Structured Settlements
A structured settlement is something that many of our clients consider obtaining at the conclusion of their lawsuit. This article addresses what a structured settlement is, as well as some of the considerations behind choosing a structured settlement rather than receiving a settlement in a lump sum.
A structured settlement is an annuity purchased from a life insurance company with the settlement funds. A structured settlement pays out in periodic payments, usually monthly, for the person’s lifetime or a set period of time, depending on what option is chosen. The payments are all tax free and guaranteed to be made for the duration of the structure, regardless of the performance of the stock market.
We most often recommend a structured settlement for our clients who, as part of a settlement, have monthly cost of care that will be ongoing for their lifetime or a long term inability to work. These clients have very low tolerance for risk, as they will need the money available every month for their entire lives, and putting their money in the stock market through traditional investment methods has the potential to dwindle their principal (ie. Their settlement funds). If the principal dwindles, it puts the client behind the eight-ball to make up the losses, particularly when they need to access the principal on a monthly basis to pay for their care or other living expenses. A structured settlement gives the client the reassurance that they know exactly how much money they will be receiving for their lifetime.
One downside of a structured settlement is that there is no flexibility once the structured settlement has been funded – if the client wants to change the amount of the payments in any way, there is no ability to do that. We try to make up for that for our clients by reviewing the option of building in lump sum payments in the structured settlement at regular intervals to give more flexibility to the client.
In Alberta, there is an additional very important consideration for a client who has substantial cost of care or a long-term inability to work due to their injuries. The Assured Income for the Severely Handicapped (AISH) program is a government program that provides income replacement and coverage for many care services and items for a person who meets its requirements, as long as the person does not have more than $100,000 in assets. A structured settlement is one exception to the definition of an asset, so it does not count towards the $100,000, but a lump sum settlement would. Therefore, because many of our clients qualify for that program due to their injuries, we want to ensure they can access those benefits in the event they obtain a large settlement. A structured settlement allows our clients to access AISH while enjoying the benefits of their settlement as well.
There are a number of structured settlement companies in Canada. Two companies that are often used are McKellar Structured Settlements and Henderson Structured Settlements. For more information, both companies have lots of useful information on their websites.
If you obtain a settlement through Weir Bowen and a structured settlement is an option for you, your Weir Bowen lawyer will review the numerous options available as part of a structured settlement, as they are customizable to the client’s needs.