Discover the strong privacy protections and effective shields offered by Qualified Settlement Funds (QSFs) against discovery demands. Learn about QSF 360 platform's innovative privacy and protection features.
§ 468B Qualified Settlement Funds (QSFs) are tax-qualified legal entities that are useful to settle single-event, mass torts, and class action lawsuits and allow the consolidation of multiple “related” claims into a single fund for which the establishment and operation are governed by 26 C.F.R. § 1.468B-1, et seq.
Ensuring the privacy and security of a Qualified Settlement Fund and its information is crucial. In the case of pre-funded settlement funds, safeguarding sensitive information to prevent unauthorized or adverse party access protects the defendant’s privacy and the integrity of the funds. The privacy provisions of a QSF and its existence as a separate legal entity can hinder adverse parties from inflating their claims based on knowledge of the settlement fund’s available assets.
Further, a properly designed and drafted confidential settlement fund can provide valuable “discovery limitations.” Maximizing these advantages requires an experienced and steadfast trustee who will vigorously assert the associated privacy and limitation powers to suppress undesirable litigation discovery.
In today's cancel culture, unethical competitors, and law-fare world, defendants (accused) have justifiable apprehension regarding the question of privacy or discoverability of the details by adverse parties. In particular, when a defendant(s) utilizes a QSF to address multiple current or future claims, there can be concerns (albeit largely unfounded) regarding whether others may acquire information related to the defendant’s identity or regarding the existence of the fund and its level of funding by searching a public source or by discovery through discovery.
Unlike other entities, bank accounts, or trusts whose information is readily available through searchable databases or ordinary discovery, Eastern Point’s QSF Confidential platform, has no such public sources or databases. Accordingly, no government database searches are even possible. As such, adverse parties have no likely chance of discovering a Qualified Settlement Fund’s existence or the identity of a defendant associated with it.
Pro Tip: Even if the existence of the settlement fund becomes known, a properly drafted confidential QSF gives the trustee many practical and effective tools to quash discovery inquiries.
Pro Tip: Having a trustee who is a vigorous advocate in defending the privacy of the parties and the trust is a critical element.
Pro Tip: A trustee who maintains a robust and comprehensive privacy policy that applies to any third parties making a claim upon the trust assets or serving a demand for discovery is indispensable in protecting the QSF’s privacy. Non-trustee administrators may have no enforceable privacy policy protections for the QSFs they administer as non-trustees.
With QSF Confidential - privacy is maintained by ensuring the fund’s existence and claimants’ identities remain sealed and confidential. This confidentiality is crucial in sensitive legal matters, protecting the individuals involved from unwanted exposure. To safeguard the anonymity of the parties and the financial condition of the § 468B trust, the trustee plays a vital defensive role in protecting information from prying adverse parties. The trustee may employ various tactics by challenging all requests, imposing legal barriers, decanting, applying jurisdiction selection requirements, and utilizing the courts to avoid subpoenas or quash demands for information.
As mentioned, in a properly drafted confidential settlement, the trustee will have the necessary power to employ decanting, situs-shifting, and other trustee-power tactics to protect the parties’ privacy and defeat discovery fishing expeditions.
QSF Confidential transactions and internal records are private and not part of public records. Additionally, the associated tax reporting does not disclose the identity of the defendant (accused) moreover, the IRS is prohibited from disclosing tax returns based on a civil subpoena. This integrated approach prevents access to private information related to the parties or the trust’s assets and activities. Here again, we see that privacy provisions in an adequately designed trust, such as with QSF Confidential, can protect the privacy of all associated documents and information.
Pro Tip: Courts are highly reluctant to allow third parties (with no standing) to breach all parties' privacy solely for a fishing expedition.
468B settlement funds offer strong privacy protections and can shield against discovery and other inquiry demands. The QSF Confidential platform (powered by the QSF 360) provides the first-of-its-kind confidential, innovative, and robust privacy and protections from the discovery of identities, accusations, and terms.
Explore the 10 critical elements of Qualified Settlement Fund administration. From QSF establishment to termination, the complexities and best practices.
Embarking on the journey of Qualified Settlement Fund Administration can be challenging, but it’s also an opportunity to improve the settlement outcomes. By grasping these ten (10) essential elements, you’ll confidently navigate administering your Qualified Settlement Fund trust, whether you’re an experienced professional or just starting.
What is a Qualified Settlement Fund (QSF)? It is a tax-advantaged statutory “purpose trust” established by the approving governmental authority, pursuant to 26 CFR § 1.468B-1 et seq., to receive and distribute settlement or judicial award proceeds. It allows defendants to claim tax deductions immediately upon funding while providing time for plaintiffs to resolve allocation and financial planning issues. § 468B trusts are commonly used in mass tort, class action, environmental cleanup settlements, and single-event cases.
At the center of a settlement fund account lies an array of legal and tax requirements to ensure the qualified settlement account’s integrity and protect the tax benefits for all parties involved.
Pro Tip: The documents should clearly state which party is classified as the "administrator" within the meaning of Treasury Regulation Section 1.468B2(k)(3) Partner.
Pro Tip: With a trusted and licensed Qualified Settlement Fund Administrator, like Eastern Point Trust Company, they can ensure compliance with all related administration and tax requirements, provide expert guidance, and offer a range of cost-effective services to simplify and streamline the management of your QSF.
Compliance in Qualified Settlement Fund administration isn’t just about following rules—it’s about leveraging experience to fulfill the fund’s purpose and settlement terms, ensuring a secure and confident journey for all involved.
Action Step: Schedule a Compliance Check-Up with a “QSF administration” expert to ensure your fund meets all regulatory requirements.
The heart of a Qualified Settlement Fund’s purpose lies in (i) the tax benefit it provides to all parties and (ii) its ability to disburse funds to claimants promptly and efficiently. A well-managed and proven disbursement process can distinguish between a smooth settlement and a logistical nightmare.
Remember: A trustworthy Qualified Settlement Fund administrator can streamline your disbursement process, ensuring accuracy and timeliness.
Understanding the qualified settlement fund tax treatment is crucial for special masters, attorneys, and claimants. Proper tax management can significantly impact the fund’s overall value and the benefits received by claimants.
Did You Know? Expert settlement administrators can help optimize your fund’s tax strategy, potentially increasing the long-term value of distribution.
Effective settlement administration involves eliminating the conflicts of interest that arise from product placement by the QSF administrator.
Practical Tip: Implement a system of internal audits to ensure ongoing compliance throughout the life of the trust.
Legal Update: Recent case law has emphasized the importance of proactive measures in locating claimants before considering alternative distributions.
Best Practice: Regular stakeholder meetings can help ensure alignment and address potential issues proactively.
Regulatory Note: Under IRC Section 468B, QSFs must maintain sufficient records to support items reported on tax returns.
Legal Consideration: The termination process must comply with Treas. Reg. § 1.468B-2(k) outlines specific requirements for termination.
In conclusion, administering a Qualified Settlement Fund requires a comprehensive understanding of several critical elements, along with ongoing attention to legal updates and best practices. By mastering these aspects, legal professionals and administrators can ensure the smooth functioning of QSFs, ultimately serving the best interests of all parties involved.
While mastering these ten aspects of QSF administration may seem overwhelming, you don't have to navigate this process alone. Professional trustees and financial institutions specializing in QSF account management can provide the expertise and support you need to navigate these complex waters successfully.
Contact a QSF 360 specialist today to learn how their experience can significantly impact administering your Qualified Settlement Fund.
Discover Qualified Settlement Funds (QSFs) taxation rules, including Form 1120-SF filing, tax accounting, and key definitions.
Qualified Settlement Funds (QSFs) have increasingly become pivotal in resolving lawsuits, particularly for personal injury, wrongful death, and property damage claims. QSFs provide a tax-efficient vehicle for the settlement of claims, facilitating smoother and more efficient resolutions. However, the taxation rules surrounding 26 USC § 468B settlement funds are complex, and understanding them is vital for practical usage. This guide sheds light on the pertinent aspects of taxation and the associated reporting and underscores the importance of seeking professional advice for complex issues. Failure to adhere to these reporting requirements can lead to penalties and legal consequences. This reassurance of support from experts in the field can be a valuable resource in your professional role.
26 C.F.R § 1.468B-1 Qualified Settlement Funds have emerged as an essential instrument for resolving various types of claims in legal settlements. Established under § 1.468B-1 et seq. of the Internal Revenue Code, settlement funds manage the proceeds from a legal settlement (or judicial award) and offer substantial benefits to both plaintiffs and defendants. These benefits include tax deferral opportunities and the ability to structure payments over time, empowering the parties with more control over their financial arrangements and providing a sense of reassurance.
Except as provided for in § 1.468B-5(b), a QSF is considered a corporation for tax treatment purposes. Understanding this tax treatment is crucial as it will equip you with the knowledge to navigate the associated taxation.
A QSF is taxed on its “modified gross income.” The term modified gross income generally comprises only the investment income generated. Moreover, settlement payment amounts transferred to a QSF to resolve or satisfy a liability for which the fund is established are excluded from the trust's modified gross income.
A deduction against modified gross income is allowed for QSF administration and other incidental costs and expenses incurred in administering the QSF. Deductible expenses may include administrative costs, such as accounting, legal, and other ministerial expenses, as well as state and local taxes. Also, the costs associated with the determination and notification of claimants and claims administration are deductible.
Note: Administrative costs and other miscellaneous expenses do not include legal fees incurred by or on behalf of claimants and are thus not deductible.
IRS Form 1120-SF is a crucial component in the taxation process of a § 468B trust. It reports the transfers, income generated, deductions claimed, and distributions made. More importantly, it calculates and reports the associated income tax liability. Understanding and confidently navigating the process of filing Form 1120-SF is essential in the QSF taxation process.
The QSF administrator plays a key role in filing the tax return. They are responsible for preparing and filing the income tax return Form 1120-SF by the 15th day of the 4th month following the end of the fund's tax year. The administrator's responsibilities include ensuring all necessary forms and schedules are included, making timely tax deposits, and arranging for the fund's tax professional, financial institution, payroll service, or other trusted third party to make the deposits. It's important to note that there are exceptions for funds with a fiscal tax year ending on June 30 and those with a short tax year ending in June, in which case the filing deadline is earlier.
Private Delivery Services (PDSs) can meet the “timely mailing as timely filing/paying” rule for tax returns and payments. However, it’s essential to note that PDSs cannot deliver items to P.O. boxes, necessitating the use of the U.S. Postal Service for such deliveries.
The return must be signed and dated by the fund’s trustee or administrator. If an employee completes Form 1120-SF, the paid preparer’s space should remain empty. Anyone who prepares the form but doesn’t charge for the filing should not complete that section.
Note: A paid preparer may sign original or amended returns using a rubber stamp, mechanical device, or computer software.
The preparer must complete the required preparer information, sign the return in the designated space, and provide a copy of the return to the trustee or administrator.
If a fund trustee wishes to permit the IRS to discuss its tax return with the paid preparer, it can check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the “Paid Preparer Use Only” section of the tax return and does not apply to the firm.
The authorization allows the IRS to contact the paid preparer to answer any questions that may arise during the processing of the return, provide any missing information from the return, get information about the processing status of the return, and respond to IRS notices about errors, offsets, and return preparation.
This authorization, however, does not allow the paid preparer to receive any refund check, bind the trust to anything, or otherwise represent the fund before the IRS. The authorization automatically ends on the due date (excluding extensions) for filing the QSF’s tax return.
To ensure correct processing, include all schedules alphabetically and other forms in numerical order after Form 1120-SF. If the return requires more space for forms or schedules, separate sheets are allowable if the pages are the same size and format as the printed forms.
The Form 1120-SF return should be filed at the applicable IRS address, which (as of this writing) is as follows:
Department of the Treasury
InternalRevenue Service Center
Ogden, UT 84201-0012
The taxes are due and payable in full by the 15th day of the 4th month after the end of the tax year.
QSFs must use electronic funds transfers to make all federal tax deposits. These transfers are payable using the Electronic Federal Tax Payment System (EFTPS). However, the settlement fund can also arrange for a tax professional, financial institution, payroll service, or other trusted third party to make the deposits.
Generally, a QSF must make installments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more. The installments are due by the 15th day of the tax year’s 4th, 6th, 9th, and 12th months.
Note: If the fund overpaid estimated tax, it may file Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax.
Interest accrues on taxes paid late, even if there is an extension of time to file. Penalties can also be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud.
A Qualified Settlement Fund must use the accrual method of accounting. The accrual method records income and expenses when earned or incurred, regardless of when payment is received or made.
Keeping accurate and detailed tax and accounting records is essential. These records support income, deductions, or credits on the return.
In the context of § 1.468B-1, specific terms are of particular importance:
Understanding the taxation of Qualified Settlement Funds established under 26 C.F.R § 1.468B-1 et seq., s can be complex.
However, platforms such as QSF 360, provided by Eastern Point Trust Company, offer the only online and turnkey service that includes all of the critical aspects of tax reporting, such as Form 1120-SF, filing requirements, and tax payments. As always, seeking professional advice when dealing with complex matters is advisable.
An in-depth exploration of the common myths and realities surrounding Qualified Settlement Funds (QSFs) and their administration. Dispel misconceptions and highlight the benefits for all parties involved in litigation.
Qualified Settlement Funds (QSFs) are qualified tax entities established under the legal framework of 26 U.S.C. § 468B, regulated under 26 C.F.R. § 1.468B-1, and operate as statutory trusts. These Section 468B trusts are settlement funds created upon the approval of a “government authority.” The Qualified Settlement Fund Administrator and associated Administration are critical to a successful implementation, which streamlines the settlement process for efficient distribution to the involved parties. This consolidation simplifies the fund’s administration and introduces tax benefits designed to empower the plaintiffs financially.
This article will explore the common myths regarding Qualified Settlement Funds and Qualified Settlement Fund Administration.
One common misconception about Qualified Settlement Funds is that they are exclusively utilized for mass tort and class action settlements. However, the versatility and application of settlement accounts extend far beyond these areas.
Broad Application: They are designed to resolve and satisfy claims, including those made before the fund is established and funded. This broad application makes them suitable for most torts, breach of contract, and environmental liability cases.
Diverse Case Types: The use of settlement funds spans many cases. They are not only applicable in scenarios with large numbers of plaintiffs, such as product-liability cases, drug cases, and sexual abuse cases, but also in single claimant cases.
Ethics and Compliance: Particularly in cases with multiple plaintiffs, settlement trusts play a crucial role in ensuring compliance with ethics rules.
Uncooperative Defendants: They support structured settlement solutions even when a defendant or insurer is unwilling to enter directly. Moreover, they can effectively pay adverse parties with and without liens and address lien resolutions.
The myth that only plaintiffs benefit overlooks the multiple advantages these funds offer to all parties involved in litigation. The following outlines the benefits for both plaintiffs and defendants, showcasing the unique utility of QSFs:
Deferred Taxation: Plaintiffs benefit from deferring taxes on their settlement amounts until the funds are distributed, providing significant financial planning flexibility.
Flexibility: Plaintiffs gain financial planning and tax benefits by avoiding immediate access to income from the settlement and having ample time for negotiations to address liens and choose distribution methods.
Conflict Resolution: They facilitate the resolution of disputes among multiple plaintiffs and their attorneys, contributing to a more efficient and equitable settlement process.
Settlement Planning: Plaintiff attorneys can secure the settlement proceeds in a § 468B account, providing a safe space to work out a comprehensive settlement plan, address liens, and engage in probate proceedings without the pressure of immediate distribution.
Immediate Tax Deductions: Defendants can immediately claim tax deductions for their contributions to a § 468B trust, even if the funds have not yet been distributed among the plaintiffs. This benefit to the defendant is particularly significant because it allows for deductions when the settlement is paid into the fund rather than upon distribution to each plaintiff.
Litigation Closure: By transferring into a § 468B settlement trust, defendants can remove themselves from the ongoing settlement administration process, often receiving a permanent release upon their contribution. Thus, settlement funds simplify the settlement process and provide financial and legal closure.
Streamlined Process: Forming a qualified settlement account can bridge difficulties when plaintiffs and defendants cannot agree on tax language or reporting, ensuring that all tax, legal fee, and payout issues are managed strictly between plaintiffs and their lawyers outside the influence of defendants.
Contrary to the prevalent belief that establishing a Qualified Settlement Fund is costly, platforms like QSF 360 offer creation for a setup fee of only $500. This affordable process and the transparent costs associated with setting up and maintaining a QSF provide reassurance about the administration and financial aspects.
The myth surrounding the overwhelming complexity of Qualified Settlement Fund administration can deter parties from considering this efficient settlement solution. However, understanding the structured roles and responsibilities can demystify the process:
Dispelling the myth that Qualified Settlement Funds offer limited tax advantages requires an in-depth exploration of the taxation benefits they present for defendants and plaintiffs. Here is a concise breakdown:
Immediate Tax Deduction for Defendants: Upon transferring into a QSF, defendants are eligible for an immediate tax deduction, even if the funds have yet to be distributed to the plaintiffs. The upfront deduction can significantly reduce the defendant’s taxable income in the fiscal year of the contribution.
Income Deferral for Plaintiffs: Plaintiffs can defer taxation on their settlement amounts until distribution. The benefit of deferral can offer substantial financial planning advantages, allowing plaintiffs to potentially lower their tax obligations by receiving funds in years when they may be in a lower bracket.
Structured Settlements and Legal Fees: Both structured settlements and structured legal fees are available post-defendant involvement, providing plaintiffs and their attorneys the flexibility to plan for future financial needs. Notably, structures, including the attorney fees portion of the claimant proceeds, can circumvent constructive receipt and economic benefit doctrines, taxing plaintiffs and their attorneys only upon receiving each payment.
