On appeal from the Law Division, Probate Part, Camden County
Furman, Petrella and Cohen. The opinion of the court was delivered by Cohen, J.A.D.
The question before us is whether a court may authorize a guardian to invest a minor's funds in an annuity contract which contemplates deferred periodic payments extending beyond minority. We hold that there is no bar to such authorization, but that it should not be granted in every case.
ADL was six years old at the time of these proceedings. His father's death had been the subject of an earlier action for damages on behalf of the estate, the widow and ADL. A settlement, approved by a United States District Court in California, apportioned a gross $1 million to the widow, ADL's mother, and a gross $250,000 to ADL. After a counsel fee was allowed, ADL's net $166,667 was to be paid to his mother as guardian.
ADL's mother applied to the Surrogate of Camden County for letters of general guardianship. The Law Division ordered the Surrogate to issue letters of guardianship under N.J.S.A. 3B:15-16; ADL's money was paid jointly to his mother, as guardian, and to the Surrogate for investment at interest. The estate was thus saved the expense of a surety bond.
The guardian then applied to the Law Division for permission to use the funds to purchase an annuity contract providing deferred payments to ADL. She did not seek approval of a particular annuity contract, but asked for threshold review of the legality of the concept. She submitted certifications setting forth the perceived limitations and disadvantages of surrogates'
investments, and the possibilities for flexibility and growth offered by a deferred annuity.*fn1
On the one hand, the guardian pointed out the modest growth in ADL's funds expectable from investment at a taxable 10% or 11% interest rate. In contrast, she offered the example of a deferred annuity proposed by a life insurance company. Under the proposal, she would make one premium payment of $165,000. The company would pay ADL nothing until age seventeen, when it would make the first of four annual payments of $35,000. Then, it would make twenty annual payments, starting at $108,000 and increasing at a compounded annual rate of 5%. The twentieth payment would be over $270,000, and the total of all twenty-four payments would be some $3.7 million. The income would not be taxable to ADL until he actually received it. If he died before receiving all payments, the rest would be paid to his mother or the designee he selected after reaching majority.
In their certifications, ADL's mother and her new husband, who had adopted ADL, expressed a willing recognition of their duty to support him during minority. They mentioned ADL's $229 monthly Social Security survivor's benefit, which they banked for him and did not use for his support. Unmentioned but implicit in the certifications was the availability of the substantial sum from the mother's share of the California settlement.
The Law Division held that it had no authority to permit the purchase of an annuity with payments extending beyond age eighteen. We reverse and hold that a court has authority under N.J.S.A. 3B:12-49 to permit such a purchase.
It was traditionally held that a minor was entitled to distribution of his estate in cash upon majority. See Villard v. Villard, 219 N.Y. 482, 500, ...