What Is a Minor’s Compromise in California? Approval and Payout

A minor’s compromise in California is the court procedure that must take place before any settlement or judgment on behalf of a child under 18 becomes legally binding. Because minors cannot sign enforceable contracts, a Superior Court judge reviews every disputed claim resolved for a child to confirm the deal is fair and that the money will be properly managed.¹ Without that approval, the settlement is voidable, and the child’s representative, or the child once they turn 18, can undo it and sue again.

When Court Approval Is Required

California Probate Code Section 3500 requires court approval any time a parent or guardian compromises a minor’s disputed claim, no matter how small the amount.² The rule covers settlements, covenants not to sue, and judgments in the minor’s favor. If a lawsuit has already been filed, Code of Civil Procedure Section 372 gives the guardian ad litem authority to compromise the claim only with the court’s sign-off.¹

File the petition in the Superior Court of the county where the child lives, or in any county where the underlying lawsuit could properly be brought.² There is no minimum dollar threshold. Even a modest personal injury settlement needs a judge’s approval before the release has any force.

Skipping the process is a serious mistake. A settlement that bypasses court approval is voidable at the option of the child’s guardian ad litem, who can disaffirm it, return the money, and start a new lawsuit over the same incident. Even if no one acts in the meantime, the child can bring the claim themselves after turning 18. The release also stays dormant until any court-ordered conditions, such as deposit of the funds into a blocked account or annuity, actually happen.²

Filing the Petition

The petitioner, usually a parent or court-appointed guardian ad litem, uses Judicial Council Form MC-350 to request approval.³ The petition asks for a full accounting of the claim: how the incident happened, what injuries the child suffered, what medical treatment was provided, and the current prognosis. A recent doctor’s report should be attached, along with copies of the medical bills. The financial side requires the gross settlement amount, itemized litigation costs, and the attorney’s fee request. If an attorney represents the child, that attorney must file a declaration explaining why both the settlement and the fees are reasonable. The petition is signed under penalty of perjury.

Expedited Approval for Smaller Cases

Straightforward cases can use Form MC-350EX for expedited approval without a hearing. This track is available only when all nine conditions of California Rules of Court Rule 7.950.5 are met. The key ones:

The petitioner is represented by a California-licensed attorney.
The case does not involve a wrongful death claim.
None of the net proceeds will be placed in a trust.
There are no disputed liens against the proceeds.
The total payable to all parties is $50,000 or less. Larger amounts can still qualify if the settlement is the full liability policy limits of every contributing defendant and those defendants could not realistically pay more from their own assets.

When expedited treatment applies, the judge decides the petition on paper. A hearing happens only if the petitioner asks for one, an interested party objects, or the court decides it needs one.⁴

How the Court Reviews Attorney Fees

Attorney fees in a minor’s compromise get closer scrutiny than in a typical personal injury settlement. California Rules of Court Rule 7.955 applies a “reasonable fee” standard to every fee request paid from the child’s recovery.⁵ The rule sets no percentage cap. It lists 14 factors the judge can weigh, and the court is free to approve less than the contingency agreement calls for.

In practice, the factors that drive the outcome are the size of the recovery compared to the fee, the complexity of the case, the risk the attorney carried, and the time and costs advanced. A soft-tissue case that settled before litigation is unlikely to support a 40 percent contingency fee, while a complex medical malpractice case that ran for years with expensive experts might. The attorney’s declaration should address these factors directly; a boilerplate justification is the quickest way to see the fee cut.⁵

What Happens at the Hearing

Once the petition is filed, the clerk sets a hearing date. The judge evaluates whether the settlement is in the child’s best interests, looking at the medical evidence, the reasonableness of fees and costs, and the plan for managing the net proceeds. Both the child and the petitioning parent or guardian may be required to appear and answer questions. A petition that looks rushed or leaves financial details vague tends to get continued rather than approved. If the judge is satisfied, the court signs an Order Approving Compromise on Form MC-351.⁶

How the Money Is Held Until the Child Turns 18

After fees and costs come off the top, the net proceeds don’t go to the parents to spend. The judge orders how the money will be held, and Probate Code Section 3611 gives the court several options.⁷

Blocked Accounts

The most common choice for smaller settlements is a blocked account, an interest-bearing, federally insured bank or credit union account that no one, parents included, can draw from without a court order.⁸ The court issues an Order to Deposit Funds in Blocked Account (Form MC-355), which the petitioner delivers to the financial institution. The bank then returns an Acknowledgment of Receipt (Form MC-356) to confirm the deposit.⁹ The tradeoff is growth: the funds earn whatever interest rate the bank pays, which can be limited over a long holding period.

Structured Settlement Annuities

For larger settlements, the court may approve a single-premium deferred annuity purchased with the proceeds.⁷ A structured annuity pays out on a schedule rather than as a lump sum, and payments can be designed to start at 18, step up for college years, or run across the child’s adult life. Annuity payments tied to a physical injury settlement stay tax-free under federal law, which gives them an edge over the taxable interest a blocked account generates.