Separate Tax Entity Status: As a separate tax entity, they are subject to taxation on interest, capital gains, and dividend income at the applicable maximum corporate income tax rate. However, the fund benefits from deductions for administrative costs, incidental expenses, and losses sustained in property transactions.
Accrual Accounting and Corporate Treatment: QSFs must employ an accrual method of accounting and are treated as corporations for subtitle F of the Internal Revenue Code. This corporate treatment simplifies tax reporting and compliance, ensuring that the tax imposed on the fund’s modified gross income is treated consistently with corporate tax obligations.
No Explicit Time Limit: The absence of a strict time limit for the existence provides flexibility in managing complex cases that may span several years. This enduring nature ensures that all controversies can be resolved without rushing the process, benefiting all parties involved.
The myths surrounding the Qualified Settlement Fund and its administration are unfounded. However, the QSF Administrator is critical to ensure a seamless operation.
Particularly noteworthy is the capacity of settlement funds to extend beyond limited use scenarios, provide benefits to plaintiffs and defendants, and offer significant tax advantages that can profoundly impact financial planning and legal strategy.
In navigating the complexities and ensuring optimal outcomes within the § 468B framework, engaging a skilled and experienced QSF Administrator is vital. Only a licensed fiduciary for settlement fund administration can ensure compliance, maximize tax benefits, and streamline the settlement process for all parties involved. This professional insight and management are pivotal in harnessing the full tax potential, transforming them from a misunderstood financial instrument into a robust dispute resolution and settlement planning solution.
Learn how QSF Administrators streamline settlements, manage tax benefits, and ensure compliance with IRS regulations for efficient fund administration.
Establishing a Section 468B Qualified Settlement Fund (QSF) is not just a move but a strategic maneuver that benefits both defendants and claimants. It allows defendants to swiftly resolve claims and claim tax benefits, bypassing the usual delay in settlement payments. For claimants, it opens up avenues for settlement planning and independent identification of tax deferral opportunities. This adaptability and the tax-deferred handling of settlement funds serve both parties' interests, underscoring the importance of understanding how these funds operate.
The effective management of these tax tools, such as a QSF, hinges on the expertise of the fund administrator. This role is pivotal for maintaining the integrity and efficiency of the fund. The administrator's duties, which include fund recordkeeping and settlement administration tasks and oversight, are crucial for ensuring compliance with the requirements outlined in section 1.468B 1 of the Internal Revenue Code. This underscores the importance of the administrator's role and expertise with these types of funds.
Moreover, the expertise in settlement strategies that a proficient and knowledgeable fund administrator brings is not just essential, it's a cornerstone of confidence. Their integral role in ensuring the proper functioning of the fund, coupled with their skills and guidance, instills confidence in their abilities and provides a timely settlement process for all parties involved.
Qualified Settlement Funds, or 468B trusts, are tax entities governed by a detailed legal structure crucial for resolving disputes and claims more economically. These trusts are established through a process outlined in 26 CFR § 1.468B 1(c) involving approval from a body, adherence to specific laws, and obtaining a federal tax ID number.
When dealing with a settlement fund, it's crucial to rely on the expertise of a settlement fund administrator (QSF Administrator). These professionals specialize in managing the processes and requirements linked to settlement funds. Engaging their services can benefit individuals and organizations involved in settlement agreements.
One key reason for engaging an administrator is their knowledge and experience overseeing settlement funds. They are well acquainted with the rules and regulations governing funds, ensuring adherence to all tax obligations. Their expertise enables them to navigate the complexities of the settlement process, including distributing funds to plaintiffs and resolving any disputes. Accuracy and compliance will be accomplished by entrusting your settlement fund to an administrator.
Another benefit of utilizing an administrator is the ability to streamline the administration process. The process includes establishing the fund, supervising the fund holdings, and disbursing funds to plaintiffs. A proficient administrator can efficiently handle these responsibilities, thus saving time and effort and relieving you of administrative burdens.
The administrator has the tools and systems to effectively handle funds, ensure operations, and reduce delays or mistakes. With their help, you can focus on other tasks while being reassured that the Qualified Settlement Fund is administered efficiently, providing security and peace of mind.
Moreover, the administrator can offer guidance, assistance, and support throughout the structured settlement process, and their expertise can improve tax and financial outcomes for everyone involved. Additionally, they can advise on tax implications to assist you in making informed decisions about the settlement fund.
Additionally, the fund administrator oversees the fund’s tax filings and payments, ensuring strict compliance with Section 468B. Adherence to this regulation is paramount for ensuring operations conform to the applicable tax laws.
Settlement funds also facilitate claims resolution by providing transparency and tax-deferred benefits to all involved parties. Thus, the administrator plays a crucial role in the settlement administration process, ensuring compliance, financial oversight, and the equitable distribution of funds.
A fund administrator carries out various tasks when administering a settlement fund. These professional administrators are integral to the settlement process by fulfilling tax, financial, and administrative duties with transparency and thoroughness. Key elements include:
The administrator relieves law firms of IOLTA responsibilities, facilitates tax-preferred choices, and ensures prompt and equitable payouts to claimants. This alleviates the administrative burden on law firms, providing reassurance and reducing stress. Selecting the proper administrator involves weighing several factors to ensure proficient and compliant settlement funds. It is essential to consider the expertise and capacity of an administrator.
There are key advantages to having a licensed fiduciary as the administrator. A licensed fiduciary brings knowledge and experience, safeguarding compliance with all regulations and guidelines. Additionally, leveraging a fiduciary with an online portal can simplify tasks, ensuring secure and efficient fund administration and distributions. Furthermore, having a licensed fiduciary in charge instills confidence in stakeholders regarding the fund's assets, adherence, duties, and the protection of sensitive information.
On the other hand, entrusting settlement funds to an unlicensed administrator can pose real risks.
Without licensing and oversight, there is an increased risk of mishandling funds, not following regulations, and failing to protect information. Recent incidents involving trust administrators losing over $100 million in client funds are a stark reminder of the risks associated with unlicensed providers. This information is crucial for the audience to be cautious and aware.
Unlicensed providers often lack the expertise, controls, oversight, safeguards, and resources to accomplish complex administrative tasks effectively. These deficiencies can lead to delays, mistakes, and potential legal problems. Opting for an unlicensed administrator instead of a licensed fiduciary can expose the settlement and its stakeholders to unnecessary risks.
When selecting an administrator, consider their experience and expertise. Look for professionals with a proven administration track record tailored to your settlement needs. Ensure they understand the related tax regulations and are proficient in managing the requirements outlined in the U.S. Tax Code. Key considerations include:
We have highlighted the significance of having an administrator manage Qualified Settlement Fund administration tasks. With the best platforms, the administrator is responsible for creating the QSF, ensuring compliance with regulations, and overseeing the accurate distribution of funds. Their expertise is vital in maintaining settlement rights and ensuring tax compliance. Additionally, administrators work to preserve the fund's tax status, streamline settlement procedures, and expedite resolutions.
In conclusion, appointing a qualified administrator is essential, as they play a crucial role in ensuring a cost-effective, efficient, and compliant administration process.
Learn how a turnkey QSF platform like QSF 360 can provide an end-to-end QSF administration solution.
What is the purpose of utilizing a Qualified Settlement Fund? It administers the settlement and assists in resolving secondary disputes and liens. The QSF, a cornerstone in tax and financial planning, is managed by an independent third-party administrator, ensuring impartiality and fairness.
What are the key advantages of using a Qualified Settlement Fund? Employing a settlement fund offers several benefits, including providing swift resolution for defendants, enhanced financial safeguards, tax deferral benefits, and flexible structure options for attorney fees and claimants.
Can you explain what a Qualified Settlement Fund is? A Section 468B Qualified Settlement Fund is a statutory tax and purpose trust enabling plaintiffs to benefit from tax deferral options. Regardless of size, QSFs are beneficial in most lawsuits.
How are Qualified Settlement Funds taxed? The taxation is governed by Section 468B and its associated regulations. Each fund is assigned its own Employer Identification Number (EIN) by the IRS, and its tax treatment is based on its modified gross income, which excludes the initial deposit of funds, with taxes levied at a maximum rate of 35% only on its investment income (interest). In the world of disputes, Qualified Settlement Funds have emerged as a vital tool for handling litigation and simplifying the process of resolving claims.
Qualified Settlement Funds (QSFs) help manage settlement proceeds with tax advantages and protection for all parties. Learn how a QSF can benefit your case.
Qualified Settlement Funds (QSFs), or 468B Trusts, are tax-qualified trusts designed to manage the proceeds from litigation settlements and judicial awards. These unique financial tools offer many advantages for plaintiffs, defendants, lawyers, and settlement administrators but also have tax implications. Here, we review the Taxation and Benefits of Qualified Settlement Funds.
As per Section 1.468B-1 et seq. of the Internal Revenue Code (IRC), Qualified Settlement Funds operate solely to resolve certain types of litigation, allowing the defendant to deposit funds into a trust and receive a full release of liability. They first arose from class action lawsuits and are now commonly used in various cases, including personal injury actions and other cases involving multiple plaintiffs.
The fund may be a trust, an account, or even a segregated portion of the transferor’s assets. Although a written trust agreement is generally a good practice, an attorney’s trust account could theoretically serve as a QSF. However, particular rules apply to the fund’s establishment and operation.
Defendants can benefit from Qualified Settlement Funds in several ways:
Plaintiffs also stand to gain from the use of Qualified Settlement Funds:
The low cost of QSF 360 to establish a QSF is typically overwhelmingly outweighed by the added benefits gained through vastly improved financial returns.
Since QSFs are separate tax entities, they are required to pay tax on any interest and dividend income. The tax rate is equal to the maximum rate in effect for trusts, which is currently 39.6%. Remember that the tax is a self-financing tax resulting solely from the interest earned on the QSF.
Several other income tax considerations must be taken into account when dealing with QSFs:
It’s crucial to note that the tax implications of Qualified Settlement Funds can be complex, and working with an experienced QSF administrator, such as Eastern Point Trust Company, can assist you in navigating potential pitfalls.
The Regulations require a 468B Trust to have a “QSF Administrator.” If the fund is a trust, the same person can serve as both Trustee and Administrator, or there can be a separate trustee and a separate Administrator. The Trustee/Administrator is responsible for making distributions from the QSF to claimants, State Medicaid Agencies to satisfy liens, CMS to satisfy Medicare liens, ERISA Plans to satisfy ERISA liens, and any other lien holders that require satisfaction from the settlement fund.
The Trustee/Administrator also assists with the proper funding process of structured settlements, including making a § 130 Qualified Assignment to a third-party assignee who shall make the periodic payments.
The QSF Administrator additionally oversees the QSF’s KYC/AML process.
The general rule for the taxability of amounts received from the settlement of lawsuits and other legal remedies is within IRC Section 61 and dictates that all income is taxable from whatever source derived unless exempted by another code section. However, the facts and circumstances surrounding each settlement payment are essential to determine the purpose of the underlying settlement or judicial award because not all amounts received from a settlement are exempt from taxes.
Awards and settlements can be divided into generally distinct groups to determine whether the payments are taxable or non-taxable. The most common are claims relating to physical injuries, and the other is for legal claims relating to non-physical injuries but other damages, as shown below, which may apply:
In conclusion, Qualified Settlement Funds offer a unique solution for managing and distributing litigation settlement proceeds. QSFs provide significant tax and other benefits for all parties involved but also have complex tax regulations that require careful management. Working with experienced professionals, with no conflicts of interest, when dealing with QSFs is crucial to ensure compliance with all tax and regulatory requirements.
In this detailed guide, learn about the federal tax implications of settlements and judgments, including proper tax treatment, the burden of proof, deduction disallowances, and the importance of considering tax implications.
In the ordinary course of business, it is not uncommon for individuals and organizations to find themselves involved in litigation or arbitration. As a result, settlements and judgments can occur, which may have significant tax implications. However, these implications are often overlooked or misunderstood. Understanding the federal tax treatment of settlements and judgments is crucial for both the payer and the recipient and how to minimize settlement taxation.
The proper tax treatment of a settlement or judgment largely depends on the origin of the claim. Courts often consider the question "In lieu of what were the damages awarded?" to determine the appropriate payment characterization. This characterization determines whether the payment is taxable or nontaxable and, if taxable, whether ordinary income or capital gain treatment is appropriate.
For recipients of settlement amounts, damages received as a result of a settlement or judgment are generally taxable. However, certain damages may be excludable from income, such as payments for personal physical injuries, amounts previously not taxed, cost reimbursements, recovery of capital, or purchase price adjustments. The tax treatment may also vary depending on whether the damages relate to a claim for lost profits or damage to a capital asset.
On the other hand, for the payer, the tax treatment depends on whether the payment is deductible or nondeductible, currently deductible, or required to be capitalized. Payments arising from personal transactions may be considered nondeductible personal expenses. In contrast, costs arising from business activities may be deductible under specific provisions of the Internal Revenue Code. It is important to note that certain payments may be nondeductible or should be capitalized.
Taxpayers bear the burden of proof for the tax treatment and characterization of a litigation payment. The language found in the underlying litigation documents, such as pleadings or a judgment or settlement agreement, is often crucial in determining the tax treatment. Supporting evidence includes legal filings, settlement agreement terms, correspondence between the parties, internal memos, press releases, annual reports, and news publications.
Pro Tip: While various pieces of evidence can be persuasive, the Internal Revenue Service (IRS) generally views the initial complaint as the most persuasive. As such, attorneys must be cognizant of the tax implications of claims made in the initial filings.
When a settlement or judgment encompasses multiple claims or involves multiple plaintiffs, liens, or defendants, allocating damages becomes essential. Factors such as who made and received the payment, who was economically harmed or benefited, against whom the allegations were asserted, who controlled the litigation, and whether costs/revenue were contractually required to be shared are critically important. Also, joint and several liabilities are necessary considerations when determining the allocation.
Settlement agreements or judgments may provide for a specific allocation. The IRS generally accepts these ordered allocations. However, the IRS may challenge the allocation if the facts and circumstances indicate that the taxpayer has another purpose for the allocation, such as tax avoidance. Taxpayers, not the IRS, have the burden of proof when defending the allocation in proceedings with the IRS.
Certain deduction disallowances apply to payments and liabilities resulting from a judgment or settlement. The Tax Cuts and Jobs Act (TCJA) introduced changes to the Internal Revenue Code that disallow deductions for certain payments.
Under Section 162(f), as amended by the TCJA, deductions are disallowed for amounts paid or incurred in relation to a violation of law or an investigation or inquiry into a potential violation of law. However, there are exceptions for restitution, remediation, or compliance with the law, taxes due, and amounts paid under court orders when no government or governmental entity is a party to the suit. Recent regulations further clarify the disallowance, specifying that routine audits or inspections unrelated to possible wrongdoing are not subject to the disallowance.
Another deduction disallowance introduced by the TCJA is in Section 162(q). This provision disallows deductions for settlements or payments related to sexual harassment or abuse subject to a nondisclosure agreement. However, it is essential to note that the disallowance does not apply to the attorneys' fees incurred by the victim.
Additional deduction disallowances include those under Section 162(c) for illegal bribes and kickbacks and Section 162(g) for treble damages related to antitrust violations.
Established under § 1.468B-1 et seq., a Qualified Settlement Fund (QSF) offers a wide variety of tax and financial planning benefits and flexibility that would not otherwise be available to a plaintiff if the settlement or judgment is paid directly to the plaintiff or their attorney.
Pro Tip: Learn more about QSFs.
Plaintiffs often keep less than half of what they should. A Plaintiff pays tax on the settlement award they receive and also pays tax on the portion of the winnings paid to their lawyer - who then again pays tax on the same money. The Plaintiff Recovery Trust avoids the Double Tax, often increasing net recoveries by 50%-150%.
See how to solve the double taxation problem and pay less taxes with the Plaintiff Recovery Trust.
Pro Tip: Learn more regarding the taxation of punitive damages.
Taxpayers must consider the tax implications when negotiating settlement agreements or reviewing proposed court orders or judgments. Failure to do so may result in adverse and avoidable tax consequences or loss of tax management opportunities. By understanding the origin of the claim, properly allocating damages, and considering deduction disallowances, taxpayers can navigate the complexities of taxation in settlements and judgments.
The taxation of settlements and judgments is a complex area that requires careful consideration. The origin of the claim, the allocation of damages, and the deduction disallowances all play a significant role in determining tax treatment. Taxpayers must diligently understand the implications and seek professional advice when necessary. By doing so, taxpayers and their advisors can ensure compliance with tax laws and minimize potential tax liabilities.
Learn about the tax implications of punitive damages in personal injury settlements. Understand the complexities, IRS regulations, and the importance of seeking professional advice for tax compliance.
The world of personal injury settlements is often a complex and intricate labyrinth. One particular aspect, frequently misunderstood, revolves around the taxation of settlements that incorporate punitive damages or interest awarded on the settlement amount. As a critical piece of the puzzle, understanding the nuances of these tax implications is paramount. Let's delve into the intricacies of the Tax Implications of Personal Injury Settlements with Punitive Damages.
Personal injury settlements frequently consist of compensatory and punitive damages. Compensatory damages serve to restore victims to their pre-injury or pre-illness financial state; thus, the Internal Revenue Code (IRC) under Section 104(a)(2) allows such damages received due to physical injuries or illness to be exempt from taxation and provides offer relief to victims and help them recover without the burden of additional tax liabilities.
Contrarily, punitive damages, and interest, the black sheep of the personal injury settlements family, are considered taxable income. Unlike compensatory damages, punitive damages do not restore the victim to their pre-injury or pre-illness state but penalize the defendant for their egregious misconduct and only serve as a penalty deterrent against similar future behavior. Consequently, under U.S. tax law, punitive damages fall squarely into the taxable income category.
