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<br><B>
<P align=center>Australian Council of Professions</P></B></B>
<BLOCKQUOTE ALIGN="CENTER">PROFESSIONAL LIABILITY COMMITTEE</BLOCKQUOTE><B>
<BLOCKQUOTE>Structured Settlements - Why support them through tax reform</BLOCKQUOTE></B>
<BLOCKQUOTE>Structured settlements enable disputes involving people with serious permanent injuries or disabilities to be finalised in a way that increases the likelihood that funds will be available as needed to meet their requirements. This is because the settlement takes the form of periodic payments instead of a lump sum, with the investment and the return of the funds guaranteed by major financial service organisations.</BLOCKQUOTE>
<BLOCKQUOTE>In the United States it is estimated that about $5 billion of such settlements are made each year. In the US, such payments are free of income tax in the hands of the injured person.</BLOCKQUOTE>
<BLOCKQUOTE>Structured settlements better serve the community than the current method of paying a lump sum to the injured person to invest in four ways.</BLOCKQUOTE>
<BLOCKQUOTE>First, where a court sets a lump sum, it does so having regard to the average expected future lifespan of the person concerned. There is a significant chance that the award will prove inadequate if a person lives longer than the average expectation of life. The person then needs to fall back on social security or other sources of support. Alternatively, if a person dies shortly after the case is finalised, third parties may receive windfalls.</BLOCKQUOTE>
<BLOCKQUOTE>By contrast, a structured settlement is established with input from professional financial planners and is tailored to the circumstances of the injured person. This can include allowance for periodic or occasional major expenses (replacement car, hospitalisation for operations, modifications to housing) as well as an initial lump sum by way of compensation.</BLOCKQUOTE>
<BLOCKQUOTE>Second, investment of lump sums by individuals is often mismanaged. Many individuals lack the investment training and experience to achieve even median rates of return. They or their agents may also be tempted to draw down capital, ignoring the need for funds to be available for the longer term. The structured settlement is put in place with a major financial institution such a a life insurance company that not only has investment expertise but also prudential supervision of its ongoing capacity to meet claims.</BLOCKQUOTE>
<BLOCKQUOTE>Third, the ability to establish a mechanism for on-going provision for the injured person may make settlement of the case quicker, freeing judicial and other legal resources for other work and also reducing costs of litigation generally.<BR><BR>Four, defendants may benefit from faster settlement, and perhaps lower settlement costs. This in turn could reduce insurance premiums for motor vehicle or professional indemnity cover, and hence reduce the cost of goods and services in the community as a flow-on effect. </BLOCKQUOTE>
<BLOCKQUOTE>For the community as a whole, therefore, the encouragement of structured settlements through tax exemption could generate significant savings from both reductions in dependence on social security and in the extent of use of the legal system by injured people. The community would also benefit because injured people would have greater certainty that settlements would be appropriate to their circumstances and paid when they were needed, and hence the community's responsibility to its injured members would be better served.</BLOCKQUOTE><FONT face=Arial size=2>
<P><BR>May 2001 <BR>Authored - David Minty.</FONT><SPAN></P></SPAN>
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