You spent eighteen months building liability, funding the life-care plan, and pushing the carrier past its first three offers. Then the release is signed, the check clears, and the money is handled in a way that costs your client more than the last policy limit you ever argued over. For a minor or a catastrophically injured adult, the decision between a lump sum and a structured payout is not a back-office formality handed to a broker at the end. It is a substantive part of the recovery, and in California it is one the court will examine whether you prepared for it or not.
The two questions that drive every one of these decisions are the same: who controls the money, and what does the money touch on its way to the client. Tax, probate approval, public-benefit eligibility, and the future-care projection all bear on those two questions. Getting them in the wrong order is how a good result turns into a fee dispute and a State Bar complaint.
The tax point that everyone knows and half the file gets wrong
Damages for personal physical injury are excluded from gross income under IRC § 104(a)(2). That much is familiar. The part that changes the structure analysis is what happens after the money is paid. A lump sum is tax-free when received, but the investment earnings it generates once it sits in an account are ordinary taxable income for the rest of the client's life. A properly assigned structured settlement, by contrast, carries the exclusion through to every periodic payment, including the growth built into the annuity. The mechanism is IRC § 130, which lets the defendant or carrier make a qualified assignment of the future-payment obligation to an assignment company, which funds it with an annuity.
For a 9-year-old with a payout meant to last a lifetime, or a 34-year-old paraplegic whose settlement has to replace forty years of earnings, that difference compounds into real money. The client who takes the lump sum and invests it competently still pays tax on the yield; the client with the structure does not. This is also why the factoring market is regulated: once a structure is in place, selling those payment rights for a discounted lump sum triggers the excise tax under IRC § 5891 unless a court approves the transfer, and California layers its own approval requirement on top under Insurance Code § 10134 and following. Tell your client, in writing, that the structure is not an ATM.
Minors' compromises are not optional, and the court has opinions
Any settlement of a minor's claim requires court approval. The procedure runs through Probate Code § 3500 and following for claims outside a pending suit and § 3600 and following when an action is on file, with the petition governed by California Rules of Court 7.950 through 7.955. A guardian ad litem must be appointed under CCP § 372. None of this is skippable, and a release signed without approval does not bind the minor.
Where structure enters is the disposition. Probate Code § 3611 gives the court a menu for the minor's net recovery: a blocked account released at age 18, a purchased annuity, a trust, or a transfer to a custodian. Many judges now expect to see an annuity or a blocked account rather than money handed to a parent, precisely because the alternative invites the kind of dissipation that fills the appellate reporters. If you walk in proposing a lump sum to the parent, expect the bench to push back. Come with the structure modeled, showing payments timed to college, a car, a first apartment, and a lifetime tail, and the hearing gets shorter. The same discipline you apply to documenting a file for audit — the habit described in our piece on building a case-selection protocol that holds up under audit — is what a well-prepared minor's compromise petition looks like.
Public benefits change the math entirely
For a client on SSI or Medi-Cal, an unstructured lump sum can be a disaster. A cash payout counts as a resource, and crossing the eligibility threshold suspends the benefits that pay for the very care the settlement was supposed to fund. The answer is usually a first-party special needs trust under 42 U.S.C. § 1396p(d)(4)(A), which holds the recovery without counting against eligibility, in exchange for a Medicaid payback provision at the beneficiary's death. California recognizes the mechanism directly: Probate Code § 3604 lets the court, on a minor's or incapacitated person's compromise, order the net proceeds into a special needs trust rather than a blocked account or an outright payment.
Structure and SNT are not competitors. The strongest arrangement often pairs them: the structured annuity pays into the SNT on a fixed schedule, so the trust receives a predictable, tax-favored income stream rather than a single deposit the trustee has to invest and defend. That combination smooths the resource-counting problem month to month and keeps the corpus from ballooning past what the trustee can prudently manage. Screen for benefit status before you talk numbers, because the client who says "I don't get any of that" sometimes means a spouse or an adult child on the household's Medi-Cal case does.
Make the life-care plan drive the payment schedule
In a catastrophic case you already have a life-care plan — the same document that anchored your demand and, if the carrier low-balled you into an excess verdict and a bad-faith recovery, framed the damages the jury saw. Do not shelve it at settlement. It is the blueprint for the payment schedule. A plan that projects a wheelchair replacement every five years, a van every seven, an attendant-care escalation at a known age, and a home modification at retirement is telling you exactly when the money needs to arrive.
A structure lets you match cash to those events: level payments for daily needs, indexed to inflation, with lump-sum "pop-ups" scheduled for the big-ticket replacements. Where future Medicare-covered care is on the table, coordinate the Medicare Set-Aside allocation with the annuity rather than funding it in cash — an MSA seeded and then replenished by structured payments usually needs a smaller up-front deposit than one funded outright. And run this alongside the lien picture. A recovery that looks generous on the demand shrinks fast once you account for the kind of federal-plan claim we covered in our analysis of the FEHB lien most plaintiff attorneys overlook. Resolve the liens, then structure what actually reaches the client.
Where the attorney exposure actually sits
Two failure modes recur. The first is presenting a single option. A client, or a probate judge, who is shown only "take the check" has grounds to ask why the tax-free-growth alternative was never modeled. Document that you laid out both paths, with numbers, and let the client choose. The second is the undisclosed relationship. Structured-settlement brokers are paid by the annuity carrier, and there is nothing wrong with using one — but the client should know who pays the broker and that you may have worked with that broker before. The same conflict hygiene that firms are being forced to formalize under the ownership changes we described in PE-backed MSO structures reshaping PI firm operations applies here on a smaller scale: disclose the money flow, in writing, before the client signs.
The through-line is timing. Tax treatment, probate disposition, benefit eligibility, and the care schedule all have to be settled before the release is, because after the check clears your options collapse to one. On the cases where the client is a child or will never work again, the structure decision is the case. Treat it that way from the demand forward, not as the thing you sort out on the courthouse steps.