When a person suffers a serious injury as a result of medical malpractice or another cause, they are often better served by an award that provides ongoing income rather than a lump sum. If someone is rendered unable to work or cannot earn the income they once did due to their injuries, regular ongoing payments will better enable the person to manage their ongoing expenses than a large one-time payment would. In addition, if damages are awarded as a lump sum, there is a greater risk of mismanagement, which may have a significant negative impact on the plaintiff.
However, the problem with any income stream is that it is taxable. The value of the payments is thereby diluted. The solution would be to build the tax into the settlement, but that in turn increases the needed initial capital. The solution is a structured settlement.
A structured settlement is similar to an annuity. A sum of money is placed into an interest-bearing financial instrument and is then paid to the purchaser at fixed intervals for a set period of time.
A structured settlement is a guaranteed tax-exempt income stream, only available to people who are settling personal injury claims. The process entails using some or all of a personal injury settlement and depositing that sum with a life insurance company in exchange for guaranteed tax-free payments for a plaintiff’s lifetime or a certain period of time. The payments are not considered income by the Canadian Revenue Agency (CRA).
A large and crucial component of most malpractice actions is the loss of future income and the cost of treatment going forward. The damages sought in a personal injury action is not money they can afford to lose. Do they risk the uncertainties of the market for this money or do they take a more secure and guaranteed route? Further, under the market route, they might need to hire and pay a manager and would face an income tax burden. Yes, the court would gross-up their award to attempt to cover these expenses but there would always be some risk that the interest they made would not be enough to cover their needs.
The amount and time period of a structured settlement will depend on a number of factors. Generally, the total amount of damages will be calculated based on a number of factors, including:
Once the amount is determined, the damages, as well as any costs associated with creating the structure, will be paid into an interest-bearing instrument and regular payments will be set for the specified period of time.
The advantages of a structured settlement are obvious. There would be a guaranteed income stream for life, it would not be taxed and no manager or management of a portfolio would be needed. This result can also be achieved for less money as the risk for the insurer would be based on the favourable impaired life rating of the injured plaintiff. Further, the payments are non-assignable and cannot be cashed in, which further protects the plaintiff. The annuity can also be structured to allow for varying periodic, or lump sums, to be paid out for larger expenses like tuition, home renovation etc.
A further advantage of this system is the interest-earning potential. Because the money will be earning interest while payments are made to the injured party, the actual amount paid out is likely to be significantly more over time than the original damages award.
A structure is still a voluntary decision and one cannot be forced upon the plaintiff. However, once a structured settlement is in place, it cannot be undone.
At Wise Health Law, our health law lawyers rely on their significant trial and civil litigation experience to provide our clients with exceptional guidance and representation in medical malpractice claims. To find out more about how we can help, contact us online, or at 416-915-4234to schedule a consultation.
In December 2019, Ontario’s Attorney General introduced Bill 161, the Smarter and Stronger Justice Act (the “Act”), which became law on July 8, 2020. The Act hopes to simplify a complex and outdated justice system by bringing changes to how legal aid services are delivered, how class actions are handled, and how court processes are administered.
Of note, the Act has amended the Judicial Review Procedures Act (JRPA) to establish new rules as to when an application for judicial review may be brought.
Any decisions made on or after July 8, 2020 are now subject to a 30-day limit for bringing an application for judicial review unless another Act provides otherwise. Courts, however, retain powers to extend the time for making an application for judicial review if satisfied that there are apparent grounds for relief and that no prejudice or hardship will be incurred by the delay. Before these amendments, the JRPA did not set out any time limits for bringing an application, but courts had powers to extend the time to bring an application if another Act prescribed the limit.
In early August 2020, the Federal Minister of Health granted an exemption under the Controlled Drugs and Substances Act (CDSA) to four terminally ill Canadians to use psilocybin in their end of life care.
Psilocybin is one of the active ingredients/chemicals in “magic mushrooms,” the other is psilocin. Both psilocybin and psilocin are controlled substances under Schedule III of the CDSA. The sale, possession, production, etc. are prohibited unless authorized for clinical trial or research purposes under Part J of the Food and Drug Regulations. Both have been illegal in Canada since 1974. According to Health Canada, there are no approved therapeutic products containing psilocybin in Canada. However, the purified active ingredient, i.e. psilocybin, is being studied in supervised clinical settings for its potential to treat various conditions such as anxiety and depression.