A pivotal decision by the U.S. Supreme Court in O'Gilvie v. United States reinforced the idea that punitive damages linked to personal injury suits, regardless of their association with physical injury or illness, are taxable. Thus, punitive damages are includable in the recipient's gross income for tax purposes.
Recipients of personal injury settlements that include punitive damages must report these amounts. Only the punitive and interest components must be listed as "Other Income" on IRS form Form 1040 (2022), Line 8 (See Schedule 1), allowing the Internal Revenue Service (IRS) to correctly identify the income's nature and apply the appropriate taxation.
Another tax problem arises when punitive damages and attorney fees are contingency-based. In Commissioner v. Banks and Commissioner v. Banaitis, the U.S. Supreme Court ruled that, for federal income tax purposes, the percentage of a monetary judgment or settlement paid to a taxpayer's attorney under a contingent fee agreement is taxable income to the taxpayer. The Court ruled that when a settlement or judicial award constitutes income, the taxpayer's income shall include the portion paid to the attorney as a contingent fee. A possible solution to avoid the plaintiff's taxation of the attorney fees portion of punitive damages is the Plaintiff Recovery Trust.
However, it is essential to remember that legal landscapes can vary, and tax laws and regulations are subject to change. It is, therefore, advisable to consult with a tax professional or a personal injury attorney who can navigate the intricate legal and tax pathways of personal injury settlements.
Negotiating settlements also requires a careful evaluation of the tax implications. Plaintiffs can receive lump sums or periodic payments of their settlements to spread and minimize tax liability. An example of such a tactic would be to accept payment in installments over several years or the Plaintiff Recovery Trust, which provides lump-sum payments.
It is crucial, however, to refrain from attempts to evade taxes by misrepresenting punitive damages as compensatory damages. Such actions can lead to IRS penalties and interest on unpaid taxes.
In conclusion, the path of personal injury settlements and their corresponding tax implications can be challenging. While compensatory damages provide financial restoration to victims, punitive damages act as a deterrent for outrageous behavior. The contrasting tax implications of these damages reflect their differing purposes. One should always seek expert tax advice to ensure tax compliance.
As the adage goes, only two things are certain in life - death and taxes. It is, therefore, vital to approach taxation with preparedness and diligence and begin by learning more here – Minimizing Taxation of Settlements.
Explore how 468b Qualified Settlement Funds (QSFs) protect privacy, consolidate claims, and shield sensitive information in legal cases.
Imagine a legal shield that not only consolidates multiple claims but also fiercely guards your privacy. Qualified settlement funds (QSFs), created under Section 468b of the Internal Revenue Code, are specialized tools designed for settling single-event, mass tort, and class action lawsuits. These tax-qualified entities allow related claims to be consolidated into a single, secure fund while ensuring the highest levels of privacy and security.
Privacy is not just a convenience—it's a cornerstone of a well-structured QSF. By existing as separate legal entities, QSFs protect sensitive information from prying eyes. This setup helps prevent adverse parties from inflating claims based on the knowledge of the fund's assets. Properly drafted QSFs also impose discovery limitations, reducing the scope of potential legal inquiries.
One of the most powerful features of QSFs is the ability to maintain confidentiality. The identities of claimants and details of the fund remain sealed, ensuring that transactions are not publicly accessible. Even in rare instances where fund existence is uncovered, a vigilant trustee can take decisive action to block discovery efforts, safeguarding the fund’s integrity.
An experienced QSF trustee is essential for maintaining privacy and protecting against discovery demands. Trustees can implement robust privacy policies, challenge discovery requests, and employ advanced legal strategies, such as decanting or jurisdictional tactics, to block unwarranted access. Their role is indispensable in ensuring the QSF remains a secure and confidential resource for claimants.
Qualified settlement funds are not just financial instruments; they are legal fortresses designed to protect claimants' interests. With robust privacy provisions and a dedicated trustee, QSFs minimize legal exposure and preserve confidentiality. Eastern Point Trust Company’s QSF 360 platform leads the industry in offering innovative solutions to safeguard privacy and defend against discovery demands.
Massachusetts taxes qualified settlement funds at a 5% flat rate, with an extra 4% on income over $1M. Strategic jurisdiction selection can help avoid these costly tax burdens on QSFs.
Massachusetts is renowned for its rich history, but it also has a reputation for high taxes—something that directly impacts qualified settlement funds (QSFs). For the 2023 tax year, Massachusetts imposes a flat 5% tax on all QSF taxable income. For funds generating over $1 million, an additional 4% tax applies, significantly increasing the financial burden. These aggressive tax policies make Massachusetts one of the more costly states for establishing a QSF.
The Massachusetts Department of Revenue’s letter ruling 087 underscores these challenges. It clarifies that QSFs are taxed under Chapter 62 if they are established by a Massachusetts court or governmental authority, or if their assets were held within the state at any time during the tax year. The ruling’s broad interpretation means that even temporary ties to the state could result in tax obligations.
Compared to Massachusetts, many states offer more favorable tax environments for QSFs, with some imposing no taxes at all on trust-based funds. Careful jurisdiction selection can lead to substantial tax savings and better financial outcomes for claimants and trustees alike.
Establishing a QSF is a strategic decision that requires thoughtful planning, particularly when navigating state-specific tax laws. For QSFs in Massachusetts, understanding these tax implications and exploring alternative jurisdictions could mean the difference between a costly burden and a streamlined settlement process. Eastern Point Trust Company’s expertise in QSF management ensures clients can navigate these complexities and achieve optimal results.
Discover 11 reasons attorneys should use Qualified Settlement Funds (QSFs) for small settlements. From tax benefits and flexible fund distribution to safeguarding client interests and streamlining processes, QSFs offer smart solutions for better outcomes and peace of mind.
Imagine securing your client's financial future while reducing your own risks. Sounds too good to be true? Keep watching to discover how qualified settlement funds can transform your legal practice.
1. Qualified settlement funds or QSFs offer significant tax advantages, allowing defendants to take a current year tax deduction and plaintiffs to defer income recognition.
2. Unlike IOLTA accounts, QSFs earn interest for your clients, maximizing their financial benefits from the settlement.
3. A QSF provides clients valuable time to make informed financial decisions, such as opting for structured settlement annuities or setting up special needs trusts.
4. QSFs allow time to resolve liens, bankruptcy, and probate issues, ensuring clients receive their settlement funds free from potential disruptions and financial penalties.
5. By using a QSF, attorneys can avoid the constructive receipt of funds which can have tax implications for plaintiffs.
6. QSFs also help avoid triggering the economic benefit of funds, preventing unnecessary taxation for plaintiffgifts.
7. A QSF protects plaintiffs from the risk of defendant insolvency by securing settlement funds in advance, ensuring clients receive due compensation regardless of the defendant's financial status.
8. QSFs offer a flexible framework for distributing settlement proceeds, accommodating various client needs and preferences for financial planning.
9. By utilizing a QSF, attorneys can ensure compliance with legal and ethical standards, particularly with significant settlement amounts, which helps to safeguard client interests.
10. QSFs streamline the settlement process by allowing for the efficient allocation and management of funds, reducing administrative burdens on attorneys and ensuring a smoother experience for clients.
11. With online solutions like QSF 360, setting up a QSF is quick, easy, and low cost, providing accessible solutions in as little as one day.
Qualified settlement funds provide numerous benefits that can significantly enhance the settlement management process for attorneys and their clients, even in cases involving smaller settlements. Leverage the power of QSFs for better financial outcomes and peace of mind.
Maximize personal injury settlements with structured settlements and QSFs. Discover tax benefits and strategies from Eastern Point Trust experts.
Bloomberg covered the increased use of structured settlements in personal injury cases, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Structured settlements are typically part of a larger settlement plan. In most cases, you can save tax, invest, and protect public benefits, but you have to make those decisions before signing."
Discover how structured settlements boost award value with tax benefits, investment growth, and expert planning tips for plaintiffs and attorneys.
ESPN discussed the regularity of personal injury lawsuit settlements and related financial consequences, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"The tax and investment benefits of structuring greatly increase your settlement value."
Maximize settlements with smart planning: learn how tools like QSFs and strategies can double plaintiff outcomes and ensure long-term security.
Fox Business reported on the growth of settlement planning, structured settlements, and Qualified Settlement Funds, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Settling is first about the amount, but plaintiffs gain a lot by planning ahead."
Watch how to simplify your settlement process with Qualified Settlement Funds (QSFs) approved by governmental entities, not just courts. Discover tax benefits, flexibility, and more.
Create a Qualified Settlement Fund without the hassle of court approval. Keep watching to discover how. Did you know that various governmental entities, not just courts, can approve QSFs? This includes federal, state, and local agencies.
The IRS plays a crucial role in supervising QSFs, ensuring compliance through tax regulations and rules. To establish a QSF, parties must petition a governmental authority which then reviews the proposed trust agreement for compliance.
Beyond tax benefits, QSFs reduce administrative burdens, help resolve secondary disputes, and create flexibility.
Traditional court-established methods can be time consuming and costly, but platforms like QSF 360 offer quicker, more affordable solutions. The QSF administrator must file Form 1120 SF annually, ensuring all IRS requirements are met.
Qualified settlement funds operate on a calendar-year basis and begin life upon governmental authority approval regardless of funding status. From tax benefits to streamlined creation options, QSFs offer numerous advantages for both plaintiffs and defendants. Always consult with experienced QSF administration professionals for specific guidance.
Ready to simplify your settlement process? Let's get started.
Learn how to minimize taxes on lawsuit settlements by understanding IRS rules. Allocate funds wisely, use Qualified Settlement Funds, and consult a tax expert for best results.
What legal settlements are taxable and how to minimize taxation of settlement awards. Receiving a settlement from a lawsuit can provide financial relief, but can raise taxability questions. Understanding the tax implications of lawsuit settlements is crucial to maximize compensation, minimize tax impact, and avoid potential pitfalls with the Internal Revenue Service (IRS).
Generally, the primary law regarding the taxability of amounts received from lawsuit awards and settlements is Section 61 of the Internal Revenue Code (IRC). Section 104 excludes taxable income settlements and awards resulting from physical injuries. However, the relevant IRS guidance states that one should consider "the facts and circumstances surrounding each settlement payment" to determine the settlement proceeds' purpose accurately, as "not all amounts received from a judicial award or settlement are exempt from taxes."
Judicial awards and settlements can be divided into two groups to determine whether the associated payments are taxable or non-taxable. Once funds have been classified into one of these two groups, a further subdivision is made. Proceeds from personal physical injuries or sickness are generally excludable from gross income, but emotional distress recoveries are only excludable if they stem from physical injuries.
Strategies to minimize tax liability include allocating damages to non-taxable categories like physical injuries and medical expenses, and using qualified settlement funds (QSFs) to provide short-term tax deferral and flexibility.
Navigating the complex tax implications of lawsuit settlements requires guidance. Consulting with a settlement tax expert before finalizing a settlement agreement can provide valuable insights and help negotiate more favorable tax outcomes.
The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
[7/16/2024] — In a thought-provoking article published in Tax Notes* Lawrence J. Eisenberg, an experienced tax attorney, describes the perplexing issues affecting individual plaintiffs in litigation recoveries and considers how those issues can be addressed, including by using a charitably-based trust-based solution. The article “The Individual Plaintiff Tax Trap — A Conundrum and a Solution” delves into the intricacies of the taxation of litigation recoveries and addresses methods to mitigate the adverse tax consequences some individual plaintiffs face.
Background
Eisenberg’s article highlights the strange and often inconsistent tax treatment of individual plaintiff litigation recoveries under the Internal Revenue Code. Despite the Supreme Court’s 2005 decision in “Commissioner v. Banks”, which held that plaintiffs must report the entire recovery as taxable income—including the portion payable to attorneys—many plaintiffs (and their attorneys and advisors) remain unaware of the potential tax pitfalls when such recoveries do not fall under tax-free categories, e.g., damages for physical injuries.
The Individual Plaintiff Tax Trap
The crux of the issue lies in the deductibility of attorney’s fees. Some recoveries are tax-free, so attorney fee deductibility is not relevant, or allow for an above-the-line deduction of these fees. Other recoveries can result a “double tax”, because in those situations, the attorney fee portion of the recovery is taxable, but the attorney fee itself is not deductible. This leads to significantly diminished net recoveries. Eisenberg’s article includes a detailed example demonstrating how a plaintiff’s net recovery can be less than 10% of the total amount, with the government and attorneys each receiving several times more than the plaintiff!
A Trust-Based Solution
To address this inequity, Eisenberg proposes that a plaintiff affected by the double tax create a Plaintiff Recovery Trust (PRT). A PRT allows plaintiffs to transfer their litigation claims to a specially designed split-interest charitable trust. By doing so, the litigation claim becomes an asset of the trust, and any recovery is received by the trust, which then pays the net recovery to the trust beneficiaries, including the plaintiff. The PRT uses ordinary trust law principles and aims to achieve fairer tax treatment by separating the ownership of the litigation claim from the individual plaintiff.
Key Benefits of the Plaintiff Recovery Trust
- Equitable Tax Treatment: By treating the litigation claim as a trust asset, a Plaintiff Recovery Trust results in the plaintiff not being taxed on the portion of the recovery paid to their attorneys.
- Structured recovery: The PRT trust structure allows for a more organized and potentially tax-efficient distribution of recoveries. (It also permits the use of structured settlements as part of the solution.)
- Charitable Component: The PRT includes a charitable beneficiary, adding a philanthropic dimension to the solution.
Conclusion
Eisenberg’s article is a call to action for tax professionals and litigation attorneys to recognize and address the unfair tax treatment many individual plaintiffs face. The PRT trust-based solution offers a way to alleviate the financial burden imposed by current tax law, so that plaintiffs retain a fair share of their recoveries.
See the full article on the taxation of settlement proceeds.
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Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know. Learn about their purpose, benefits, eligibility, tax implications, QSF administration, etc.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know:
FOR IMMEDIATE RELEASE
[7/8/24] Joe Sharpe, ETPC President, explained, “QSFs are powerful financial tools to streamline and manage settlements, especially in complex cases. They provide tax benefits, flexibility, and efficient administration for all parties involved. With platforms like QSF 360™, creating and managing a QSF is quick, easy, and fully compliant. From establishing a QSF to understanding the roles of administrators, tax implications, and investment options, our comprehensive listicle covers all you need to know about these financial mechanisms.”
Learn the advantages of QSFs over other settlement structures, QSF regulatory oversight, and best practices for effective management. Make the most of your settlements with QSFs and ensure a smooth, compliant, and beneficial process.
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore more and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete listicle and learn more about the advantages of QSFs, visit https://www.easternpointtrust.com/articles/qualified-settlement-funds-listicle-of-12-things-to-know.
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Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes.
Eastern Point Trust Company Unveils Comprehensive Guide on Navigating Post-Settlement Disputes and Complexities with Qualified Settlement Funds
[5/17/2024] — Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes. The guide focuses on utilizing Qualified Settlement Funds (QSFs), also known as 468B trusts, as a streamlined solution for efficient settlement fund management and dispute resolution.
It is not uncommon for secondary disputes to arise following a litigation settlement or court award. These disputes can range from family disagreements over their "fair share" to lawyers disputing fee splits, plaintiffs contesting attorney fees, and third-party lien holders emerging to stake claims against the litigation proceeds. Such complexities often hinder the settlement process and prolong the resolution.
Eastern Point Trust Company's newly released guide provides detailed insights into how QSFs can be employed to manage these disputes effectively. By offering a structured approach to fund management and tax compliance and providing the necessary time for informed decision-making, QSFs present a viable solution to post-settlement challenges.
Sam Kott, Vice President of Eastern Point Trust Company, emphasized the significance of the guide, stating, "This guide explores the advantages of QSFs, specifically their ability to address complex issues such as post-settlement disputes, secondary litigation, and lien resolution. The guide also provides direction on navigating post-settlement challenges and highlights the benefits of QSFs in achieving the best possible outcomes for all parties involved."
The guide delves into the various advantages of utilizing QSFs, including:
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore the guide and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete guide and learn more about the advantages of QSFs, visit here.
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Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
FOR IMMEDIATE RELEASE
[5/17/2024] — Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements. This comprehensive guide delves into the intricate workings of taxable and non-taxable settlements, offering invaluable insights into compensatory damages, punitive damages, and the tax treatment of various settlement types.
Ms. Rachel McCrocklin, Eastern Point’s Chief Trust Officer, commented, “The guide provides a detailed understanding of the pivotal role of IRS Section 104 and the taxability of various settlement types. Our goal is to equip readers with the knowledge to make informed decisions and minimize potential tax liabilities.”
The guide explores strategic methods to minimize tax obligations on settlements, including leveraging structured settlement annuities, Plaintiff Recovery Trusts, and proper allocation in settlement agreements. It is an essential resource for individuals and businesses navigating the complex landscape of settlement taxation.
Arm yourself with knowledge, make informed decisions, and minimize potential tax liabilities with Eastern Point's newest guide.
For more information on Unveiling the Complex World of Taxable and Tax-Free Settlements, please visit https://www.easternpointtrust.com/articles/unveiling-tax-free-settlements-what-you-need-to-know or contact 855-222-7513.
CTRO
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A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
FOR IMMEDIATE RELEASE
[5/2/2024] — A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
It reviews the advantages of choosing a trust company over a traditional bank account for escrow services, emphasizing active independent oversight that enhances transaction security and integrity.
Ned Armand, CEO, noted, “The guide also highlights the critical role of an escrow agent in managing funds prudently, ensuring a smooth progression of transactions under the regulatory frameworks.” Offerors of private equity and Reg D, Reg A, Reg A+, Reg CF, and Reg S offerings are encouraged to explore this guide, available on Eastern Point Trust Company.
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In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability.
In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
FOR IMMEDIATE RELEASE
[2/27/2024] — In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
The Qualified Settlement Fund stands as a testament to expediency, with the capability to be established and funded within a mere business day, a stark contrast to the lengthy processes associated with ERTs. By swiftly assuming environmental liabilities from present and future claims under CERCLA, state, and local law, QSF ensures immediate action and resolution.