Court-Supervised Trusts

When a settlement is substantial or the child has special needs, the court may order the funds into a trust created or approved in the order itself. A trust under Probate Code Section 3611(g) must be revocable by the minor on turning 18, and the court sets additional terms covering trustee accounting and bonding.⁷

Getting Early Access to Blocked Funds

The point of a blocked account is that no one can touch the money, but sometimes a real need arises before the child turns 18. A parent or guardian can petition for an early withdrawal, and the request has to show that the money will directly benefit the child, not the family’s finances generally. Judges tend to grant withdrawals for school tuition, specialized educational programs, or expenses tied to developing a child’s exceptional talent in academics or athletics. A request to buy the family a car will fail; a request to buy a teenager a car for college commuting has a better chance. Bring documentation of the need and its cost, and consider having the child attend so the judge can hear from them directly.

Tax Consequences

Most personal injury settlements for minors are not taxable income. Under Internal Revenue Code Section 104(a)(2), damages received on account of physical injuries or physical sickness are excluded from gross income, whether paid as a lump sum or over time.¹⁰ That covers medical bills, pain and suffering, and lost future earnings tied to a physical injury. Punitive damages are the main exception and remain fully taxable.

Where families get caught off guard is the interest that builds up on blocked account funds. That interest is taxable income to the child, even though the underlying settlement wasn’t. If the child’s unearned income exceeds $2,700 in a tax year, the kiddie tax rules may apply, requiring Form 8615 and taxing the amount above the threshold at the parent’s marginal rate instead of the child’s. Parents can sometimes simplify matters by electing to report the child’s interest and dividends on their own return using Form 8814, but only if the child’s gross income is under $13,500 and consists solely of interest and dividends.¹¹ Structured annuity payments on a physical injury claim sidestep this issue because both principal and growth stay tax-free.

Protecting Government Benefits for Disabled Children

For a child who receives means-tested benefits like Supplemental Security Income or Medi-Cal, a standard blocked account can be a disaster. These programs have strict asset limits, and a $20,000 blocked account in the child’s name can push them past the threshold and cut off benefits the family relies on for ongoing care.

A first-party special needs trust, sometimes called a supplemental needs trust, holds the settlement without counting it as the child’s assets for eligibility purposes. The trustee can spend on expenses that supplement rather than replace what government programs already cover. Two strings come attached: the trust has to be administered carefully to avoid disqualifying disbursements, and on the beneficiary’s death, remaining funds must reimburse Medicaid for services provided during the beneficiary’s lifetime before anything else is distributed.

An ABLE (Achieving a Better Life Experience) account is another tool for eligible individuals with disabilities. As of 2026, anyone whose disability onset occurred before age 46 can open one, with a standard annual contribution limit of $20,000. The account grows tax-free when used for qualified disability expenses, and the first $100,000 is excluded from SSI’s asset calculation. An ABLE account won’t hold a large settlement on its own, but it can work alongside a special needs trust to give the family more flexibility.

What Happens When the Child Turns 18

Access at adulthood depends on how the funds were held. If the proceeds went into a court-supervised trust under Section 3611(g), the trust must be revocable by the beneficiary at 18, and the now-adult beneficiary can revoke it and take control of the assets. For blocked accounts, the funds remain subject to withdrawal only on court authorization.⁷ In practice, the child petitions the court to release the funds at 18, and courts routinely grant these requests because the protective purpose has been fulfilled. Bring identification and a copy of the original deposit order. Structured annuity payments simply arrive on the schedule the court approved, regardless of the recipient’s age.

1
California Legislative Information. California Code of Civil Procedure 372
2
California Legislative Information. California Probate Code 3500
3
Judicial Council of California. Form MC-350 – Petition for Approval of Compromise of Claim or Action or Disposition of Proceeds of Judgment for Minor or Person With a Disability
4
Judicial Branch of California. California Rules of Court Rule 7.950.5 – Petition for Expedited Approval of Compromise of Claim
5
Judicial Branch of California. California Rules of Court Rule 7.955 – Attorney’s Fees for Services to a Minor or a Person With a Disability
6
Judicial Council of California. Form MC-351 – Order Approving Compromise of Claim or Action or Disposition of Proceeds of Judgment for Minor or Person With a Disability
7
California Legislative Information. California Probate Code 3611
8
Judicial Council of California. Form MC-355 – Order to Deposit Funds in Blocked Account
9
California Courts. Form MC-356 – Acknowledgment of Receipt of Order and Funds for Deposit in Blocked Account
10
Office of the Law Revision Counsel. 26 U.S. Code 104 – Compensation for Injuries or Sickness
11
Internal Revenue Service. Topic No. 553 – Tax on a Child’s Investment and Other Unearned Income