Resources

What Types of Legal Settlements are Not Taxable?

Settlements and their tax implications can often seem complex for individuals and businesses. It’s essential to grasp the nuances involving taxation of settlements to make informed decisions and reduce tax burdens.

This article dives into the details of taxation of settlements, offering insights into compensatory damages and punitive damages, as well as how different settlement types, like whistleblower settlements, are treated for tax purposes. This article also discusses strategies for minimizing tax responsibilities on settlements and answers common questions such as how to report settlement funds to the IRS and determining the portion of a taxable settlement.

Differentiating Taxable Income From Taxable Settlements

Per Section 61 of the Internal Revenue Code (IRC), all income is generally taxable unless explicitly exempted by another section of the IRC. The taxation of settlements hinges on the nature of the claim and the damages awarded.

Understanding Settlement Taxation

The taxability of settlements is contingent upon “the origin of the claim,” meaning the cause of action that led to the settlement award.  Here’s a breakdown illustrating how typical settlements are taxed:

When determining the taxability of a settlement, consider these key factors:

1. What was the settlement intended to replace?
2. Is there a specific exemption in the tax code that applies?

The Role of IRC Section 104 – Physical Injury

IRC Section 104 excludes certain settlements and awards from taxable income. Specifically, §104(a)(2) of the IRC allows taxpayers to exclude from gross income “the amount of any damages (other than punitive damages) received on account of personal physical injuries or physical sickness.”‍

However, there are some important nuances to keep in mind:

1. The injury must be physical in nature.
2. Punitive damages are generally taxable, even if they relate to a physical injury, with a narrow exception for certain wrongful death cases.

Before 1996, Section 104(a)(2) did not have the “physical” requirement. The Small Business Job Protection Act of 1996 changed the code to restrict exclusions for injuries and sickness.

PRO TIP: Emotional distress alone does not qualify for the exclusion under §104(a)(2) unless it originates from a physical injury or sickness.

PRO TIP: Attorney fees that come with damages cannot be deducted by the plaintiff. So, the plaintiff will need to pay taxes on the amount of the award. (Refer to the discussion on strategies in the Plaintiff Recovery Trust to avoid this “double tax” situation.)

PRO TIP: Taxpayers must show that their settlement qualifies for exclusion under Section 104(a)(2). The IRS will review the language in the settlement agreement and legal claims to determine tax treatment. Using precise language in both settlement agreements and court orders can strengthen a taxpayer’s case.

Common Nontaxable Settlements

Settlements stemming from physical injury or illness are generally deemed nontaxable under Internal Revenue Code (IRC) Section 104 (a)(2). These settlements compensate individuals for injuries or sickness. Let’s look at some examples.

Personal Injury Settlements

Settlements received for personal physical injuries are typically nontaxable, including compensation for:

1. Dog bites and attacks
2. Motor vehicle accidents resulting in physical injury
3. Medical malpractice suits based on physical illness or sickness
4. Premises liability cases where injury results from property neglect
5. Workplace and construction injuries
6. Product liability, such as defective medications causing severe harm

The critical factor is that the settlement involves physical injury or sickness. Emotional distress damages originating from a physical injury are also nontaxable.

Medical Expense Reimbursements

When a settlement includes reimbursement for expenses related to the injury, the part of the settlement designated for those expenses is usually not taxable unless those medical expenses were previously deducted by the plaintiff. If, in a prior tax year, the medical expenses were deducted and a tax benefit was provided, then that portion of the settlement may be considered income.

Wrongful Death Settlements

Similarly, settlements for death cases are generally treated as nontaxable since they are handled similarly to injury settlements from a tax perspective. These settlements compensate the surviving family members for reasons including the loss of support, the pain and suffering experienced by the deceased, medical and funeral expenses, and the loss of potential inheritance. However, there are exceptions to consider. Punitive damages in cases of wrongful death are typically subject to taxation. Moreover, any part of the settlement that reimburses expenses previously deducted by the plaintiff may be regarded as income up to the extent of any tax benefits received.

PRO TIP: Contingent attorney fees associated with punitive damages are not deductible to the plaintiff. Accordingly, the plaintiff must pay taxes on the entire amount of the punitive award. (Plaintiff recovery Trust discussion below for strategies to eliminate this “double tax”)

Carefully review the specific circumstances of each settlement to determine the appropriate tax treatment. Consulting with a tax professional can help ensure compliance with IRS regulations.

Common Types of Taxable Settlements

Some settlements are not subject to taxes; however, some require taxation. Let’s delve into some examples of these settlements in detail.

Employment Disputes and Lost Wages

Compensation received for lost wages, back pay, front pay, or severance pay is considered income and is subject to taxes, including Social Security and Medicare taxes (FICA) withholding. Here’s a breakdown of how these settlements are taxed:

It’s crucial to understand that even if some of the settlement pertains to distress damages stemming from an employment dispute, those damages remain taxable unless they result from an injury or illness.

