Tax Gross Up and Management Fees

In cases where an injured party receives a sizable award for future damages, tax gross-up and management fees can be available. ICBC generally resists paying such a claim on the basis that they can force a structured settlement. A structured settlement is where an annuity is purchased and provides for an annual stream of income, which is nontaxable. Please see the section on structured settlements.

Tax Gross Up

This claim is based on the fact that if an injured party gets an award now for a future loss, the injured party will have to pay taxes on the investment income over time. The amount of the tax gross-up award is basically compensation for having to pay taxes on the investment income.

To make a claim for tax gross-up requires an economist to consider your income tax returns and the size of the award and then come up with a calculation on the amount of taxes you would have to pay over your lifetime. Obviously, a layperson without a lawyer will have a difficult time advancing such a claim.

Management Fees

The Courts may award an amount for the injured party to hire an investment manager to manage the award, especially if the injured party has little or no investment experience or that individual suffered a severe brain injury in the accident. The reason for this award is that an injured party receiving a large future award needs to invest it to ensure it lasts a lifetime.

Over time, the Courts have been less and less likely to award money under this head of damage simply because if you hire an investment manager, the expectation is that you can do better than the “real rate of return” (i.e. better than inflation) so the amount you pay the investment manager will be offset by the extra gains the manager gets you on your investment. Hence, there is little or no loss to you.