One of the most compelling aspects of QSF is its affordability, with establishment costs as low as $500. This cost-effectiveness, coupled with the tax advantages it provides over ERTs, makes QSF an attractive proposition for businesses seeking prudent financial solutions.
Flexibility is another hallmark of QSF, allowing for single-year or multi-year funding without any maximum duration constraints, ensuring adaptability to diverse business needs. Furthermore, the ability to hold real estate expands the horizons of asset management within the fund.
The benefits extend to tax optimization, with QSF accelerating the transferor's tax deduction for funds transferred to the current tax year, thereby enhancing financial planning and efficiency. Moreover, by shifting liability and associated funding transfers irrevocably to the QSF, businesses can streamline their balance sheets, mitigating risks and enhancing transparency.
In addition to these financial advantages, QSF facilitates seamless settlement agreements to capitate and resolve environmental liabilities, assuring regulators and interested parties of the irrevocable availability of funds for amelioration.
The transition to QSF not only eliminates future administrative burdens but also entrusts the fund's administration to a dedicated trustee, relieving businesses of operational complexities and enhancing focus on core activities.
In conclusion, the Qualified Settlement Fund stands as a beacon of innovation in environmental liability management, offering unmatched advantages over traditional Environmental Remediation Trusts. Its expediency, affordability, flexibility, and tax optimization capabilities redefine the landscape, empowering businesses to navigate environmental challenges with confidence and efficiency.
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Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Eastern Point Trust provides services across the U.S. and internationally.
FOR IMMEDIATE RELEASE
[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”
Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”
Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners
About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.
With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.
About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust
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Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation
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[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.
Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”
About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.
Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.
About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.
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Qualified Settlement Funds (QSFs) are powerful financial tools to administer settlements, especially in complex matters. Parties involved in disputes contemplated under 1.46B-1 et seq. can effectively manage and benefit from Qualified Settlement Funds’ tax and financial advantages.
Qualified Settlement Funds (QSFs), a 468B trust, are valuable and crucial in managing litigation settlements efficiently and effectively. "QSF", which stands for "Qualified Settlement Fund", is a fund established as a trust or account established to hold settlement proceeds from litigation. According to the definition under Treasury Regulations, it is an escrow account, trust, or fund established according to an order of or approved by a government authority to resolve or satisfy claims.
This comprehensive infographic guide explains the essential aspects of Qualified Settlement Funds:
The guide provides valuable insights, tips, and rules of thumb for legal professionals, claimants, and other stakeholders about how a QSF account benefits the settlement process. A QSF offers many advantages, including immediate tax deduction for defendants, tax deferral for claimants, and efficient management of settlement proceeds. QSFs are commonly used in class action lawsuits, mass tort litigation, and cases with multiple claimants, but can also provide benefits in single claimant cases.
Setting up a QSF involves petitioning a government authority and appointing a QSF Administrator to oversee the fund. The QSF Administrator, often a platform like QSF 360, is responsible for obtaining an EIN, handling tax reporting, overseeing QSF administration, and making distributions to claimants. Online QSF portals streamline the Qualified Settlement Fund administration process.
Partnering with an experienced QSF Administrator is essential. Services like QSF 360 from specialize in QSFs for both large and small cases and can help ensure compliance with IRC § 1.468B-1 and other regulations.
In summary, Qualified Settlement Funds are a powerful tool for managing settlement proceeds. With proper planning and administration, QSFs provide significant tax benefits, enable efficient distribution of litigation proceeds, and help bring litigation closure. Understanding what is QSF and how to leverage QSFs is invaluable for any legal professional involved in today's settlements.
Discover how a Qualified Settlement Fund (QSF) played a crucial role in securing the future of a child after a legal settlement. This case study highlights the power of QSFs and its long term benefits for a minor.
In the heart of Georgia, a family’s world shattered when John Doe, a 34-year-old father, tragically lost his life due to the negligence of his employer. Left behind were his grieving spouse and minor children, including a 12-year-old daughter, Emily. As the family grappled with their loss, they faced the daunting task of navigating a complex legal landscape. Such a circumstance is where the power of a Qualified Settlement Fund (QSF) came into play, offering hope for Emily’s future.
The wrongful death suit resulted in a $3 million settlement, bringing relief and responsibility. Under Georgia law, the spouse and children were equal beneficiaries, with the spouse guaranteed at least one-third of the settlement. However, the presence of a minor beneficiary added complexity to the case.
The family’s attorney recognized the need for a solution to protect Emily’s interests while allowing for thoughtful, long-term financial planning. “In cases involving minors, we must think beyond immediate needs,” the lawyer noted. “We needed a mechanism to give us time to craft a comprehensive plan for Emily’s future.”
Emily’s lawyer proposed the establishment of a Section 468B Qualified Settlement Fund, a legal tool that would prove invaluable in this case. The QSF offered several key advantages:
A Qualified Settlement Fund, established under IRS Section 1.468B-1, is a financial and legal mechanism used primarily in settling lawsuits, particularly cases involving multiple claimants. It’s a settlement trust account established to receive and administer funds from a defendant in a legal settlement.
Considering a Qualified Settlement Fund as part of your strategy for crafting a secure future can be beneficial when involved in a legal settlement. It’s essential to consult with legal and financial professionals to determine if a QSF aligns with your specific situation and long-term financial goals.
With the plan in place and the luxury of time to plan, Emily’s guardian, her mother, worked closely with financial advisors to create a comprehensive plan. They explored various options, including:
“The 468B Settlement Trust gave us breathing room,” Emily’s mother shared. “Instead of making rushed decisions, we could carefully consider Emily’s future and make choices that truly honored her father’s memory.”
The implementation of the QSF, in this example case, serves as a model for similar situations. It demonstrates how thoughtful legal and financial planning can turn a tragedy into an opportunity for long-term security and growth.
The lawyer reflected on the case: “By utilizing a QSF, we were able to transform a moment of profound loss into a foundation for Emily’s future. It’s a powerful reminder of how the right legal and tax tools can make a real difference in people’s lives.”
As Emily grows, she’ll have the financial resources she needs to pursue her dreams, thanks to the foresight and care taken in managing her settlement via a Qualified Settlement Fund. While nothing can replace the loss of a parent, the security provided by this approach offers some solace and hope for the future.
Using a Qualified Settlement Fund can be a game-changer for families facing similar circumstances. It provides the time and flexibility needed to make informed decisions, ensuring that the interests of minor beneficiaries are protected and nurtured for years to come.
Learn more about how Qualified Settlement Funds benefit the minor’s settlement process.
Contact a QSF 360 specialist today at (855) 979-0322.
Discover the power of Qualified Settlement Funds (QSFs) with our comprehensive guide. Learn about their purpose, benefits, eligibility, tax implications, QSF administration, etc. Perfect for parties involved in complex disputes seeking effective settlement solutions.
Qualified Settlement Funds (QSFs) are powerful financial tools to administer settlements, especially in complex matters. Parties involved in disputes contemplated under § 1.468B-1 et seq. can effectively manage and benefit from Qualified Settlement Funds’ tax and financial advantages.
Here are 12 details on QSFs and their operational features you should know.
What is a QSF? A Qualified Settlement Fund (QSF), also known as a 468B Trust, is a statutory mechanism that simplifies the handling and distribution of settlement funds. QSFs enable plaintiffs to postpone tax payments and ensure an organized settlement procedure.
Purpose: QSFs aid in streamlining settlement processes by consolidating payments into a fund allocated to claimants.
Eligibility: Any party involved in one or more contested or uncontested claim(s) asserting liability that has resulted or may result from an event or related series of events can establish a QSF provided it satisfies the conditions specified in IRC § 468B and its regulations, including obtaining approval from a “governmental authority.”
Approval Process: To ensure compliance with § 468B, creating a QSF requires approval from a governmental authority.
Creation: Platforms like QSF 360™ provide a quick, easy, and fully compliant solution for creating and administering a QSF.
Immediate Tax Deduction: Defendants can avail themselves of an immediate tax deduction for the payment made into the QSF.
Tax Deferral for Plaintiffs: Plaintiffs benefit from additional time to plan. Funds held in a QSF are tax-deferred until disbursed.
Flexibility: QSFs provide more flexible tax and financial options for the attorneys and claimants.
Tax Treatment: Each QSF has its own Employer Identification Number (EIN) and is taxed only on its modified gross income (excluding the settlement fund transferred into the QSF). The QSF pays taxes only on its investment income – not the settlement proceeds.
Reporting: The QSF administrator is responsible for the tax returns for the QSF and, when applicable, issuing 1099 forms to claimants.
Asset Management: QSF assets are best and typically held in FDIC-insured money market accounts. The resulting interest covers administrative costs or increases the fund’s value for the claimants.
Treasury Management: Treasury management, daily account reconciliation, and transparent reporting are essential.
Administrator’s Duties: The QSF administrator oversees the fund’s operations, including recordkeeping, reporting, compliance with regulations, and distribution to claimants or lien holders on the claimant’s behalf.
Critical Role: The QSF administrator supervises and facilitates making timely distributions and resolving liens.
Distribution Process: The QSF administrator oversees payments to the claimants, lien satisfaction, and the funding of trusts, assignments, and structured settlements.
Documentation: Proper documentation and releases are necessary for each distribution.
Streamlined Process: QSFs consolidate payments into a single point of contact for all parties involved.
Flexibility: By allowing time for personalized financial planning, plaintiffs have greater flexibility over when and how they receive their portion of the settlement proceeds.
Complex Cases: QSFs are especially beneficial in cases involving post-settlement disputes.
Lien and Secondary-Dispute Resolution: Delays can occur when liens and other outstanding disputes exist. A QSF allows unaffected claimants or lien holders to receive their funds while the impacted parties resolve their issues.
Regulatory Compliance: The QSF administrator must ensure adherence to § 1.468B-1 et seq.
Jurisdiction: All QSFs are subject to the continuing jurisdiction of the approving governmental authority.
Closing the QSF: A final IRS form 1120-SF tax return is filed when all distributions and liens are final and the fund is exhausted.
Reconciliation: The QSF administrator must reconcile and satisfy all the QSF’s tax obligations before closing the fund.
Experienced Professionals: To ensure compliance and maximize QSF benefits, using an experienced QSF administrator like Eastern Point Trust Company is essential.
Ongoing Oversight: Regular monitoring and compliance oversight are necessary to maintain the fund’s integrity and ensure accurate reporting.
Dive into the realm of Qualified Settlement Trusts and Funds. Learn their definitions, uses, benefits, implementation procedures, and real-world implications. Discover how QSFs can transform the settlement process in various legal conflicts.
Shakespeare wrote, ‘What’s in a name?’ In the realm of qualified settlement administration, maybe quite a lot – or nothing at all.
It is essential for legal, settlement, and financial experts to grasp the nuances of Qualified Settlement Funds (QSF). A QSF, also called a 468B fund, serves as a mechanism for parties to settle disputes while reaping tax advantages and benefiting from extra planning time and deferred taxation.
Understanding the principles and uses of QSFs can significantly influence the outcome of settlement talks and the contentment of all parties involved.
This paper explores the realm of Qualified Settlement Funds and their namesake “Qualified Settlement Trusts.” This paper delves into their definitions, practical scenarios, implementation procedures, and real-world implications.
Whether a financial consultant or an involved party, this paper equips you with the knowledge needed to maximize QSF benefits in a settlement agreement.
The answer is - Well, maybe.
When established by a government authority, a Qualified Settlement Fund must meet all the requirements of 26 USC § 468B, et seq., and 26 CFR § 1.468B-1, et seq. It also enables defendants to deposit payments into the QSF trust in exchange for a release of liability.
So, while some may informally call a QSF a Qualified Settlement Trust, the only test that matters is whether the Trust (whatever its name) meets the requirements of 26 USC § 468B, et seq., and § 1.468B-1, et seq. If it does, it is a QSF, no matter what informal label or name is applied to it.
For a Qualified Settlement Trust to be a QSF, it must:
Qualified Settlement Trusts constructed as QSFs prove valuable in resolving legal conflicts.
Some common situations may include:
In these scenarios, QSFs offer advantages such as preventing conflicts of interest for lawyers, allowing plaintiffs to earn interest while disputes are resolved, and freeing defendants from battles while addressing liens and other matters.
Create a trust agreement outlining the QSF rules, detailing how distributions should operate, and setting out the trustee’s duties.
Government approval is required to establish the QSF. The governmental authority that approves the QSF will appoint a trustee to manage it. This approval should clearly define the purpose of the QSF. A proper QSF should also specify the types of claims it aims to resolve.
Once approved, obtaining an Employer Identification Number (EIN) from the Internal Revenue Service for the QSF is imperative.
These practical instances and tens of thousands of other uses highlight how versatile and successful are QSFs are in managing settlements regardless of the number of parties or type of industry.
The inception and application of Qualified Settlement Trusts (properly designed and approved as a Qualified Settlement Fund) can transformed how large and small legal conflicts are settled. By offering a tax-efficient method for handling settlement funds, QSFs streamline distribution processes. The real-world examples underscore QSFs’ role in resolving simple and complex legal battles across diverse sectors.
With the legal environment constantly changing, the significance of Qualified Settlement Trusts as a QSF in resolving disputes is ever-expanding.
Navigating legal claims can be a complex task for businesses. Qualified Settlement Funds (QSFs) offer a practical solution! They provide immediate tax deductions, relieve liabilities, and manage payments, making them a vital tool in dispute resolution.
Qualified Settlement Funds (QSFs), sometimes referred to as 468B trusts or settlement trusts, earn their title from the qualification requirements stipulated in IRC §1.468B-1. Through the relevant regulations, the Internal Revenue Service (IRS) allows QSFs an accelerated method for deducting the expenses associated with settling legal claims. As outlined in IRC §1.468B-1, three conditions must be fulfilled for a fund to qualify as a QSF.
First, a QSF is established through an order or approval issued by a Governmental Authority. Unless transferred, a QSF must remain within the jurisdiction of the approving Governmental Authority. Note that a QSF is not valid without oversight from the Governmental Authority.
Second, the trust must be used to address allowable claims against the defendant. Allowable claims are outlined in §1.468B-1, and include actions based on torts and breaches of contract.
Third and finally, the QSF must adhere to state laws governing the creation of trusts in the state where the QSF is sitused (i.e., where the QSF is “domiciled”).
QSFs are commonly employed to settle tort, breach of contract, and other claims allowed under §1.468B-1. When a company requires a QSF, it has determined that future settlement or judicial award payments will be necessary. If correctly executed, any transfers or payments made to the fund can be considered expenses incurred in the course of business and thus eligible for a tax deduction in the same year as the transfer.
Generally speaking, once the company transfers funds into the Qualified Settlement Fund, the funds cannot be returned to the company. To claim a deduction for funds transferred to the QSF, the company must relinquish any right to demand a refund. However, if all claims are satisfied, the Trustee may return unused portions to the company in certain circumstances.
One might question why a business should permanently transfer funds if there is a chance that there may be no financial obligations following a trial or appeal. In some situations, establishing an escrow account could be a more practical choice until the dispute resolution is final. Nonetheless, there are many reasons why a business may opt for a QSF.
When confronted with legal claims, businesses must explore avenues for paying judgment holders. Creating a QSF as an avenue for payments is worth considering for several reasons.
A QSF offers immediate tax deductions for all funds moved into the trust – To qualify for tax deductions, businesses must satisfy the “all events test” outlined in § 461. According to this test, there needs to be “economic performance.” Section 1.468B 3(c) of the Treasury Regulations (26 C.F.R. § 1.468B 3(c)) specifies that transferring funds to a Qualified Settlement Fund with the intention of settling a liability meets the economic performance test, making it eligible for deduction as a business expense.
A QSF effectively relieves the defendant from liabilities by taking over the responsibility for payments and judgment holders related to claims related to the QSF. When a defendant transfers the payment obligations to a QSF, the Trust Agreement governing the QSF stipulates “the release” of the defendant from all liability for those claims.
Upon establishment, a QSF frees the defendant from the administrative burden of dealing directly with claimants by shifting that responsibility to the QSF, which now deals directly with the claimants. The Trustee overseeing the QSF would manage these matters accordingly. The QSF and its Trustee are responsible for distributing payments among claimants regardless of differences in owed amounts or uncertainties surrounding these amounts.
QSFs enable companies to streamline management following the resolution of disputes, which can often drag on for extended periods. By utilizing QSFs, businesses can efficiently allocate funds to judgment holders without delay.
When dealing with the expenses of compensating individuals, there are concerns about budget and logistics. How many claimants will there be in the end? What amounts need to be paid to them? How will the company handle this uncertainty? The establishment of a QSF can address these concerns.
Once a QSF trust is set up and funded, the company can categorize any transfers as an expense. Decision-makers no longer need to worry about identifying all recipients or determining individual payment amounts. What matters for the company is the sum transferred to the fund irrespective of each claim value or judgment award.
By implementing a QSF, companies show goodwill. Moreover, once payments are disbursed to plaintiffs, the QSF can donate any remaining funds to a charity chosen by the company, should the company choose to do so. Opting for this, the company may enhance its reputation if presented and communicated effectively.
The noted benefits of a QSF collectively make a case for defendants to utilize QSF trusts to settle claims.
If your company is dealing with a dispute and considering setting up a QSF trust to settle matters, it’s advisable to seek advice from a tax and accounting specialist like Eastern Point Trust Company and learn how QSF 360 can resolve your settlement administration and dilemma in as little as one business day.
For more content on QSFs visit Eastern Point Trust’s – YouTube Channel.
Explore the differences between a Settlement Fund and a Qualified Settlement Fund (QSF). Learn their roles in resolving legal disputes, their benefits, and how they function. Understand the components of a QSF and why it's a superior solution.
