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.
The Chief Medical Officer of Health for Ontario has issued an updated Directive #2 (dated May 26, 2020) for Regulated Health Professionals in the province.
Pursuant to the updated Directive #2, all deferred non-essential and elective services by health care providers may be gradually restarted – subject to the rest of the requirements set out in the Directive.
The updated Directive #2 does not provide particularly detailed guidance to health professionals on how to proceed, likely because it applies to such a broad spectrum of health care and health professionals. It does, however, provide some principles to assist health care providers in making decisions as we enter this transitional period.
In addition to the mask and hand sanitizer shortages, Ontario’s response to COVID-19 highlights the need for more frontline health care workers. Each regulated health profession’s college responded differently, and we have discussed some of those changes in other posts to keep you apprised.
Today, we focus on the College of Physicians and Surgeons of Ontario (CPSO), who set out to increase the number of available and licenced physicians out on the frontlines through certificates of registration that authorize supervised practice of short duration. The temporary licences authorize practice for 30 days.
Undoubtedly, COVID-19 has affected how health professionals practice. Pharmacists across the country are not only experiencing changes in how they practice (for example, accepting emailed prescriptions, where appropriate) but the scope of their practice as well. The latter change is not permanent, although the disruptions in practice may be felt long after the COVID-19 emergency subsides.
On March 19, 2020, Health Canada issued a short-term section 56(1) exemption under the Controlled Drugs and Substances Act (CDSA) that would authorize pharmacists to prescribe, sell, or provide controlled substances in limited circumstances, or transfer prescriptions for controlled substances (the CDSA Exemption).