Punitive Damages

Punitive damages are always taxable regardless of the case’s nature. These damages aim to penalize the defendant for their misconduct and do not serve as compensation for the plaintiff’s losses. Punitive damages are categorized as “Income” on Form 1099 MISC. Are taxed as ordinary income rates.

1. Punitive damages are taxable even if the underlying compensatory damages are tax-free, such as in a personal physical injury case.
2. The plaintiff must pay taxes on the entire gross amount of punitive damages awarded, including the portion paid to their attorney as a contingency fee.
3. Punitive damages are not subject to payroll taxes, as they are not considered wages or compensation.

PRO TIP: Contingent attorney fees associated with punitive damages are not deductible to the plaintiff. Accordingly, the plaintiff must pay taxes on the entire amount of the punitive award. (Plaintiff recovery Trust discussion below for strategies to eliminate this “double tax”)

Emotional Distress Without Physical Injury

When it comes to distress without injury, payments received for mental anguish or emotional distress are usually subject to taxation unless they stem from a personal physical injury or illness. These payments may be tax-free if an injury causes emotional distress. However, these payments become taxable if emotional distress leads to symptoms like headaches or stomachaches.

Let’s consider some examples:

1. Emotional distress damages arising from a non-physical injury (e.g., discrimination, defamation) are taxable.
2. Emotional distress damages that cause physical symptoms but do not originate from a physical injury are taxable.
3. Emotional distress damages that originate from a physical injury or sickness may be tax-free.

When receiving a settlement for emotional distress, it’s crucial to work with a tax professional to determine the appropriate tax treatment based on the specific circumstances of your case.

Whistleblower Taxation

There is no tax exemption exception for False Claims Act whistleblower awards. As such, whistleblowers must pay income taxes on their rewards at the ordinary income tax rates. As such, it remains wise to seek competent advice, as tax questions regarding whistleblower rewards are complex.

PRO TIP: Federal and state income tax burdens apply to qui tam rewards like any other form of ordinary income.

Strategies to Minimize Tax Obligations on Settlements

For those seeking to minimize settlement tax obligations, there are strategies available to reduce the taxes and maximize the recovery for plaintiffs. Utilizing settlement annuities, the Plaintiff Recovery Trust, and proper allocation in settlement agreements can help individuals reduce their tax burden and secure their future.

Structured Settlement Annuities

Structured settlement annuities provide a tax option for recipients of settlements by spreading out the settlement payments over several years instead of receiving a lump sum. This approach helps lower the tax rate. It offers benefits such as tax deferral, guaranteed growth of funds within the annuity, and enhanced financial stability. Regular payments can help secure your future and prevent spending decisions. Different types of annuities offer diverse features:

Plaintiff Recovery Trusts

Moreover, Plaintiff Recovery Trusts (PRTs) are tools to avoid taxation for plaintiffs receiving settlements that include attorney fees. By transferring the litigation interest to the trust, plaintiffs only pay taxes on their recovery as beneficiaries, increasing after-tax earnings by 30 to 70%.

PRTs offer additional benefits:

1. Increased Premiums: PRTs can increase available structure premiums by 30% in a typical case.
2. Simplified Fee Deferral: PRTs eliminate the need to match payment schedules for lawyers’ deferred fees.
3. Asset Protection: PRTs can offer increased safeguarding, against creditors by operating as an entity.

Proper Allocation in Settlement Agreements

The tax implications of settlements hinge on the source and nature of the claims involved. By distributing settlement funds in the agreement, plaintiffs can optimize the portion of their recovery exempt from taxes.

1. Identify Tax-Free Damages: Allocate funds to claims for personal physical injuries or physical sickness, which are generally tax-exempt under IRC Section 104(a)(2).
2. Separate Punitive Damages: Allocate punitive damages separately, as they are always taxable, regardless of the underlying claim.
3. Negotiate at Arm’s Length: Ensure allocations result from adversarial, good-faith negotiations to withstand IRS scrutiny.

By strategically employing structured settlement annuities, plaintiff recovery trusts, and proper allocation in settlement agreements, plaintiffs can significantly minimize their tax obligations and maximize their net recovery, providing long-term financial security and peace of mind.

Conclusion

The tax consequences associated with settlements can be complex and diverse, underscoring the importance for individuals and organizations to grasp the intricacies of taxable versus taxable settlements.

Understanding the basics of damages, punitive damages, and how settlements are taxed can help readers make informed decisions to lower their tax burden. Utilizing methods like settlement annuities, plaintiff recovery trusts, and careful allocation in settlement agreements can cut down on taxes. Increase the final amount received. It’s advisable to seek guidance from tax experts and lawyers to handle the intricacies of settlement taxation in line with IRS rules.

‍

Introduction

You prevailed and won the case, and the award includes post-judgment interest – now, taxes are due on the interest.

Unfortunately, many people are taken aback when they find out that post-judgment interest is always taxable in cases involving injuries.

Knowing how this interest is taxed and being ready for it is often overlooked when planning for matters. This discussion focuses on the tax implications of post-judgment interest in physical injury cases and ways to reduce its tax burden.

Is Post-judgment Interest Material?