A settlement fund is an account where the defendant’s payment holds (escrow) funds payable to the plaintiffs. Informal settlement fund escrow accounts have become less common due to their limitations compared to Qualified Settlement Funds (“QSFs”).
Both settlement funds and QSFs help settle legal disputes, offering a way to distribute settlement funds. Knowing the difference between a settlement fund and a QSF and how they function is crucial for individuals contemplating settling a legal issue.
A settlement fund, sometimes known as an escrow fund, compensation fund, or claims fund, is a pool of money set aside to resolve a legal dispute or pending claim(s). It is a financial resource from which disburses a defendant’s settlement obligations to the appropriate affected individuals or entities. The primary purpose of settlement funds is to provide streamlined and efficient ways to resolve disputes, provide tax benefits, promote fairness, and ensure that the parties receive their equitable share. However, ordinary settlement funds are not tax-efficient and typically do not offer the same financial flexibility and protections as a QSF. On the other hand, QSFs have built-in tax efficiencies for both plaintiffs and defendants that ordinary settlement funds do not provide.
By establishing a “QSF” settlement fund, the defendants can avoid contentious, lengthy, tax-inefficient, and costly post-settlement distribution processes and receive an immediate resolution and tax deduction. Likewise, with a QSF, plaintiffs have virtually unlimited time to settle secondary claims, create financial plans, and minimize tax burdens.
Both settlement funds and QSFs help streamline and simplify the resolution process for all involved parties, including the courts, by resolving all related claims via a single fund that acts as the alter ego of the defendant(s) and disburses the associated funds.
Furthermore, settlement funds and Qualified Settlement Funds both provide an expedient resolution process, which is particularly advantageous in cases where plaintiffs may face financial hardships, require immediate financial assistance, or have secondary disputes, complex liens, or government benefit considerations.
In cases where multiple plaintiffs are involved, both a QSF and a settlement fund allow for an equitable distribution of the available funds among all the affected parties and ensure that all claimants receive their fair share and benefit from the tax-deferred time to plan adequately.
Settlement funds and QFS can also offer confidentiality and privacy to the parties involved; thus, settlement negotiations, terms, and associated confidentiality agreements can remain private.
However, only Qualified Settlement Funds created under Section 468B provide and preserve valuable tax, financial planning, and other benefits for the defendant and plaintiffs. Non-QSF settlement funds do not have the same tax benefits and, in fact, may accelerate taxation and erode valuable tax planning options that would be available via a Qualified Settlement Fund.
A QSF has several essential components, including:
IRS regulation requires the approval of the creation of a QSF by a “governmental authority.” Proven platforms such as QSF 360 provide a quick and easy online platform to create a QSF in as little as one business day.
Once established, a QSF requires the transfer of funds from the defendants or responsible parties into the QSF.
Once the settlement fund, as a QSF, is established, administration by independent and experienced QSF administrators is necessary. The QSF Trustees and QSF Administrators are responsible for overseeing the QSF funds, ensuring compliance with Section 468B and the agreed-upon settlement terms, and managing the distribution of compensation to the claimants.
Settlement fund administrators are crucial in implementing the necessary procedures and controls to ensure the distribution process is carried out according to settlement terms.
The distribution process may involve several steps, such as establishing claimants’ eligibility, calculating the appropriate allocation, resolving liens and secondary disputes, and issuing payments to the plaintiffs. To ensure transparency and accountability, the QSF administrators must maintain accurate records of all distributions and provide regular reports to the relevant parties.
Establishing and utilizing non-QSF settlement funds and Qualified Settlement Funds provides a solution for resolving legal disputes fairly and efficiently. However, Qualified Settlement Funds (QSF) settlement funds are generally a superior solution to “non-QSF” settlement funds. By establishing a “QSF” settlement fund, the defendants can avoid contentious, lengthy, tax-inefficient, and costly post-settlement distribution processes and receive an immediate tax deduction.
Further, the Plaintiffs benefit from valuable tax advantages and additional financial planning flexibility and time.
To access more educational information about settlement funds and Qualified Settlement Funds, visit here.
Explore the complex tax implications of lawsuit settlements. Learn how to minimize tax liability, understand the role of settlement agreements, and navigate the distinctions between physical and non-physical injury claims.
Receiving a settlement from a lawsuit can provide much-needed financial relief, but it can also raise important questions about the taxability of those funds. Understanding the tax implications of lawsuit settlements is crucial for individuals seeking to maximize compensation, minimize the associated tax impact, and avoid potential pitfalls with the Internal Revenue Service (IRS).
In this analysis, we focus on:
Generally, the primary law regarding the taxability of amounts received from lawsuit awards and settlements is Section 61 of the Internal Revenue Code (IRC).
Specifically, this code section states that “gross income means all income from whatever source derived…” unless another code section exempts the income source.1 Section 104 of the IRC excludes taxable income settlements and awards due to lawsuits stemming from physical injuries.2 However, the relevant IRS guidance states that one should consider “the facts and circumstances surrounding each settlement payment” to determine the settlement proceeds’ purpose accurately, as “not all amounts received from a judicial award or settlement are exempt from taxes.”3
Judicial awards and settlements can be divided into groups to determine whether the associated payments are taxable or non-taxable. According to relevant IRS guidance, “the first group includes claims relating to physical injuries, and the second group is for claims relating to non-physical injuries.”4 Once funds have been classified into one of these two groups, a further subdivision is made, and the funds will usually fall into the following categories:
Importantly, award or settlement proceeds received for personal physical injuries or sickness are excludable from the recipient’s gross income under IRC Section 104(a)(2).5 For emotional distress recoveries to be excludable from taxation, the underlying damages must be due to personal physical injuries or illness.
Pro Tip: Any amount which is a reimbursement of past actual medical expenses that was previously deducted is also taxable.6
Pro Tip: Punitive damages are never excludable from gross income (thus, they are always taxable), except for damages awarded for wrongful death in states where only punitive damages may be awarded.7
There are several strategies plaintiffs can employ to minimize their tax liability on settlement money. Plaintiffs may reduce their taxable income by justifiably allocating damages to non-taxable award categories like physical injuries and medical expenses and decreasing amounts related to emotional distress.
Structured settlements offer a way to spread payments over multiple years and may keep the plaintiff in a lower tax bracket and reduce the overall tax burden compared to receiving a lump sum.
Qualified Settlement Funds (QSFs) provide short-term tax deferral and flexibility for plaintiffs to plan when and how to receive payments while allowing defendants to claim an immediate tax deduction. QSFs act as a settlement resolution tax tool, assuming tort liability from defendants. While QSFs do not directly provide long-term tax reduction benefits, they facilitate spreading settlement payments over time as ordinary income or capital gains instead of taking a large lump sum, which can significantly lower the taxes owed by keeping the plaintiff out of higher tax brackets in a given tax year. A QSF should be strongly considered for every settlement, as they facilitate lien resolution and other post-settlement issues and disputes.
Navigating the complex tax implications of lawsuit settlements requires guidance from subject matter experts and experienced tax professionals. Consulting with an experienced settlement tax expert before finalizing a settlement agreement or even before filing the case can provide valuable insights into the potential tax consequences and help plaintiffs negotiate more favorable tax outcomes.
If justified, allocating damages to non-taxable categories like physical injuries and medical expenses may be helpful. However, avoid unwarranted attempts to negotiate the amount reported on Form 1099, as adverse tax consequences may arise from such tactics.
Pro Tip: Be aware that above-the-line income deductions for attorney fees typically raise IRS audit flags, and the IRS, as their examination guidelines call for, will apply scrutiny to the elements of the original pleadings, which is often known as the origin-of-the-claim test. The IRS can use the original pleadings against the taxpayer to disallow exemption classification. The origin-of-the-claim test (not the 1099 issued) will determine the nature of legal fees, thereby deciding how the attorney fees are treated for tax purposes. It is essential to examine the facts of the pleaded claim(s) and ask why the individual hired an attorney – for example, was it to enforce a civil right violation or enforce some other claim(s)? Answering these questions should enable the determination of whether the fees are nondeductible personal expenses, business or income-related, or capitalizable as related to a property interest. As much as some advisors will lead you to believe otherwise, if not justified, there are severe potential adverse consequences for classifying the attorney’s fee portion in this manner.
In Commissioner v. Banks, 543 U.S. 426 (2005), the United States Supreme Court addressed the question of the plaintiff’s taxation of the portion of a judgment or settlement paid to a taxpayer’s attorney under a contingent-fee agreement.
There, the Court held that the total (taxable) settlement proceeds, including the contingent attorney fee portion, are income attributable to the plaintiff-taxpayer for federal income tax purposes. As such, attorney fees also impact a plaintiff’s tax obligations, and the Tax Cuts and Jobs Act of 2017 severely limited the deductibility of legal fees. Tools like structured settlement annuities and Plaintiff Recovery Trusts can significantly mitigate the tax burden and maximize the plaintiff’s net recovery.
It is crucial for plaintiffs, with tax implications in mind, to shield their settlements from excessive taxation by seeking professional tax advice and carefully shaping the settlement agreements.
Lawsuit settlements can provide much-needed financial relief, but understanding their tax implications is crucial for maximizing compensation while avoiding issues with the IRS. By recognizing the distinction between physical injury and non-physical injury settlements, utilizing settlement agreements effectively, and considering tools like Qualified Settlement Funds and the Plaintiff Recovery Trust, plaintiffs can minimize their tax liability and protect their financial interests. Seeking guidance from experienced tax professionals and attorneys is essential to navigating the maze of settlement taxation.
Proactive tax planning and carefully structured settlement agreements shield the associated proceeds from unnecessary taxation. By being informed and working closely with legal and financial experts, plaintiffs can ensure they receive the full benefits of their settlements while minimizing their tax obligations, allowing them to focus on moving forward after successfully resolving their legal claims.
To minimize taxes on settlement money, consider the following strategies:
Settlements for physical injuries are generally not taxable. Therefore, you typically do not need to pay taxes on these types of settlement money (except for any associated punitive damages, which are always taxable).
The taxable portion of a legal settlement, including those that involve previously deducted medical expenses related to physical injuries or illnesses and punitive damages, should be reported as miscellaneous (other) income on your tax return. Any interest earned on the settlement the plaintiff receives is also taxable.
Learn the differences between Qualified Settlement Funds and Environmental Remediation Trusts and the tax and administrative advantages of a QSF.
From time to time, Eastern Point Trust Company (EPTC) receives requests to create and administer a Qualified Settlement Fund (“QSF”) pursuant to 26 CFR §1.468B-1 et. seq to fund current or future liabilities (by way of example, future response or remediation requirements) arising from Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) claims (and violations of state and local environmental law).
This White Paper summarizes via a FAQ format the utilization of a QSF established and operated pursuant to 26 CFR §1.468B-1 related to funding CERCLA environmental claims (and violations of state and local environmental law) and the key advantages of a QSF over an Environmental Remediation Trust (“ERT”) established under IRC §301.7701.
The author assumes for this paper that the reader is familiar with CERLA, ERTs, the associated federal, state, and local environmental law, and the related environmental remediation liability aspects and processes.
Answer: On December 23, 1993, the IRS issued a final regulation regarding Qualified Settlement Funds, which went into effect on January 1 as 26 CFR §1.468B-1 et seq., establishing the qualification and operational requirements for a QSF.
26 CFR §1.468B-1 included torts, breach of contract, violation of law, and environmental claims under CERLA as qualifying events.
According to 26 CFR §1.468B-1(c), a QSF must meet the following criteria:
“(c) Requirements. A fund, account, or trust satisfies the requirements of this paragraph (c) if -
(1) It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;
(2) It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability -
(i) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended, 42 USC 9601 et seq.; or
(ii) Arising out of a tort, breach of contract, or violation of law; or
(iii) Designated by the Commissioner in a revenue ruling or revenue procedure; and
(3) The fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related persons).”
Answer: Yes, a QSF, pursuant to 26 CFR §1.468B-1(c)(2)(i), qualifies to fund the associated liabilities under CERCLA if:
“it is established to “resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability -
(i) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended, 42 USC 9601 et seq.
(ii) Arising out of a tort, breach of contract, or violation of law; or”…
As noted, 26 CFR §1.468B-1(c)(2)(i) implicitly provides for liabilities under CERCLA as eligible for QSF treatment if (pursuant 26 CFR §1.468B-1(f)(2)) the transferor’s sole remaining liability to the Environmental Protection Agency (“EPA”) upon transfer to the QSF “is a remote, future obligation to provide services or property.”
“(2) CERCLA liabilities. A transferor’s liability under CERCLA to provide services or property is described in paragraph (c)(2) of this section if following its transfer to a fund, account, or trust the transferor’s only remaining liability to the Environmental Protection Agency (if any) is a remote, future obligation to provide services or property.”
Notwithstanding the foregoing, and pursuant to 26 CFR §1.468b-1(c)(2), if, on a facts and circumstances basis, a QSF established in good faith on the then known facts would remain qualified if reopener claims arose as new claims arising from “claims that have resulted or may result from an event (or related series of events).”
Practice Note: It is common to have multiple QSFs associated with the same event. Nothing in 26 CFR §1.468B-1 et seq. prohibits the bifurcation of liabilities into multiple QSFs, each addressing different elements of the claims, different transferors, or other administrative-related segmentation. However, a QSF may not hold claims arising from an unrelated series of events.
Practice Note: As clarified in 26 CFR §1.468B-1 - Example 7 (regarding a landfill operator), there must be at least one claim asserting a liability. General business obligations are not a claim, such as a future cost to perform, even if the law nominally requires the obligation.
PLR Number: 200821019 Release Date: 5/23/2008 clarifies that the funds in the QSF must “resolve or satisfy claims described in section 1.468B-1(c)(2)” and Example 7 considered the following scenario: “There a corporation owned and operated a landfill in a state that required the corporation to transfer money to a trust annually based on the total tonnage of material placed in the landfill during the year. Under the law, the corporation is required to perform (either itself or through contractors) specified closure activities when the landfill is full, and the trust assets would be used to reimburse the corporation for these closure costs. The trust in that example is not a qualified settlement fund because it is established to secure the liability of the corporation to perform such closure activities.”
Additionally, 26 CFR §1.468B-1(c)(2)(ii) provides that claims “Arising out of a tort, breach of contract, or violation of law” qualify under the regulation. Thus, those liabilities arising from violations of state law and other environmental laws comparable to the federal CERCLA, to the extent they satisfy 26 CFR §1.468B-1(c)(2)(ii), qualify for transfer into a QSF.
Practice Note: QSFs have unique qualifications and operational requirements; the best practice is to have an independent, institutional trustee with well-established experience appointed to administer a QSF and act as the trustee. The trustee shall act on behalf of the QSF, established as a trust under state law, to enter into a Settlement Agreement between the QSF and the EPA (or other applicable state agency). The associated Settlement Agreement, incorporated into the terms of the QSF, formalizes the agreement between the trustee acting on behalf of a QSF and EPA (or other applicable state agency), defining the obligations under the QSF.
Answer: Yes, unlike ERTs, which provide for no Economic Performance at the time of funding, a QSF pursuant to 26 CFR 26IRC §1.468B-3(c)(1) provides for the “Economic Performance” of the “transferor” at the time of the irrevocable funding of the QSF. Accordingly, a QSF, which is properly qualified, allows a current-year tax deduction of the irrevocable funding amount(s).i
“In general. Except as otherwise provided in this paragraph (c), for purposes of section 461(h), economic performance occurs with respect to a liability described in 26 CFR §1.468B-1(c)(2) (determined with regard to 26 CFR §1.468b-1(f) and (g)) to the extent the transferor makes a transfer to a qualified settlement fund to resolve or satisfy the liability.”
By contrast, an ERT is a Grantor Trust, and each respected funder of an ERT is a “Grantor,” which retains ownership and control of the funds in the ERT, for tax purposes, and the Grantor Trust rules apply. Under the Grantor Trust rules, the funder of an ERT is the owner of the portion of the ERT contributed by that respective Grantor, as the funding does not constitute Economic Performance. Only when the ERT makes payments for the remediation project are the corresponding amounts deductible by the Grantor(s), and only in the current tax year in which the payments occur.
As such, the Grantor is not allowed to claim a deduction based solely upon the funding of the ERT.
Answer: Yes, funding transferred from an existing ERT into QSF would constitute Economic Performance and allow the “transferor” a corresponding tax deduction for the funding amount in the current tax year.
Answer: Yes, 26 CFR §1.468B-1 et seq. establishes no limit on the number of funding events within the lifetime of a QSF, and each funding of a QSF shall constitute Economic Performance at the time of funding. The deduction of multiple fundings within the current year tax is likewise afforded to the transferor.
Answer: No, there is no statutory or regulatory time limit on the duration of a QSF. A QSF may operate for so long as potential liabilities are outstanding.
Answer: No, unlike an ERT, upon establishing a QSF, the transferor irrevocably transfers the funding and the associated value of the liability to the QSF. Therefore, the transferor no longer carries on their Balance Sheet the transferred portion of the environmental remediation liability or the assets held within the QSF.
Practice Note: Transferors report that the ability to remove liabilities from their Balance Sheet irrevocably provides secondary benefits of isolating liabilities and improving their reportable financial condition.
Answer: No, unlike an ERT (whose assets and investment gains are the transferor’s property), a QSF is responsible for its tax liability and files its own IRS Form 1120-SF (https://www.irs.gov/pub/irs-pdf/f1120sf.pdf).
Accordingly, a QSF is a separate entity, and the transferor has no ongoing accounting, tax liability, or reporting requirements related to the operation of a QSF.
