Law Times

Law Times • November 30, 2015 Page 15 www.lawtimesnews.com settlement payments were intended for loss of income or medical needs when assessing spousal support obligations, says John Rousseau, principal at McKellar Structured Set- tlements. "It's being given more attention these days," he says. Rousseau notes it's not surprising the court decided to use the settlement funds toward the children's extracur- ricular activities in Childs' case. While spousal support obligation is often contingent on whether the funds are compensating an accident victim for loss of income, he says the "sympathies are a little different" when it comes to children. "Where children are concerned, I always tell people when I'm out talking to them basically that all bets are off. The court is going to ensure the best interest of the child," Rousseau says. What's clear, according to Rousseau, is that having a structured settlement payment puts accident victims in a better position than they would have been if they sim- ply had money sitting in the bank during a matrimonial breakdown. "From a practical perspective, if the money is in the bank, there's a serious danger that it's going to be accessed and spent by the future ex-spouse," Rousseau says. "If the money is in the bank account [and] if it's not properly accounted for, it may be viewed as an asset and subject to division. With [a structured settlement], it's clear that it's not and it's clear that the source of the money is the personal injury settlement." If a claimant wants to receive a portion of his or her settlement in non-structured lump sum payments, it's best if those payments come from the portion of the settlement compensating them for loss of income, says Kyla Baxter, president of Baxter Structures. "Where possible, the minutes of settlement can then ref lect that the structured portion is comprised of the gen- eral damages and the plaintiff 's future care costs, thereby protecting the structure payments in the unfortunate event of a dissolution of a marriage," she says. LT BRIEF: STRUCTURED SETTLEMENTS T he settlement negotiations of fi rst- and third-party claims can be compli- cated by disagreements regarding the proper discount rate, life expectancy, and other assumptions used in present value calculations. As structured set- tlement costs provide a market-driven, consistent, and impartial valuation of benefi ts without the need for additional assumptions, they are an effective tool for simplifying negotiations. In fi nancial terms, a specifi c statutory accident benefi t entitlement is simply a tax-free annuity payable by the insurer, subject to the conditions of future entitlement. Structured settlements are specialized tax-free annuities and are the fi nancial equivalent to a given benefi t enti- tlement. It makes sense to use the cost of a structured settlement as a benefi t valuation tool. Structured settle- ments also have the fl exibility to match any benefi t design as they can provide indexed or level payments, payments for lifetime or a fi xed term and even lump sums. The cost of a structured settlement represents a pres- ent value of the benefi t entitlement. However, because structured settlements are also fi nancial products issued by life insurance companies, the cost represents the market present value of a future benefi t entitlement. The discount rate and life expectancy inherent in a structured settlement cost are determined by the life insurance market. The present value provided by a structured settlement cost is realistic, impartial, and requires no extraneous assumptions that can be disputed. This is contrasted with the present value provided by an economic or actuarial consultant who must identify in their report their assumptions, which may become a matter for dispute in negotiations. Structured settlement evaluative reports are provided free-of-charge. Another benefi t of the use of structure settlement costs is the possibility of obtaining impairment ratings from the life companies. An impairment rating will allow for struc- ture settlement annuity costs based on the claimant's life expectancy. There are advantages to using impairment rat- ings in negotiations: they are provided free-of-charge, they require no specifi ed assumptions that can be challenged, and as each life company independently determines the impairment rating, the life company bears the resulting fi nancial risk. Structured settlement costs can simplify the pretrial ne- gotiation of third-party claims. As stated above, structured settlement costs can provide a market-driven, consistent, and impartial valuation for damages, allowing for straight- forward negotiations. Structured settlements are tax-free to the payee, avoiding discussions regarding net versus gross settlement amounts, at the negotiation stage. By producing valuations that are market-driven, consistent, impartial, and without reported assump- tions, structured settlement costs will simplify fi rst- and third-party claim negotiations. The methods and assumptions used in present value calculations are removed as a point of debate. Additionally, structured settlement costs avoid the net versus gross settlement amount discussions in the settlement valuations for third-party claims. All of this is done without additional expense as structured settlement evaluative reports are provided free-of-charge. The use of structured settle- ment costs allows both parties to experience a more effi cient negotiation at a potentially lower cost, thereby providing an attractive option that is benefi cial to both parties overall. Structured Settlement Costs – A Tool to Simplify Negotiations THE MOST THOROUGH & EXPEDIENT SERVICE GUARANTEED. 1.800.263.8537 | 905.523.6000 www.henderson.ca PROUD SPONSOR OF SPINAL CORD INJURY ONTARIO AND THE ONTARIO BRAIN INJURY ASSOCIATION PROUD SUPPORTER OF MADD CANADA By Barry Chobotar and John Welton Untitled-5 1 2015-11-26 11:06 AM Continued from page 13 'All bets are off' better returns are available else- where, but he stresses the security and stability of a structured settle- ment, especially where the regular payments are used to fund medical and rehabilitation costs. "Even if your investments av- erage out at a higher rate than a structure over time, there are going to be wild f luctuations. If you're up 20 per cent one year, you can't increase your treatment 20 per cent, and if you're down 10 per cent another year, are you going to cut back your treatment?" Cho- botar says. "The more injured an individual is, the less risk they can take with their money." According to Fenik, most structures compare favourably with the Canada long-term bond rate, while the tax-free nature of the payments makes their returns even harder to beat in the finan- cial market. "I often hear the view that in- terest rates are so low that it's not worth structuring, but, in fact, the rates are better than anything else that guarantees your investment. Depending on the amount avail- able, the effective rate could be as high as six per cent for a high marginal tax bracket," he says. Fenik says he likes to meet personally with plaintiffs to en- sure they understand the poten- tial benefits of a structure before turning one down. "There have been a number of cases where I've been told the client was not interest- ed, and then when we do meet, they say: 'I didn't know I could do that.' My view is that they should be al- lowed to make a fully informed de- cision. If after hearing the pros and cons they don't want to go ahead, that's fine, and at least then the law- yers are protected in terms of giving them the option," he says. Waxman says young clients can be some of the most difficult to persuade, with many suspi- cious of an option that cuts im- mediate access to funds. "Generally, the people who are most suspicious are the ones who need a structure the most. Often, they are risk takers, and any talk about being conservative with money is sometimes not attrac- tive," Waxman says. "There can be pressure from family and friends to spend a lump sum, and I think the stats are pretty bad about how many still have money left from a settlement after a significant pe- riod of time." Baxter says the f lexibility of structures allows brokers to get in- ventive when they run up against a skeptical plaintiff. That could involve structuring the money to pay out in fewer, larger payments, or reducing the term and paying out the balance in a lump sum at the end of the shorter period. "We often recommend clients take a portion of their settlement monies in a lump sum and invest the rest in a structured settlement. Claimants are then able to invest the lump sum portion of the set- tlement in slightly higher-yielding investment vehicles," Baxter says. "When dealing with structured settlements, it is all about being creative and thinking outside the box to fulfill our clients' needs." Even after the hard sell, some plaintiffs will hold their ground, according to Lafazanis. "All we can do is lay out the op- tions for them," he says. "If you're worried about the bad financial decisions someone may make with a lump sum, you could advise them until you're blue in the face and [still] make no difference. If, in fact, they choose a lump sum, it is their decision to make." LT Continued from page 14 Young clients hardest to persuade Lawyers with Clients Interested in Sell- ing their Business should partner with our proven boutique M&A firm. Success based fee structure including referral fees. Contact The Penrose Group today at 1-855-294-4411 or email us at: kwebb@thepenrosegroup.ca LAW TIMES Marketplace SPONSORED BY

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