Introduction

Structured settlements are essential for Court approval of birth injury settlements. The Supreme Court of Newfoundland and Labrador will not approve a traumatic infant brain injury claim unless a substantial part of the settlement is structured.

Appointment of parents as guardians disabled child

Your role as a potential guardian of the estate of your disabled child should be the natural extension of the many responsibilities that you have in caring for your child. Read more. 

However, the Public Trustee has been frequently appointed as the Public Trustee of the settlement funds.  An application by your family's lawyer to have the Public Trustee appointed will be granted automatically by the Supreme Court of Newfoundland and Labrador.  The lawyer avoids additional legal work, which would generally be unpaid.  The lawyer would also be required to have a basic knowledge of guardianship law or a willingness to learn it.

The appointment effectively a lifelong appointment.  Once the child reaches the age of majority, the guardianship of the property of an infant is over.  A separate application is made to have a guardian appointed of the property of the same person but as an incompetent person.  The Court is concerned to entrust one person or a couple with full control over a lifelong investment.

The Supreme Court of Newfoundland and Labrador has good reason to guard against the appointment of parents as guardians of the property.  Will they remain honest; invest the settlement wisely; manage cash flow, and be prudent with expenditures.

A structured settlement cannot be converted into cash by the guardian.  Its sole value is the non-transferable benefit of regular monthly payments.  The structure itself is almost immune from theft or fraud.   The amounts of the payments are comparatively small in relation to the underlying value of the structured settlement.  The likelihood that two respectable parents with a paid giver would neglect their child is minimal.

A structure is paid out in regular intervals to meet the needs of the child.  Parents have a natural inclination but also a legal obligation to provide children with the necessities of life.  The structured settlement takes care of the requirement of investment skill and cashflow management.  The parents of disabled children are often deeply involved in the child's progress through school, therapy, medical needs, physical needs, and the devices that assist the child.  Their decisions on expenditures are generally responsive to the recommendations of professionals.

These factors all strongly favor the appointment of parents as guardians.  The value of the structured settlement does not stop there.

Continued ability to meet expenses

Ongoing costs, such as caregiving and supplies, are met by monthly payment.  Substantial costs such as the purchase of a replacement van or wheelchair are met by balloon payments at 5 or 7-year intervals.

Payments are for fixed amounts that can be indexed to protect against inflation.  The amounts are not subject to fluctuations of other investments.  Other investments go up and down with changes in interest rates, dividends, and stock market fluctuation.  The payments do not depend upon the ability of a financial planner to generate sufficient cash flow that matches expense requirements.

Payments are made by a federally regulated life insurer.  Structured settlements are an extremely secure long-term investment.  There has never been a default in Canada.

Financial savings

Income Tax and Capital Gains Tax

Structured settlement payments are not taxable.  For legal and tax purposes, the payments are non-taxable payments of damages.

Consider a $3,000,000 investment earning 3 percent interest on average.  The taxable interest income is $90,000 each year.  If the same $3,000,000 was in a structure, the $90,000 yearly payments would not be taxable income.  This is an enormous saving.

A financial advisor generally includes assets, usually stock market investments, which normally increase in value.  The increase provides partial protection against inflation.  When such investments are sold, however, the value of the increase is subject to a capital gains tax.

Public Trustee Fees

The Office of the Public Trustee imposes a fee of 5 percent on the value of the entire settlement of an infant plaintiff.  It would not be uncommon, if a structure is $3,000,000, that, the total capital sum of the settlement would be over $5,000,000 or more.  Once the infant reaches the age of majority, the Office of the Public Trustee would be appointed as guardian of the estate of the same person but in the capacity of that person as an incompetent adult.  At this point, a separate 5 percent fee is imposed by the Office of the Public Trustee.

Generally, parents who are appointed as guardians of the property do not charge their own child for the management of the property of the child, although that right is expressly allowed under section 62, Children's Law Act.

Legal fees

The practice of the Office of the Public Trustee is to approve the payment of legal fees based on the contingency fee agreement prepared by the lawyer who represented the infant. Legal fees have ranged as high as 35 percent.  High fees may be justifiable if the lawyer incurs high risk and substantial hours on the file.

If the Public Trustee is not appointed as guardian of the property of the child, the Court must scrutinize the lawyer's fees.  There are several factors considered by the Court apart from the contingency fee amount.  The consideration of those factors by the Court may result in a reduction of legal fees, never an increase.

Eligibility for government benefits

Disability-related benefits may be available under a provincial or federal program.  Benefit eligibility is often based on taxable income. 

A disabled person who is receiving compensation as damages under a structured settlement may qualify for benefits that are unavailable to a person whose settlement was put in an income-earning investment.

Financial management fees

A skilled financial advisor would be required to earn a reasonable return if $3,000,000 cash had to be invested.  The fee for the financial management of the settlement would generally be 5%: namely, a $150,000.00 in the value of the settlement.

This assumes that the same person or company would have adequate investment management and cash flow management skills.