Pursuant to 26 CFR §1.468B-2, a QSF is subject to taxation on its modified gross income. A QSF must file IRS form 1120-SF each tax year it exists (even if it has no assets) until terminated. The trustee/administrator of a QSF typically prepares and files the IRS Form 1120-SF along with any necessary 1099 reporting requirements that may arise from distributions made during the operation of a QSF.
Practice Note: A QSF’s tax treatment of income, distributions, deductions, and income differs materially from the rules generally governing trust taxation via IRS Form 1041. Seek the advice of an experienced QSF tax professional.
Answer: No, if excess funds remain in a QSF upon satisfying all environmental remediation obligations and claims and the pending termination of a QSF, there is no option to revert the funds to the transferor without compromising the transferor’s original deduction of the funding. Reverting the funds to the transferor would nullify the deductibility of the original transfer in the year of funding, thereby necessitating the transferor to file an amended tax return(s) for the year(s) corresponding to the original deduction(s).
Excess funds may offset trustee/administrator expenses, tax liabilities of the QSF, accounting and legal services of the QSF, notification of claimants and claim processing expenses, or other deductions.
Practice Note: One should be conservative in funding a future liability as additional funding may be added to the QSF at any time, but generally, excess funds may not revert without impacting the qualification of the QSF (some exceptions may apply as noted in PLR Number: 200821019 Release Date: 5/23/2008). If excess funds exist, it is not uncommon for a QSF to make a charitable contribution to distribute them or transfer / escheat them to an appropriate government entity.
Answer: No, a transferor may choose to fund all or any portion of the potential or actual liability for environmental remediation, into a QSF, at their discretion. The corresponding liabilities are transferred into a QSF, and Economic Performance occurs as the funding occurs.
Practice Note: When applicable, transferors have conducted studies to determine the Net Present Value of funding required to offset the liabilities. Utilizing actuarial studies and or an appropriate funding vehicle, the transferor funds the associated QSF with the Net Present Value of the liabilities. In such a circumstance, transferors have transferred the entire liability to the associated QSF. However, the transferor may only claim a tax deduction for the actual funding, not the future value of the entire transferred liability. Further, depending on the investment performance of the assets within a QSF, additional funding into a QSF may be required to fulfill the potential or actual liability for environmental remediation liabilities if they exceed the associated QSF’s available funds. A fixed-income investment vehicle such as an annuity can pre-fund and match the long-term stewardship obligations. With an appropriate inflation factor, some cleanup companies shall agree to a guaranteed fixed-price contract. (The details of such arrangements are not within this White Paper’s scope.)
Answer: No, pursuant to 26 CFR §1.468B-1(c)(1), a QSF must meet the following criteria regarding governmental approval:
“(c) Requirements. A fund, account, or trust satisfies the requirements of this paragraph (c) if -
(1) It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;”
Eastern Point’s online turnkey QSF platform allows you to design a QSF in as quickly as 15 minutes and create a QSF in as little as a single day, including the necessary governmental authority approvals and the IRS granting an EIN.
Answer: Yes, pursuant to 26 CFR §1.468B-1(d), a transferor may transfer (fund) “money or property to a qualified settlement fund to resolve or satisfy claims”
“Definitions. For purposes of this section -
(1) Transferor. A “transferor” is a person that transfers (or on behalf of whom an insurer or other person transfers) money or property to a qualified settlement fund to resolve or satisfy claims described in paragraph (c)(2) of this section against that person.”
Property such as real estate may be contributed to a QSF to fund claims settlement, but not as an income-producing property. IRS regulations prescribe the method to value property transfers to a QSF properly. The initial basis for the property a QSF receives is the property’s fair market value on the date of transfer to the fund.
Practice Note: Exercise caution to ensure a fair market valuation of the transferred property, which establishes the property’s initial basis.
QSFs provide material tax and financial advantages over an ERT.
QSF Advantages:
Today’s QSF industry provides quick, inexpensive, and easy solutions to implement a QSF to fund environmental remediation liabilities with material tax and financial advantages.
ABOUT EASTERN POINT TRUST COMPANY
Eastern Point Trust Company is a global leader in trust innovation, providing technology-empowered services to individuals, courts, and institutional clients around the world.
Eastern Point is the only “end-to-end” turnkey QSF escrow solution., As an experienced provider, Eastern Point allows for QSF creation, approval, and operation in as little as one business day for QSF of all types.
Find out why Qualified Settlement Funds (QSF) are vital for personal injury cases and complex settlements, and their associated financial planning benefits.
When confronted with resolving a personal injury case, whether or not involving a client reliant on public assistance, intricate issues such as the allocation of proceeds, settlement planning, and lien negotiations must be meticulously managed. One critical question arises: where can the settlement funds be temporarily held while establishing any requisite public benefit preservation trusts, determining the distribution of proceeds, devising a comprehensive financial plan, and finalizing lien negotiations? How can one secure immediate payment from the defendant without compromising the client’s potential settlement planning strategies?
The solution to these complex challenges lies in utilizing a Qualified Settlement Fund (QSF), also known as a 468B Trust. Continue reading to gain a deeper insight into QSFs and understand why they are essential for personal injury attorneys to master.
A Qualified Settlement Fund is a provisional trust (think of it as “tax limbo”) established to manage the settlement funds received from one or more defendants. The primary function of a QSF is to distribute the deposited funds to multiple claimants pursuant to the parties’ agreement or, if necessary, a court order. The QSF termination occurs once all the funds are vested and distributed.
There are several benefits to utilizing a QSF in complex settlements. Chief among them is the simplicity of its establishment. There are only three stipulations for forming a QSF. First, the QSF has approval requirements from a “governmental authority” with jurisdiction over the QSF. Second, the QSF must settle only tort claims or other legal disputes as outlined by Treasury regulations 1.468B-1, et seq. Finally, if established as a trust, it must qualify as such under relevant state law. Any “governmental authority,” irrespective of its jurisdiction over the case, can approve the establishment of the QSF and maintain continuing oversight of the QSF.
Qualified Settlement Funds are a provisional repository for litigation and settlement proceeds. Its purpose is not to function as a perpetual support trust for claimants. Instead, the QSF remains operative only until all allocation disputes among parties and third-party liens are complete and the necessary planning for fund distribution is final. This duration can sometimes extend from several weeks to months or even years.
PRO TIP: No predefined time constraint exists on how long a QSF can remain active. Using a QSF to serve as a long-term tax deferral vehicle is improper. The best practice is that a QSF should remain open no more than 12 calendar months beyond resolving all secondary issues and disputes.
QSFs provide numerous advantages for all involved parties, particularly concerning tax implications, income timing, and settlement planning requirements. A QSF allows for establishing a tax-exempt structured settlement and a tax-deferred arrangement for attorney fees. The management of income timing is possible with a QSF. Generally, claimants are not taxed on the amounts held within the QSF until those amounts are vested by the trustee and disbursed. Additionally, a QSF affords claimants additional time and flexibility (through tax deferral) to make informed decisions regarding their tax, financial planning, and settlement planning strategies.
The benefits for a defendant are that transferring the associated proceeds into the QSF results in an immediate tax deduction in exchange for their permanent release from the obligation. This benefit is significant for defendants, who usually cannot claim a deduction until the claimant receives the funds, which can be postponed in complex settlements.
PRO TIP: Note that the timing of distributions to the claimants from the QSF does not affect the defendant’s ability to claim this tax deduction concurrently upon the transfer.
For the plaintiff, the benefits are the advantage of unrushed additional time to explore tax and financial planning options and resolve liens and other types of secondary disputes. This benefit is significant for plaintiffs, as valuable tax and financial options would otherwise not be available.
The tax structure for Qualified Settlement Funds is straightforward. Each QSF is assigned a unique Employer Identification Number (EIN) by the Internal Revenue Service. QSFs are subject to taxation based on their modified gross income, excluding the monetary settlement or award receipts, and the corporate income tax rate applies only to the “investment income” of the QSF. Consequently, the tax obligation pertains to the growth of the principal amount through interest or dividends minus permissible deductions such as administrative expenses.
Internal Revenue Code §468B, alongside the Income Tax Regulations articulated in §1.468B-1, et seq., governs the application of a Qualified Settlement Fund. These statutes stipulate that a defendant may execute a qualifying payment to the QSF, thereby achieving “economic performance” — a critical tax consideration for the defendant. Consequently, the trustee of the QSF is empowered to accept settlement funds, enabling the defendant to claim a deduction for the current fiscal year and extricate themselves from litigation.
Post receipt of the settlement/litigation proceeds, the QSF trustee can consent to future periodic payments to a plaintiff, delegate this responsibility to a third entity by assignment or novation, and facilitate the plaintiff’s reception of tax-exempt payments under Internal Revenue Code §104(a) coupled with §130. This specific provision excludes structured settlement periodic payments from being counted as gross income in personal injury cases.
PRO TIP: If the settlement is paid into the law firm’s IOLTA, the plaintiff loses the ability to assign, novate, or structure. Likewise, the same loss of ability to enter into an attorney fee structure or assign occurs when funds are received into the IOLTA.
Establishing a QSF is a straightforward process in terms of procedural steps. Initially, the “governmental authority” is petitioned to form the QSF. The governmental authority receives the associated petition and documents and approves the establishment of the QSF. Upon the court’s approval and signing of the order, the defendant(s) issue the payment(s) to the QSF by wire or a check, and in exchange, the associated defendant receives a release from liability pertaining to the payment.
PRO TIP: A QSF’s records should document the payment into the QSF rather than directly to the plaintiff or the law firm.
The timing of distributions from a QSF is contingent upon either an agreement with the plaintiffs or an order by a court. When disbursing funds from the QSF, it is incumbent upon the trustee to secure a release from the claimants (or their agent), which serves as evidence that their claims against the QSF have been resolved or satisfied by the distribution. Upon the disbursement of all funds, the trustee terminates the QSF.
QSFs are an essential resource for personal injury trial attorneys primarily because they speed up the process by mitigating the time pressures associated with lien negotiations, allocations, and probate processes.
The conclusion (whether by settlement or award) of a personal injury lawsuit often leads to a frenzied period to finalize details, a situation referred to as the “settlement pressure cooker.” In such hurried circumstances, one might overlook critical details, neglect vital settlement planning matters, trigger unnecessary accelerated taxation, or unfairly pressure the plaintiff to make hasty decisions.
Establishing a QSF enables the receipt of settlement funds, allowing sufficient time for meticulous future planning.
PRO TIP: Plaintiff counsel can promptly receive payment of the claimant’s attorney fees and costs obligations while allowing the plaintiff’s portion net of the plaintiff’s attorney fee obligations to remain in the QSF.
PRO TIP: The QSF is the sole owner of the funds and the associated income of the QSF (§468B(b)(c)(3)). Until the trustee vests a benefit, no claimant has any vested right. Further, the claimants may have a personal obligation to their attorneys for a portion of the settlement as fees, but that obligation vests no rights to the attorneys within the QSF. Therefore, attorneys have no greater standing than any other party that may have a general personal lien against a claimant. Thus, when the QSF makes payments to the attorneys, such payment is solely from the claimant’s proceeds for the administrative convenience of the claimant to fulfill the claimant’s personal obligation.
Once the defendant transfers “collected” funds into the QSF, the claimant may “petition the trustee” to vest and disburse funds subject to all other factors, such as allocation, the satisfaction of liens, resolution of secondary disputes, etc. This arrangement facilitates the negotiation of liens, determining fund allocations, implementing public benefit preservation trusts, and considering settlement planning issues, including structured settlements. Moreover, this mechanism preserves the attorney’s ability to assign or structure their fees. Consequently, the QSF is a valuable tool for trial attorneys to implement effective financial planning.
QSFs serve as a unique tool and valuable resource in personal injury cases by removing the post-settlement/litigation time pressures and affording flexible tax and financial planning options for the defendants, the plaintiffs, and the plaintiff lawyers, as well as facilitating lien resolution and the option to deal with post-settlement secondary disputes.
Qualified Settlement Funds (QSF) streamline post-settlement disputes and ensure tax compliance, with tax benefits for defendants and plaintiffs.
Great! You have won the case but now face secondary claims and litigation.
No, you are not the first to encounter these issues, and it is not uncommon for post-settlement secondary disputes to occur. For example, families argue over their “Fair Share,” lawyers dispute fee splits, plaintiffs dispute attorney fees, 3rd party lien holders come out of the woodwork to make claims against the litigation proceeds, and more.
Navigating the post-settlement challenges can be overwhelming for lawyers and their clients. But, there is a simple solution - a Qualified Settlement Fund, also referred to as a 468B trust, presents an option to simplify the post-settlement process and handle the hurdles that emerge. By setting up a QSF, the parties can resolve the secondary issues, effectively preserve the settlement funds, ensure tax compliance, and allow time for making informed decisions by deferring taxation.
Here, we delve into the details of QSF and its valuable role in post-settlement planning and administration.
A Qualified Settlement Fund, sometimes shorthanded as a “QSF,” is an entity created according to IRC Section 468B and its associated regulations to settle various legal disputes. Defendants can place funds into a QSF and receive a release from liability while allowing time for the other parties to resolve secondary disputes and carefully consider their settlement proceeds options.
QSFs trace back to the Tax Reform Act of 1986, which incorporated Section 468B into the Internal Revenue Code. Initially utilized in class action lawsuits, QSFs have since extended to the broad breadth of legal conflicts such as single events, single claimant personal injury claims, and contract breaches.
To establish a QSF, specific requirements must be met:
PRO TIP: Online QSF platforms like QSF 360 can fully establish a QSF in as little as one business day.
Qualified Settlement Funds offer numerous advantages for all parties involved in post-settlement dispute resolution. By establishing a QSF, defendants can claim immediate tax deductions and extricate themselves from ongoing litigation. At the same time, plaintiffs gain tax deferral, which provides them valuable time to make informed decisions regarding the allocation of settlement funds, aiding in the negotiation of competing claims and liens, and implementation of financial and tax planning strategies.
Conflicts arise when plaintiffs and their family members are suing each other, and sometimes even when the lawyers get into the act by suing one another or their clients over the allocation of the settlement. Qualified Settlement Funds offer a way to handle these disputes by allowing tax-deferred time to resolve the conflict and preserving the core settlement. The QSF administrator administers the distribution depending on each case’s details and implements the court’s final instructions.
The use of QSFs has transformed how lawyers and their clients navigate the realm of post-settlement disputes and allocation affairs. By offering a streamlined approach to settlement fund management, addressing liens and conflicts, and facilitating settlements, QSFs bring numerous advantages to all parties involved.
By staying up to date, collaborating with experienced QSF professionals, and adapting to the requirements of each case, attorneys and plaintiffs can harness the full potential of QSFs and secure optimal outcomes in the post-settlement stage.
Massachusetts taxes qualified settlement funds at a 5% flat rate, with an extra 4% on income over $1M. Strategic jurisdiction selection can help avoid these costly tax burdens on QSFs.
Massachusetts is renowned for its rich history, but it also has a reputation for high taxes—something that directly impacts qualified settlement funds (QSFs). For the 2023 tax year, Massachusetts imposes a flat 5% tax on all QSF taxable income. For funds generating over $1 million, an additional 4% tax applies, significantly increasing the financial burden. These aggressive tax policies make Massachusetts one of the more costly states for establishing a QSF.
The Massachusetts Department of Revenue’s letter ruling 087 underscores these challenges. It clarifies that QSFs are taxed under Chapter 62 if they are established by a Massachusetts court or governmental authority, or if their assets were held within the state at any time during the tax year. The ruling’s broad interpretation means that even temporary ties to the state could result in tax obligations.
Compared to Massachusetts, many states offer more favorable tax environments for QSFs, with some imposing no taxes at all on trust-based funds. Careful jurisdiction selection can lead to substantial tax savings and better financial outcomes for claimants and trustees alike.
Establishing a QSF is a strategic decision that requires thoughtful planning, particularly when navigating state-specific tax laws. For QSFs in Massachusetts, understanding these tax implications and exploring alternative jurisdictions could mean the difference between a costly burden and a streamlined settlement process. Eastern Point Trust Company’s expertise in QSF management ensures clients can navigate these complexities and achieve optimal results.
Explore how 468b Qualified Settlement Funds (QSFs) protect privacy, consolidate claims, and shield sensitive information in legal cases.
Imagine a legal shield that not only consolidates multiple claims but also fiercely guards your privacy. Qualified settlement funds (QSFs), created under Section 468b of the Internal Revenue Code, are specialized tools designed for settling single-event, mass tort, and class action lawsuits. These tax-qualified entities allow related claims to be consolidated into a single, secure fund while ensuring the highest levels of privacy and security.
Privacy is not just a convenience—it's a cornerstone of a well-structured QSF. By existing as separate legal entities, QSFs protect sensitive information from prying eyes. This setup helps prevent adverse parties from inflating claims based on the knowledge of the fund's assets. Properly drafted QSFs also impose discovery limitations, reducing the scope of potential legal inquiries.
One of the most powerful features of QSFs is the ability to maintain confidentiality. The identities of claimants and details of the fund remain sealed, ensuring that transactions are not publicly accessible. Even in rare instances where fund existence is uncovered, a vigilant trustee can take decisive action to block discovery efforts, safeguarding the fund’s integrity.
An experienced QSF trustee is essential for maintaining privacy and protecting against discovery demands. Trustees can implement robust privacy policies, challenge discovery requests, and employ advanced legal strategies, such as decanting or jurisdictional tactics, to block unwarranted access. Their role is indispensable in ensuring the QSF remains a secure and confidential resource for claimants.
Qualified settlement funds are not just financial instruments; they are legal fortresses designed to protect claimants' interests. With robust privacy provisions and a dedicated trustee, QSFs minimize legal exposure and preserve confidentiality. Eastern Point Trust Company’s QSF 360 platform leads the industry in offering innovative solutions to safeguard privacy and defend against discovery demands.
