Law Times

Law TiMes • March 26, 2012 BRIEF: STRUCTURED SETTLEMENTS PAGE 13 Blockbuster sums not necessary for structures BY MICHAEL McKIERNAN Law Times brokers. "We get calls from people who S say they're only getting $350,000 and that it's too small to struc- ture but we've found we can be so much more creative with a small amount. It doesn't have to be hundreds of thousands of dol- lars," says Kyla Baxter, president of Toronto-based Baxter Structures. "If there is a need to be ful- filled, then no amount of money is too small." Bob Nigol, president and managing partner at Henderson Structured Settlements LP, says the myths about size and term lengths perpetuate because many lawyers only come across them in cases involving catastrophic inju- ries. In those cases, a structure can be an incapacitated victim's sole source of income needed to cover a lifetime's worth of care costs. "While a lifetime term of peri- odic payments may be considered necessary in cases involving par- ties under disability, that is not so for those considered competent," says Nigol. "The key for us is the abil- ity to present directly to clients and point out that structures can take any form you wish because a lot of practitioners are under the belief that these kinds of plans don't exist." Nigol says a growing number of clients with less serious inju- ries are taking advantage of rela- tively short-term structures for amounts as small as $50,000. For example, people who suffer a sig- nificant orthopedic injury may find their working years cut short by an accident or their current work capacity impaired. A struc- ture, he says, can fill in the income gaps left by the injury. "They can put $100,000 in, carry it, and live off the interest tructured settlements don't always have to involve blockbuster sums and life- time terms, according to for 10 years or so and then receive the lump sum back, all net of tax and guaranteed," Nigol says. "That is, effectively, a tax-free GIC." Laura Mullin of McKellar Structured Settlements Inc. says her firm has designed similar smaller structures for surviving spouses receiving Family Law Act damages following the loss of a partner. "Sometimes they like to put a structure in place to build what we would call the ultimate RRSP. There's not a need for funds immediately because the surviv- ing spouse is often working. So you can put in $50,000 at age 45 and it doesn't pay out until age 65. It's the perfect RRSP because not only is it tax sheltered while it's in there growing, but it's tax-free when the money comes out. It's a really good return and it's not one you can really match in any other type of investment." According to Baxter, the flex- ibility of structures means there are any number of combinations of fund size and term length for them. Recently, she helped a client set up a dual structure with one part devoted entirely to covering the cost of therapy sessions deemed crucial for returning to work. Other clients are anxious to structure shorten the period because they're convinced the low interest rate environment will in hand. The problem is they're then faced with investing it, which is more stressful than to have it guaranteed in the structure and not having to worry about it." When it comes to claims involv- ing minors, structure amounts can go even smaller, potentially as low as $5,000, because of the defer- There is that lottery mentality where they just want the cash in hand. The problem is they're then faced with investing it, which is more stressful than to have it guaranteed in the structure and not having to worry about it. soon change and open the door to more lucrative investments. "We have some plaintiff coun- sel who normally suggest shorter- term plans because the rates of return aren't the best right now. The hope is that by the time it comes out in 10 years, the rates have increased, but at least then you know they're protected for those 10 years and they can get back on their feet," says Baxter. "There is that lottery mental- ity where they just want the cash ment period involved. Minors receive their damages at 18, the age of majority in Ontario. Nigol says structures are pref- erable because the only alterna- tive is to see the cash paid into court, where the accountant of the Superior Court levies manage- ment and transaction fees on pay- out that reduce the rate of return. He says a structure can also spread the payments and help pre- vent young adults from embarking on a spending binge on payout. A member of Nigol's own family, in fact, received a lump-sum pay- ment in court when he turned 18. "It was all gone within a year and a half, and I think most of us would do the same thing and blow it," he says. "If it was paid out in a periodic way and tailored to his particular needs going forward, that wouldn't have happened." That's where the flexibility comes in again, according to Baxter. "Often, we take advantage of deferring payments and set up a university education fund or a post-secondary education fund to cover tuition or accommoda- tion. The good thing about it is if they don't end up going to uni- versity, they still have access to those funds. They're not penal- ized like they would be with an RESP, for example. Or you can set up a lump-sum payment at a later age so at age 25, for example, when the child is a little bit more mature and established, they could use it for funding to start a business or put a down payment on a home." LT Untitled-2 1 www.lawtimesnews.com 12-03-20 9:12 AM

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