Gain Peace of Mind Through a Structured Settlement

The phrase “structure binds anxiety” is often used by psychologists to help people suffering from anxious feelings and intrusive thoughts. This maxim’s aim is to inspire patients to create routines and systems that can help them manage the uncertainties of life. The same maxim can be applied to the structuring of a personal injury settlement.

Settling a large claim for personal injury damages can be an anxiety-inducing process. You may find yourself asking several questions:

How can I be sure my settlement will be properly managed and maximized? 

What can I do to protect my settlement and myself? 

These questions are even more critical when acting on behalf of an injured party in the capacity of a litigation guardian or power of attorney. In these cases, where a settlement’s Court approval is required, the Court is always concerned about how the funds will be managed and used throughout the claimant’s life or, at a minimum, over a certain period of time (e.g., the next 10-20 years).

Fortunately, Canadian law permits claimants to place portions of their personal injury settlements into a structured annuity. This guaranteed tax-free payment can be received each month for a set period.

Structures give claimants absolute certainty that there will be sufficient funding for treatment costs, care needs, income replacement, and other aspects of their claim long after the settlement has been finalized. The guaranteed nature of structured payments, their tax-free status, and the absence of any management fees allow victims of motor vehicle accidents, slips and falls, and other injury-causing events to have peace of mind in a way no other investment tool provides.

Structures can be designed flexibly to accommodate the individual needs of the many different people who require them. Structures can last from periods as small as five years to beyond one’s life expectancy.

The amounts payable can vary throughout the structure, depending on the claimant’s needs. Periodic lump sum payments can be built into the structure to allow for tuition costs, anticipated surgeries, new vehicles, or other life events. Depending on the payment and duration of the structure, they can significantly increase the amount of the initial investment.

Unfortunately, structured settlements can only be obtained at the immediate conclusion of a lawsuit or claim. These options are not always considered and explored at the proper time.

The right to structure a settlement must be negotiated and obtained. Other aspects of the structure, such as its term, quantum and the possibility of a guarantee or reversionary interest must also be discussed and addressed. At the very least, your lawyer and you should discuss the possibility of obtaining a structure in your case and whether such a course of action is best for you.

The Defendants’ lawyers are often not concerned with your welfare beyond the settlement of the lawsuit. They might insist that the right to structure is something your own lawyer must undertake during the settlement process. Doing so may require some extra time and effort at the end of the claim. However, your lawyer should canvass these issues with opposing counsel and work with you to find a structure with terms and conditions that are best suited to your needs.

In cases where the Court’s approval of a settlement is required – including cases involving a minors or those who lack the capacity to make decisions regarding their claim – Courts frequently prefer settlement proceeds to be structured to ensure the party’s protection.

Most claimants in these cases do not have professional experience managing large sums of money. Furthermore, the pain and limitations of the injury can sometimes lead a claimant to make poor choices about how their settlement proceeds should be spent.

The way in which your settlement is structured could be one of the most significant decisions you make in your life. The expertise required to negotiate and set up a structured settlement is not widely known outside the legal profession. As such, the benefits of your settlement can be significantly improved with appropriate legal advice.

Without a structure, government benefits such as OAS, OSAP, Canada Child Benefit, GIS, HST/GST credits, Ontario Trillium Benefits, RDSP bonds and Hydro Rebates can be forfeited. ODSP benefits can also be affected. Depending on the length and terms of the structure, the settlement can also be used as an estate planning tool to ensure that any dependents continue to receive the settlement proceeds in the event of death.

Structured settlements use the highest guaranteed investment rates of return available. Since the payments received are tax-free and unencumbered, you can generally use the structured payments in any manner you wish. You may even choose to reinvest any amounts you receive.

If your lawyer suggests that you structure your settlement or a portion of your settlement, they are doing so because they care about your welfare after the lawyer-client relationship ends. Structuring your settlement or not has no benefit to your lawyer; the purpose is solely to benefit you and protect you after the litigation ends.

In practice, a structured settlement’s tax-free status and the absence of management fees often exceed the risk-adjusted rate of returns on other investments. Moreover, the guaranteed payment plan contained in the structure can ensure that there will always be funds available for treatment, care costs and your other needs. Plans can be designed to allow for timely expenses, such as new equipment, vacations, renovations, and more, but your long-term needs will be protected accordingly.

Structured settlements afford you the freedom of spending your settlement proceeds as you wish. But they also permit you to avoid the anxieties associated with settling your claim. The payments you receive are also tax-free, meaning that you will not have to pay income tax on the proceeds.

The settlement of a personal injury lawsuit is never an easy decision. The foremost consideration should always be whether the settlement amount provides sufficient compensation for the damages sustained. However, there are always secondary considerations that claimants do not always contemplate.

When the litigation ends, what is that life going to look like? How will you manage your injuries? How will you continue addressing the needs arising from your accident?

These are questions that you should discuss with your lawyer candidly. Not only do they often bear directly on the evidence in your case, but they can also form the basis to canvass for a structured annuity tailored to these concerns.

When it is time to resolve your claim, Preszler Injury Lawyers can work with an accredited structured settlement company to provide you with proposal options tailored to suit your individual needs, and to obtain Court approval when necessary. Your settlement will then not only resolve your litigation, but it will give you peace of mind!

This article was written by Jonathan Lerman.