Discover 11 reasons attorneys should use Qualified Settlement Funds (QSFs) for small settlements. From tax benefits and flexible fund distribution to safeguarding client interests and streamlining processes, QSFs offer smart solutions for better outcomes and peace of mind.
Imagine securing your client's financial future while reducing your own risks. Sounds too good to be true? Keep watching to discover how qualified settlement funds can transform your legal practice.
1. Qualified settlement funds or QSFs offer significant tax advantages, allowing defendants to take a current year tax deduction and plaintiffs to defer income recognition.
2. Unlike IOLTA accounts, QSFs earn interest for your clients, maximizing their financial benefits from the settlement.
3. A QSF provides clients valuable time to make informed financial decisions, such as opting for structured settlement annuities or setting up special needs trusts.
4. QSFs allow time to resolve liens, bankruptcy, and probate issues, ensuring clients receive their settlement funds free from potential disruptions and financial penalties.
5. By using a QSF, attorneys can avoid the constructive receipt of funds which can have tax implications for plaintiffs.
6. QSFs also help avoid triggering the economic benefit of funds, preventing unnecessary taxation for plaintiffgifts.
7. A QSF protects plaintiffs from the risk of defendant insolvency by securing settlement funds in advance, ensuring clients receive due compensation regardless of the defendant's financial status.
8. QSFs offer a flexible framework for distributing settlement proceeds, accommodating various client needs and preferences for financial planning.
9. By utilizing a QSF, attorneys can ensure compliance with legal and ethical standards, particularly with significant settlement amounts, which helps to safeguard client interests.
10. QSFs streamline the settlement process by allowing for the efficient allocation and management of funds, reducing administrative burdens on attorneys and ensuring a smoother experience for clients.
11. With online solutions like QSF 360, setting up a QSF is quick, easy, and low cost, providing accessible solutions in as little as one day.
Qualified settlement funds provide numerous benefits that can significantly enhance the settlement management process for attorneys and their clients, even in cases involving smaller settlements. Leverage the power of QSFs for better financial outcomes and peace of mind.
Maximize settlements with smart planning: learn how tools like QSFs and strategies can double plaintiff outcomes and ensure long-term security.
Fox Business reported on the growth of settlement planning, structured settlements, and Qualified Settlement Funds, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Settling is first about the amount, but plaintiffs gain a lot by planning ahead."
Discover how structured settlements boost award value with tax benefits, investment growth, and expert planning tips for plaintiffs and attorneys.
ESPN discussed the regularity of personal injury lawsuit settlements and related financial consequences, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"The tax and investment benefits of structuring greatly increase your settlement value."
Maximize personal injury settlements with structured settlements and QSFs. Discover tax benefits and strategies from Eastern Point Trust experts.
Bloomberg covered the increased use of structured settlements in personal injury cases, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Structured settlements are typically part of a larger settlement plan. In most cases, you can save tax, invest, and protect public benefits, but you have to make those decisions before signing."
Watch how to simplify your settlement process with Qualified Settlement Funds (QSFs) approved by governmental entities, not just courts. Discover tax benefits, flexibility, and more.
Create a Qualified Settlement Fund without the hassle of court approval. Keep watching to discover how. Did you know that various governmental entities, not just courts, can approve QSFs? This includes federal, state, and local agencies.
The IRS plays a crucial role in supervising QSFs, ensuring compliance through tax regulations and rules. To establish a QSF, parties must petition a governmental authority which then reviews the proposed trust agreement for compliance.
Beyond tax benefits, QSFs reduce administrative burdens, help resolve secondary disputes, and create flexibility.
Traditional court-established methods can be time consuming and costly, but platforms like QSF 360 offer quicker, more affordable solutions. The QSF administrator must file Form 1120 SF annually, ensuring all IRS requirements are met.
Qualified settlement funds operate on a calendar-year basis and begin life upon governmental authority approval regardless of funding status. From tax benefits to streamlined creation options, QSFs offer numerous advantages for both plaintiffs and defendants. Always consult with experienced QSF administration professionals for specific guidance.
Ready to simplify your settlement process? Let's get started.
Learn how to minimize taxes on lawsuit settlements by understanding IRS rules. Allocate funds wisely, use Qualified Settlement Funds, and consult a tax expert for best results.
What legal settlements are taxable and how to minimize taxation of settlement awards. Receiving a settlement from a lawsuit can provide financial relief, but can raise taxability questions. Understanding the tax implications of lawsuit settlements is crucial to maximize compensation, minimize tax impact, and avoid potential pitfalls with the Internal Revenue Service (IRS).
Generally, the primary law regarding the taxability of amounts received from lawsuit awards and settlements is Section 61 of the Internal Revenue Code (IRC). Section 104 excludes taxable income settlements and awards resulting from physical injuries. However, the relevant IRS guidance states that one should consider "the facts and circumstances surrounding each settlement payment" to determine the settlement proceeds' purpose accurately, as "not all amounts received from a judicial award or settlement are exempt from taxes."
Judicial awards and settlements can be divided into two groups to determine whether the associated payments are taxable or non-taxable. Once funds have been classified into one of these two groups, a further subdivision is made. Proceeds from personal physical injuries or sickness are generally excludable from gross income, but emotional distress recoveries are only excludable if they stem from physical injuries.
Strategies to minimize tax liability include allocating damages to non-taxable categories like physical injuries and medical expenses, and using qualified settlement funds (QSFs) to provide short-term tax deferral and flexibility.
Navigating the complex tax implications of lawsuit settlements requires guidance. Consulting with a settlement tax expert before finalizing a settlement agreement can provide valuable insights and help negotiate more favorable tax outcomes.
Learn the truth behind some common myths about qualified settlement funds.
Qualified settlement funds are IRS qualified tax entities, and operate as statutory trusts. Critical to a successful QSF implementation is the administrator and associated administration, which streamlines the settlement process.
One common misconception about qualified settlement funds is that they are exclusively utilized for mass tort and class action settlements. QSFs are designed to resolve and satisfy claims, including those made before the fund is established, making them suitable for most types of torts, breach of contract, and environmental liability cases.
The second myth is that only plaintiffs benefit from qualified settlement funds, which overlooks the multiple advantages. Plaintiff attorneys can secure the settlement proceeds in a QSF, providing a safe space to work out a comprehensive settlement plan without pressure.
Contrary to the third myth that establishing a qualified settlement fund is a costly affair, QSF 360 offers the creation with a setup fee of only $500. The fourth myth surrounds the complexity of creating and administering QSFs and often deters parties from considering this as an efficient settlement solution.
Qualified administrators ensure the smooth operation and administration, including asset custody and oversight. Dispelling the fifth myth that qualified settlement funds offer limited tax advantages requires exploration of the tax benefits they present for defendants and plaintiffs. Upon contributing to a QSF, defendants are eligible for an immediate tax deduction, even if the funds have yet to be distributed to the plaintiffs. Plaintiffs can defer taxation on their settlement amounts until distribution.
The benefit of deferral can offer substantial financial planning advantages, allowing plaintiffs to potentially lower their tax obligations. Don't let the myths surrounding qualified settlement funds prevent you from utilizing this valuable tool. Be sure to like this video and subscribe to our channel for the latest.
Taxation of settlements can leave as little as 10 cents on the dollars for the plaintiff. The Plaintiff Recovery Trust (PRT) reduces settlement taxation.
Revenge porn litigation, bad behavior, abysmal tax treatment, and possible zero net recovery.
Revenge porn is not rare. It's estimated that one in eight social media users in the US are revenge porn targets. Revenge porn victims (RPVs) can pursue various types of civil causes of action, including intentional infliction of emotional distress, invasion of privacy, and defamation. Some states have civil laws allowing RPVs to seek compensatory damages.
Other states have specific laws allowing for a private cause of action against the person sharing the private images. Revenge porn damages include reputational harm, emotional distress, pain and suffering, lost income, medical expenses (including mental health care) and punitive damages. Unfortunately, because of the plaintiff double tax, and RPV suffers twice: first by the underlying violative action itself, and second by how their litigation recovery is taxed.
The double tax applies to many types of non-business litigation cases, including those involving no physical injuries, such as defamation, emotional distress, and punitive damages. The entire award is taxable income in those cases, but the related attorney fee cannot be deducted on the victim's tax return. An RPV might consider a plaintiff recovery trust, a specially designed trust that exists to hold the litigation claim.
If there is a successful recovery, the plaintiff recovery trust will significantly increase the RPV after tax recovery, perhaps by 100% or more depending on the recovery amount and where the RPV resides.
Qualified Settlement Funds drive growth in settlement planning, as reported by CNBC. Eastern Point Trust Company innovations lead the QSF fund industry.
CNBC highlighted the importance of settlement planning and use of Qualified Settlement Funds in interviews with Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
“The right settlement planning can double what plaintiffs keep, even with the defense paying less.”
Discover how to effectively utilize a Qualified Settlement Fund as a resolution tool, streamlining settlements and ensuring compliance for all parties involved.
Recognizing when and how to use qualified settlement funds can significantly enhance the resolution process in your practice. Often referred to as a QSF, a qualified settlement fund is a tax-qualified statutory trust, which allows the defendant a full release when a settlement is paid into an account that acts as a temporary trust account. Those settlement funds can then be paid in cash, fund a structured settlement, attorney fee structure or assignment, and settle liens or allocation issues between parties.
A QSF created under Section 468 B is flexible and allows for a wide array of case types from class action, mass tort, even single-event and single-plaintiff cases. Moreover, most plaintiff's attorney has encountered a defense representative or attorney making things more difficult than necessary. The solution is to have the settlement paid into the QSF, thus removing the defense from the post-settlement process.
With Eastern Point Trust Company's QSF 360 platform, submitting a QSF can be easily accomplished in 15 minutes online for as little as $500 typically established within a single business day. The QSF is then ready to accept assets from a transferer, defendant, or defense carrier and provide the transferer with a complete release of liability.
Recognizing when and how to utilize qualified settlement funds can grow your practice, reduce risks, and produce improved financial outcomes for you and your clients. Eastern Point's QSF 360 platform makes the process quick, easy, and turnkey providing everything from the necessary documents to the required governmental approval and IRS registration. Be sure to like this video and subscribe to our channel for the latest videos.
Learn the importance of correctly naming Qualified Settlement Funds (QSFs) with our detailed guide, ensuring compliance and streamlined administration.
Qualified Settlement Funds are valuable financial mechanisms that offer tax benefits and flexibility in managing settlements across various disputes and litigation.
Let's explore the proper naming conventions for a Qualified Settlement Fund. Appropriate naming conventions support the fund’s integrity and purpose. The 2024 IRS naming requirement states no QSF name may be longer than 64 alphanumeric characters. A governmental authority must approve and exercise jurisdiction over a potential QSF. That authority will have its own policies and requirements to ensure the name is not misleading.
It is crucial to note that a QSF is not an interest on lawyer's trust account, nor an account owned by a law firm. No QSF should be labeled to imply that it is. However, including the term Qualified Settlement Fund, including the term QSF or using an FBO designation, or using the case name, plaintiff name, or plaintiff family name are safe harbors when naming a QSF.
If a law firm uses or plans to use numerous Qualified Settlement Funds, standardizing naming conventions allows for more effective case management and quicker access to essential documents. A consistent naming convention improves transparency, avoids confusion during audits and legal reviews, and allows for the timely and accurate distribution of funds. When navigating QSFs, carefully selecting a compliant name is not merely a governmental requirement. It can remove barriers and eliminate questions.
Explore the history of Qualified Settlement Funds (QSFs) in this informative video, uncovering their origins, evolution, and role in settlement planning.
The need for Qualified Settlement Funds (QSFs) emerged in the 1980s. Insurance companies grew anxious that settlements made with an entity (or directly to an individual) would not qualify for immediate tax deductions. They lobbied Congress for the ability to deduct payments in the year of the settlement, instead of when the payments were distributed. Congress acted in 1986 by enacting Section 468B of the Internal Revenue Code, a Qualified Settlement Fund and 468B allows the defendant to receive an immediate tax deduction.
With a QSF a defendant can transfer settlement funds, receive a current-year tax deduction, and obtain a release of claims. Also, plaintiffs may finalize the settlement terms without tax implications until the funds from the Qualified Settlement Fund are dispersed. This framework allows the QSF administrator to determine the allocation among the claimants.
While Section 468B initially focused on designated settlement funds, it was later amended by Congress to grant the Treasury powers to develop regulations. Qualified Settlement Fund accounts were thus born by regulation.
It is worth noting that in the past some insurance companies and large self-insured businesses have opposed the implementation of QSFs. However, numerous recent favorable court cases stipulating using QSFs have made such objections moot.
To qualify a QSF must be established pursuant to an order from, or approval by, a governmental authority. Additionally, it must settle one or more disputed or undisputed claims, asserting at least one liability. All claims must stem from an event or a related series of events. Unrelated events are not allowed. Finally, the QSF must be created as a trust under state laws or the assets are segregated from those of the transfer and related parties.
QSFs have provided many tax and other financial advantages for the defendant and the plaintiff for decades. To access more educational content on QSFs and various other trust products, visit EasternPointTrust.com/articles
Explore the ultimate guide to escrow accounts for private placements, with expert insights on managing funds, compliance, and ensuring smooth transactions.
Escrow accounts hold investor funds until the satisfaction of the offering, ensuring regulatory compliance to safeguard investor funds. These accounts hold funds raised from investors until the satisfaction of specific offering terms, ensuring compliance with regulatory requirements and safeguarding investor interests.
Opting for a trust company over a traditional bank account introduces the advantage of active independent oversight and FDIC insurance coverage up to $150 million per account. Using an escrow agent underscores the commitment to the prudent management of funds in private offerings.
Selecting an escrow agent to establish an account can typically take one to two weeks. Platforms like Eastern Point Trust Company can take as little as one business day. The escrow process also involves waiting for the investors transmittal of funds, either directly into the escrow or through a broker dealer, which is critical to proceed with breaking escrow. Once the terms of the offering have been satisfied, the offeror may request to break escrow and begin receiving funds.
The advantages of using a licensed vendor such as a trust company over a traditional bank account are measurable. Active independent oversight by a trust company adds a significant layer of security and integrity to these financial transactions, ensuring compliance with SEC and FINRA rules, directly contributing to investor confidence.
Learn how to navigate the tax implications of lawsuit settlements with expert insights from EPTC on minimizing tax burdens and maximizing financial outcomes.
In the aftermath of winning or settling a lawsuit, it is essential to understand the potential federal and state income tax implications and the strategies you can employ to minimize your tax liability. In this comprehensive guide, we’ll explore various factors that affect the taxability of lawsuit settlements and provide actionable tips to help you navigate the complex world of taxes on settlement money.
Not all amounts received from a settlement are exempt from federal and state income taxes. In determining the taxability of a settlement, it’s crucial to consider the purpose for which the settlement or award was received. Settlements related to physical injuries or illnesses where there is observable bodily harm are generally not considered taxable by the IRS. While settlements for physical injuries or illnesses are tax exempt, emotional distress awards are typically subject to taxes. Settlements designated explicitly for medical expenses are generally not taxable. However, punitive damages, awarded to punish the defendant for their wrongdoing, are almost always taxable. The tax treatment of legal fees depends on the nature of the settlement.
Now, let’s explore some practical strategies to minimize your settlement tax liability.
1. Allocate damages appropriately.
2. Spread payments over time.
3. Consider Qualified Settlement Funds.
4. Take advantage of capital gains treatment.
5. Seek professional tax advice.
and
6. Eliminate the taxation of the attorney fee portion.
There is, however, an effective solution for eliminating double taxation on the attorney fee portion: the Plaintiff Recovery Trust (PRT). Keep in mind the PRT must be in place before the settlement or judicial award is finalized. Winning or settling a lawsuit is a significant achievement, but it’s crucial to understand the potential tax implications of your settlement. For the full guide or to learn more about Qualified Settlement Funds and the Plaintiff Recovery Trust, please visit easternpointtrust.com.
Explore insights on defamation, double taxation, and financial strategies. Learn how to tackle complex legal and tax issues with the Plaintiff Recovery Trust.
In the current digital and highly charged political age, the power of words has never been more salient.
It has become all too commonplace for words to be used as weapons for making untrue statements about a person or entity. A single untrue utterance can ripple through society casting shadows of controversy and sometimes engendering significant legal implications. Unfortunately, because of the plaintiff double tax, defamation victims suffered twice: first by the defamation itself and second by how their litigation recovery is taxed.
Commissioner v. Banks is a Supreme Court case that addressed the question of whether, for federal income tax purposes, the taxable components of a judgment or settlement paid to a taxpayer's attorney under a contingent fee agreement is taxable income to the taxpayer. Having to pay taxes on the total value of the award where the related attorney fee is not deductible is the plaintiff's double tax.
Assume a defamation victim lives in New York City and recovers $1,500,000 in non-physical injury and emotional distress damages and an additional $1,500,000 In punitive damages. The entire $3 million of gross settlement proceeds are taxable to the plaintiff, but none of the attorney fees are deductible. Worst yet, with New York city taxes, the plaintiff ends up with a net of only $300,000. After tax, that is only 10 cents on the dollar.
A defamation victim seeking to avoid this unfortunate scenario created by Banks might consider a plaintiff recovery trust (PRT), a specially designed trust that exists to hold the litigation claim. If there is a successful recovery, the PRT will significantly increase the net after-tax recovery, perhaps by 100% or more, depending on the recovery amount and where the defamation victim is domiciled.
Discover how the Plaintiff Recovery Trust can assist in cases like E. Jean Carroll’s, offering solutions for defamation, settlements, and financial recovery.
After the plaintiff double tax reduces her settlement, E. Jean Carroll may find herself shopping at Walmart.
As you may know, E. Jean Carroll was recently awarded $83 million in her defamation case against former President Donald J. Trump. After the case Ms. Carroll quipped to Rachel Maddow on MSNBC, “I have such great ideas for all the good I'm going to do with this money”.
