resides. John should determine what he’d like done with the settlement proceeds before petitioning the probate court for approval of the settlement agreement because it’s likely he’ll need court approval for the distribution as well. For example, he may need to establish a conservatorship for Adam so that a conservator is 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. In this case, the petition for authority to settle should be filed with a petition for appointment of a conservator for Adam. Alternatively, John could petition the probate court for a protective order allowing him to establish a Uniform Transfers to Minors Account for the benefit of Adam and hold the funds in that account as his custodian until he reaches the age of 18, or until age 21. Again, it would be wise to seek review and approval of the settlement in conjunction with the petition for protective order.
What if, instead of being bitten by a dog, Adam had been injured in an automobile accident and a personal injury claim was commenced on his behalf by John? Thereafter, all the parties reach an agreement to settle for $200,000 in damages. For a discussion about who would have the authority to settle the claim for $200,000 on behalf of Adam, how to settle such a claim, and a detailed discussion of the options for distributing the settlement proceeds for Adam’s benefit, see Part 2 of this article in next month’s Ingham Legal News.
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 email@example.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.
This article written by Melisa M. W. Mysliwiec ©, originally appeared in the Ingham Legal News on August 22, 2013.