Law Times

Law Times • march 13, 2017 Page 13 www.lawtimesnews.com 'Effectively judgment-proof' Structured settlements good way to reduce costs BY DALE SMITH For Law Times S tructured settlements can be an effective way to re- duce legal and other costs and even avoid trial. Law- yers say it can impact winning plaintiffs in different ways if a structured settlement is chosen. "The advantages are that they are tax-free, they are extremely secure and they are protected in that they are paid by one of four major life insurance companies in Canada," says Barry Cho- botar, managing partner with Henderson Structured Settle- ments LP in Hamilton, Ont. "It is protected from creditors — it's effectively judgment-proof because the recipient doesn't legally own the structure and because it cannot be modified once it's put in place — and it's not considered matrimonial property either." Typically, structured settle- ments are used to disperse awards for loss or damage over long periods of time rather than as a lump sum, which can be es- pecially beneficial to those who can use it as a replacement for lost income due to disability. Chobotar also adds that un- like other investment products, there are no fees charged by the structure broker, and they can be f lexible in how they are put together. That f lexibility, however, ends once the structure is in place. "The real downside is it's kind of a one-way street — once the money is in the structure, it gets paid out in accordance with the structure, no matter what hap- pens in the market," says Brenda Hollingsworth of Auger Hol- lingsworth PC in Ottawa. "You could end up doing worse investment-wise than if you had it on the open market and could move it." Despite this, Hollingsworth is convinced that because there is no income tax on the gains of a structured settlement, as well as a lack of management fees, it makes up for the lower rates of return. Hollingsworth says that she uses structured settlements in a small number of cases, but typically where they are seen to be important, such as when a person has a catastrophic in- jury and receives a large settle- ment, and where the plaintiff or their guardian has expressed concerns about managing the money and making it last. She says she has opted for structured settlements in cases that involved an award as little as $100,000, if the circumstances made sense. In some cases, defence coun- sel will insist on a structure in order to settle, in particular the insurance industry. Hollings- worth says that structures make more sense when they are above $600,000. She also says they're the right path when the clients do a mixture of part cash payout and part structured settlement, in order to let the client have control over part of the award and also safeguard part of it. "Most of the time, my settle- ments are more of a mixture than a pure structure," says Holling- sworth. Structures can also be an issue for clients with certain religious beliefs, as some people adhere to faiths that have strict rules about collecting interest. "You have to be careful if an insurer is insisting on a struc- ture in order to settle and the claimant can't accept interest for religious reasons — that can be a tension that has to be solved," says Hollingsworth. "It comes up more often than you'd think." Hollingsworth does caution about guarantees and reversions when negotiating structures. The guarantee period en- sures that the structure will be paid out over that period regard- less of whether the claimant lives or dies. "If I have a structure that takes me to age 75 and I have a 10-year guarantee, if I die at year eight, my estate gets the next two years' payment, but then nothing past that," says Hollingsworth. "You can have it all guaran- teed, so your estate continues to get payments to when you would have reached the age of the structure, or you can have no guarantee so that the payments stop when you die. "If you have no guarantee, your payments can be a little bit higher." Hollingsworth says that some insurers will want there to be no guarantee. "If the insurer is insisting on something, you want to know that up front, because you could be surprised," says Holling- sworth. "I know young lawyers nego- tiating these end up surprised when they realize what a rever- sion is or a guarantee is, and it makes a difference if your client has children and wants to pro- vide for them. If they have no de- pendants, then it makes sense to have no guarantee so that you can maximize your payments." LT What do your clients need? The means to move on. Guaranteed. ™ Baxter Structures customizes personal injury settlements into tax-free annuities that can help your clients be secure for life. » Pre- and post- settlement consultation and support » Caring professionalism for over 30 years » No fee to you or your clients Need more information? Contact us at 1 800 387 1686 or baxterstructures.com Kyla A. Baxter, CSSC PRESIDENT, BAXTER STRUCTURES Untitled-3 1 2016-10-12 10:02 AM structured settlements Brenda Hollingsworth says that she uses structured settlements in a small number of cases, but typically where they are seen to be important. Photo: Michelle Valberg The advantages are they are tax-free, extremely secure and protected in that they are paid by one of four major life insurance companies in Canada. Barry Chobotar

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