“First thing Rachel, you and I are going to go shopping at Bergdorf’s.”
But wait, there is the double tax bite. As all of Ms. Carroll's settlement proceeds are taxable, It is therefore subject to the plaintiff's “double tax” under the Supreme Court's banks taxation ruling. Thus, if her attorney receives a typical 40% contingency fee, then, of the $83 million, she will only end up with approximately $7.5 million; just nine cents on the dollar. Even if her award is reduced on appeal, the same double taxation treatment applies.
The good news is that the Plaintiff Recovery Trust, sponsored by Eastern Point Trust Company and Forward Giving, can eliminate the double tax burden. It does so by eliminating the plaintiff's requirement to pay tax on the attorney fee portion of the settlement, thereby materially increasing the plaintiff's net after-tax proceeds.
Contact Eastern Point to learn how the Plaintiff Recovery Trust may increase your after tax recovery up to 150%.
Discover how Qualified Settlement Funds (QSFs) simplify the litigation settlement process, ensuring efficiency, compliance, and financial flexibility.
Litigation settlements and awards are typically sent to the plaintiff attorneys’ IOLTA account, but that may not be the best option for you, the attorney, or your client. Funds received into your IOLTA expose you, as well as your clients, to financial disadvantages including immediate taxation on taxable elements, loss or reduction of government benefits, and loss of the ability to structure or assign the proceeds.
However, a Qualified Settlement Fund (also known as a QSF) solves these problems. Being IRS qualified, the QSF holds the settlement funds, tax deferred, while affording you and your clients time to plan. Unlike an IOLTA a QSF preserves your ability to structure or assign any portion of your fees. Additionally, a QSF preserves your client's ability to structure or fund a special needs or settlement protection trust.
Most importantly, a QSF does all this without triggering constructive receipt or loss of government benefits. Authorized by the IRS in 1993, QSFs have a 30-year track record of providing tax and financial advantages to clients and law firms alike. Whether a single event case with a single plaintiff or multi-claimant complex litigation, QSFs offer unmatched advantages and flexibilities.
Motivated by multiple advantages, large and small law firms nationwide are adopting QSFs at an ever-increasing rate.
Join the growing number of law firms using Qualified Settlement Funds. Reach out to us today. Discuss how the quick, easy, and affordable QSF 360 platform can benefit you, your firm and your clients.
Learn how Eastern Point simplifies the use of Qualified Settlement Funds (QSFs), offering expert solutions for managing settlements efficiently and compliantly.
Take a minute of your time and learn why creating a Qualified Settlement Fund with Eastern Point Trust Company allows you to leverage on of the most effective settlement tools with one of the industry's most reputable licensed trustee. Utilizing technology EPTC has revolutionized the QSF offering to ensure it is the highest quality product and service delivered at industry leading low cost price points and the quickest establishment and distribution timing in the industry. Find out more today by contact 855-222-7513 or visiting our website www.easternpointtrust.com.
Watch our educational series to learn how to establish a Qualified Settlement Fund (QSF) with Eastern Point Trust Company and manage settlements with ease.
Eastern Point Trust Company is your most complete, efficient, and economical Qualified Settlement Fund solution. Our patented technology allows us to perform tasks same day as opposed to weeks or even months with other providers in the industry.
Setup is simple. Click the “Get Started” button on our homepage, login, click “Create Trust”, and select the necessary information, easily broken out with explanations along the way. A one-click submission allows for instant receipt by our dedicated team of specialists. Your approval and accompanying documents are delivered securely in as little as one business day.
Benefits include same day distributions, tax reporting, real-time access to balances and statements, 24/7 access to an online document library, and more, all with security of a licensed trustee and fiduciary oversight at the industry’s most competitive price: $500 to establish and $500 to administer. Thank you for considering EPTC for your qualified settlement fund needs. Reach out to us with any questions. We look forward to working with you.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know. Learn about their purpose, benefits, eligibility, tax implications, QSF administration, etc.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know:
FOR IMMEDIATE RELEASE
[7/8/24] Joe Sharpe, ETPC President, explained, “QSFs are powerful financial tools to streamline and manage settlements, especially in complex cases. They provide tax benefits, flexibility, and efficient administration for all parties involved. With platforms like QSF 360™, creating and managing a QSF is quick, easy, and fully compliant. From establishing a QSF to understanding the roles of administrators, tax implications, and investment options, our comprehensive listicle covers all you need to know about these financial mechanisms.”
Learn the advantages of QSFs over other settlement structures, QSF regulatory oversight, and best practices for effective management. Make the most of your settlements with QSFs and ensure a smooth, compliant, and beneficial process.
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore more and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete listicle and learn more about the advantages of QSFs, visit https://www.easternpointtrust.com/articles/qualified-settlement-funds-listicle-of-12-things-to-know.
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The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
[7/16/2024] — In a thought-provoking article published in Tax Notes* Lawrence J. Eisenberg, an experienced tax attorney, describes the perplexing issues affecting individual plaintiffs in litigation recoveries and considers how those issues can be addressed, including by using a charitably-based trust-based solution. The article “The Individual Plaintiff Tax Trap — A Conundrum and a Solution” delves into the intricacies of the taxation of litigation recoveries and addresses methods to mitigate the adverse tax consequences some individual plaintiffs face.
Background
Eisenberg’s article highlights the strange and often inconsistent tax treatment of individual plaintiff litigation recoveries under the Internal Revenue Code. Despite the Supreme Court’s 2005 decision in “Commissioner v. Banks”, which held that plaintiffs must report the entire recovery as taxable income—including the portion payable to attorneys—many plaintiffs (and their attorneys and advisors) remain unaware of the potential tax pitfalls when such recoveries do not fall under tax-free categories, e.g., damages for physical injuries.
The Individual Plaintiff Tax Trap
The crux of the issue lies in the deductibility of attorney’s fees. Some recoveries are tax-free, so attorney fee deductibility is not relevant, or allow for an above-the-line deduction of these fees. Other recoveries can result a “double tax”, because in those situations, the attorney fee portion of the recovery is taxable, but the attorney fee itself is not deductible. This leads to significantly diminished net recoveries. Eisenberg’s article includes a detailed example demonstrating how a plaintiff’s net recovery can be less than 10% of the total amount, with the government and attorneys each receiving several times more than the plaintiff!
A Trust-Based Solution
To address this inequity, Eisenberg proposes that a plaintiff affected by the double tax create a Plaintiff Recovery Trust (PRT). A PRT allows plaintiffs to transfer their litigation claims to a specially designed split-interest charitable trust. By doing so, the litigation claim becomes an asset of the trust, and any recovery is received by the trust, which then pays the net recovery to the trust beneficiaries, including the plaintiff. The PRT uses ordinary trust law principles and aims to achieve fairer tax treatment by separating the ownership of the litigation claim from the individual plaintiff.
Key Benefits of the Plaintiff Recovery Trust
- Equitable Tax Treatment: By treating the litigation claim as a trust asset, a Plaintiff Recovery Trust results in the plaintiff not being taxed on the portion of the recovery paid to their attorneys.
- Structured recovery: The PRT trust structure allows for a more organized and potentially tax-efficient distribution of recoveries. (It also permits the use of structured settlements as part of the solution.)
- Charitable Component: The PRT includes a charitable beneficiary, adding a philanthropic dimension to the solution.
Conclusion
Eisenberg’s article is a call to action for tax professionals and litigation attorneys to recognize and address the unfair tax treatment many individual plaintiffs face. The PRT trust-based solution offers a way to alleviate the financial burden imposed by current tax law, so that plaintiffs retain a fair share of their recoveries.
See the full article on the taxation of settlement proceeds.
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Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes.
Eastern Point Trust Company Unveils Comprehensive Guide on Navigating Post-Settlement Disputes and Complexities with Qualified Settlement Funds
[5/17/2024] — Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes. The guide focuses on utilizing Qualified Settlement Funds (QSFs), also known as 468B trusts, as a streamlined solution for efficient settlement fund management and dispute resolution.
It is not uncommon for secondary disputes to arise following a litigation settlement or court award. These disputes can range from family disagreements over their "fair share" to lawyers disputing fee splits, plaintiffs contesting attorney fees, and third-party lien holders emerging to stake claims against the litigation proceeds. Such complexities often hinder the settlement process and prolong the resolution.
Eastern Point Trust Company's newly released guide provides detailed insights into how QSFs can be employed to manage these disputes effectively. By offering a structured approach to fund management and tax compliance and providing the necessary time for informed decision-making, QSFs present a viable solution to post-settlement challenges.
Sam Kott, Vice President of Eastern Point Trust Company, emphasized the significance of the guide, stating, "This guide explores the advantages of QSFs, specifically their ability to address complex issues such as post-settlement disputes, secondary litigation, and lien resolution. The guide also provides direction on navigating post-settlement challenges and highlights the benefits of QSFs in achieving the best possible outcomes for all parties involved."
The guide delves into the various advantages of utilizing QSFs, including:
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore the guide and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete guide and learn more about the advantages of QSFs, visit here.
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Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
FOR IMMEDIATE RELEASE
[5/17/2024] — Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements. This comprehensive guide delves into the intricate workings of taxable and non-taxable settlements, offering invaluable insights into compensatory damages, punitive damages, and the tax treatment of various settlement types.
Ms. Rachel McCrocklin, Eastern Point’s Chief Trust Officer, commented, “The guide provides a detailed understanding of the pivotal role of IRS Section 104 and the taxability of various settlement types. Our goal is to equip readers with the knowledge to make informed decisions and minimize potential tax liabilities.”
The guide explores strategic methods to minimize tax obligations on settlements, including leveraging structured settlement annuities, Plaintiff Recovery Trusts, and proper allocation in settlement agreements. It is an essential resource for individuals and businesses navigating the complex landscape of settlement taxation.
Arm yourself with knowledge, make informed decisions, and minimize potential tax liabilities with Eastern Point's newest guide.
For more information on Unveiling the Complex World of Taxable and Tax-Free Settlements, please visit https://www.easternpointtrust.com/articles/unveiling-tax-free-settlements-what-you-need-to-know or contact 855-222-7513.
CTRO
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A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
FOR IMMEDIATE RELEASE
[5/2/2024] — A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
It reviews the advantages of choosing a trust company over a traditional bank account for escrow services, emphasizing active independent oversight that enhances transaction security and integrity.
Ned Armand, CEO, noted, “The guide also highlights the critical role of an escrow agent in managing funds prudently, ensuring a smooth progression of transactions under the regulatory frameworks.” Offerors of private equity and Reg D, Reg A, Reg A+, Reg CF, and Reg S offerings are encouraged to explore this guide, available on Eastern Point Trust Company.
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In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability.
In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
FOR IMMEDIATE RELEASE
[2/27/2024] — In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
The Qualified Settlement Fund stands as a testament to expediency, with the capability to be established and funded within a mere business day, a stark contrast to the lengthy processes associated with ERTs. By swiftly assuming environmental liabilities from present and future claims under CERCLA, state, and local law, QSF ensures immediate action and resolution.
One of the most compelling aspects of QSF is its affordability, with establishment costs as low as $500. This cost-effectiveness, coupled with the tax advantages it provides over ERTs, makes QSF an attractive proposition for businesses seeking prudent financial solutions.
Flexibility is another hallmark of QSF, allowing for single-year or multi-year funding without any maximum duration constraints, ensuring adaptability to diverse business needs. Furthermore, the ability to hold real estate expands the horizons of asset management within the fund.
The benefits extend to tax optimization, with QSF accelerating the transferor's tax deduction for funds transferred to the current tax year, thereby enhancing financial planning and efficiency. Moreover, by shifting liability and associated funding transfers irrevocably to the QSF, businesses can streamline their balance sheets, mitigating risks and enhancing transparency.
In addition to these financial advantages, QSF facilitates seamless settlement agreements to capitate and resolve environmental liabilities, assuring regulators and interested parties of the irrevocable availability of funds for amelioration.
The transition to QSF not only eliminates future administrative burdens but also entrusts the fund's administration to a dedicated trustee, relieving businesses of operational complexities and enhancing focus on core activities.
In conclusion, the Qualified Settlement Fund stands as a beacon of innovation in environmental liability management, offering unmatched advantages over traditional Environmental Remediation Trusts. Its expediency, affordability, flexibility, and tax optimization capabilities redefine the landscape, empowering businesses to navigate environmental challenges with confidence and efficiency.
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Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation
FOR IMMEDIATE RELEASE
[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.
Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”
About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.
Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.
About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.
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Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Eastern Point Trust provides services across the U.S. and internationally.
FOR IMMEDIATE RELEASE
[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”
Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”
Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners
About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.
With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.
About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust
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Qualified Settlement Funds (QSFs) are powerful financial tools to administer settlements, especially in complex matters. Parties involved in disputes contemplated under 1.46B-1 et seq. can effectively manage and benefit from Qualified Settlement Funds’ tax and financial advantages.
Qualified Settlement Funds (QSFs), a 468B trust, are valuable and crucial in managing litigation settlements efficiently and effectively. "QSF", which stands for "Qualified Settlement Fund", is a fund established as a trust or account established to hold settlement proceeds from litigation. According to the definition under Treasury Regulations, it is an escrow account, trust, or fund established according to an order of or approved by a government authority to resolve or satisfy claims.
This comprehensive infographic guide explains the essential aspects of Qualified Settlement Funds:
The guide provides valuable insights, tips, and rules of thumb for legal professionals, claimants, and other stakeholders about how a QSF account benefits the settlement process. A QSF offers many advantages, including immediate tax deduction for defendants, tax deferral for claimants, and efficient management of settlement proceeds. QSFs are commonly used in class action lawsuits, mass tort litigation, and cases with multiple claimants, but can also provide benefits in single claimant cases.
Setting up a QSF involves petitioning a government authority and appointing a QSF Administrator to oversee the fund. The QSF Administrator, often a platform like QSF 360, is responsible for obtaining an EIN, handling tax reporting, overseeing QSF administration, and making distributions to claimants. Online QSF portals streamline the Qualified Settlement Fund administration process.
Partnering with an experienced QSF Administrator is essential. Services like QSF 360 from specialize in QSFs for both large and small cases and can help ensure compliance with IRC § 1.468B-1 and other regulations.
In summary, Qualified Settlement Funds are a powerful tool for managing settlement proceeds. With proper planning and administration, QSFs provide significant tax benefits, enable efficient distribution of litigation proceeds, and help bring litigation closure. Understanding what is QSF and how to leverage QSFs is invaluable for any legal professional involved in today's settlements.
Discover how a Qualified Settlement Fund (QSF) played a crucial role in securing the future of a child after a legal settlement. This case study highlights the power of QSFs and its long term benefits for a minor.
In the heart of Georgia, a family’s world shattered when John Doe, a 34-year-old father, tragically lost his life due to the negligence of his employer. Left behind were his grieving spouse and minor children, including a 12-year-old daughter, Emily. As the family grappled with their loss, they faced the daunting task of navigating a complex legal landscape. Such a circumstance is where the power of a Qualified Settlement Fund (QSF) came into play, offering hope for Emily’s future.
The wrongful death suit resulted in a $3 million settlement, bringing relief and responsibility. Under Georgia law, the spouse and children were equal beneficiaries, with the spouse guaranteed at least one-third of the settlement. However, the presence of a minor beneficiary added complexity to the case.
The family’s attorney recognized the need for a solution to protect Emily’s interests while allowing for thoughtful, long-term financial planning. “In cases involving minors, we must think beyond immediate needs,” the lawyer noted. “We needed a mechanism to give us time to craft a comprehensive plan for Emily’s future.”
Emily’s lawyer proposed the establishment of a Section 468B Qualified Settlement Fund, a legal tool that would prove invaluable in this case. The QSF offered several key advantages:
A Qualified Settlement Fund, established under IRS Section 1.468B-1, is a financial and legal mechanism used primarily in settling lawsuits, particularly cases involving multiple claimants. It’s a settlement trust account established to receive and administer funds from a defendant in a legal settlement.
Considering a Qualified Settlement Fund as part of your strategy for crafting a secure future can be beneficial when involved in a legal settlement. It’s essential to consult with legal and financial professionals to determine if a QSF aligns with your specific situation and long-term financial goals.
With the plan in place and the luxury of time to plan, Emily’s guardian, her mother, worked closely with financial advisors to create a comprehensive plan. They explored various options, including:
“The 468B Settlement Trust gave us breathing room,” Emily’s mother shared. “Instead of making rushed decisions, we could carefully consider Emily’s future and make choices that truly honored her father’s memory.”
The implementation of the QSF, in this example case, serves as a model for similar situations. It demonstrates how thoughtful legal and financial planning can turn a tragedy into an opportunity for long-term security and growth.
The lawyer reflected on the case: “By utilizing a QSF, we were able to transform a moment of profound loss into a foundation for Emily’s future. It’s a powerful reminder of how the right legal and tax tools can make a real difference in people’s lives.”
As Emily grows, she’ll have the financial resources she needs to pursue her dreams, thanks to the foresight and care taken in managing her settlement via a Qualified Settlement Fund. While nothing can replace the loss of a parent, the security provided by this approach offers some solace and hope for the future.
Using a Qualified Settlement Fund can be a game-changer for families facing similar circumstances. It provides the time and flexibility needed to make informed decisions, ensuring that the interests of minor beneficiaries are protected and nurtured for years to come.
Learn more about how Qualified Settlement Funds benefit the minor’s settlement process.
Contact a QSF 360 specialist today at (855) 979-0322.
Eastern Point Trust Company se complace en ofrecer a los clientes de habla hispana un número gratuito exclusivo, así como acceso a un equipo de servicios al cliente compuesto por personal hispanohablante nativo profesional y de alto nivel.
Para obtener más información, comuníquese con el equipo al (855) 412-5100, esperamos trabajar con usted.
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