The notion that post-judgment interest is not material can be fatally flawed. As the appeals process can drag on for years, it is not at all unusual for post-judgment interest to be significant. In today’s courts, cases with millions of dollars in post-judgment interest are not rare.

Pro-Tip: As time passes, tax planning options diminish. Therefore, the time to start planning to mitigate post-judgment interest taxation is before the case is final – the earlier, the better.

Understanding the Taxation of Awards

• Generally, compensation for physical injuries or sickness is non-taxable, including the associated medical bills and lost wages.
• On the other hand, damages for non-physical injuries (such as emotional distress), defamation, and humiliation are ordinarily taxable.

Pro Tip: Taxation of Post Judgement Interest Still Applies Under IRC Section 104. Damages received for injuries or sickness are not taxable gross income under §104(a)(2). However, it’s important to note that this tax exemption does not extend to damages or post-judgment interest. As a result, punitive damages and post-judgment interest are always subject to taxation, irrespective of the type of injury.

Pro Tip: Legal Fees and Deductions.

The 2017 tax law eliminated the deduction for attorney fees linked to awards or settlements. As a result, individuals filing lawsuits now need to include the entire amount of their taxable recoveries as taxable gross income without being able to deduct any legal fees. For more details, click Double Tax.

Tax Planning Strategies for Recipients of Post-Judgment Interest

Utilizing Plaintiff Recovery Trusts

The Plaintiff Recovery Trust (PRT) allows plaintiffs to reduce the tax implications of taxable awards (including post-judgment interest). This specialized trust enables plaintiffs to skip paying taxes on the attorney fee portion of the judgment or settlement, including those linked to judgment interest. As a result, the PRT offers the advantage of helping plaintiffs retain a greater after-tax percentage of the award.

Structured Settlement Annuities and Tax Benefits

Structured settlement annuities, while beneficial, offer less effective strategic tools for plaintiffs to reduce the taxation on post-judgment interest. By spreading payments over many years, plaintiffs can spread the realization of the taxable income, which may result in minor tax benefits by lowering the applicable tax rate. However, these tax savings can be illusory, as future federal or state tax rate increases could result in even greater taxation.

Conclusion

Navigating the complexities of post-judgment interest and its tax implications is often an overlooked planning element. The Plaintiff Recovery Trust typically will offer the best taxation outcomes on post-judgment interest awards, and by preplanning to utilize the PRT, recipients can significantly enhance their economic results.

As such, when the possibility exists of court awards with post-judgment interest, one should proactively engage in tax planning strategies EARLY – waiting until after the final award or the appeal is often too late.

‍

So, you want to conduct a private placement? Whether Reg D, Reg A, Reg A+, Reg CF (Crowdfunding), or Reg S, offering a private placement escrow trust to hold investor funds prior may be required, but it is always a good idea.

Escrow accounts play a vital role in private placement offerings by securely holding investor funds until specific conditions are met, thus offering protection that boosts investor confidence. Opting for a “trust company” over a traditional bank account for escrow purposes introduces the advantage of active independent oversight and more FDIC insurance coverage (up to $150M per account), further enhancing the security and integrity of these escrow transactions.

Using an escrow agent, a neutral third party underscores the commitment to the prudent management of funds in private equity, Reg D, Reg A, Reg A+, Reg CF (Crowdfunding), Reg S offerings, and other private offerings. Another beneficial advantage is that the escrow account increases the confidence of both the offeror and the investor in the outcome. Thus, private placements safeguard investor assets and facilitate smooth transactions with regulatory and private placement offering terms.

Understanding Private Placement Escrow Accounts

Overview of Private Placement Escrow Accounts

Private placement escrow accounts are essential in managing the complexities of private securities transactions. These accounts hold funds raised from investors until the satisfaction of specific offering terms, ensuring compliance with regulatory requirements and safeguarding investor interests.

Steps in the Escrow Process

1. Opening an Account: Selecting an escrow agent to establish an account is typically the first step, which can take one to two weeks. However, platforms like Eastern Point Trust Companies can take as little as one business day.
2. Securing Financing: 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.”
3. Breaking Escrow: Once the terms of the offering have been satisfied, the offeror may request to “break escrow” and begin receiving funds. The escrow trustee will not allow escrow to be broken, and funds will not be available to the offeror until the private placement terms are fulfilled.

Regulatory Framework and Requirements

Private placements operate under the U.S. Securities and Exchange Commission, FINRA, and the associated securities statutes, regulations, and rules, which mandate using a private placement memorandum instead of a prospectus and may restrict marketing to the general public. Specifically, Reg D offerings are only open to accredited investors, adding another layer of complexity. However, Reg A/A+ and Reg CF offerings may be available to non-accredited investors - albeit with other restrictions.

‍Pro Tip: Always consult with competent legal counsel to safeguard compliance with all pertinent regulations and laws.

The Role of the Escrow Agent

A private placement escrow agent acts as an impartial third party, holding in custody the investor funds securely until all conditions of the private placement offering are met. This role is crucial in “all or nothing” contingency offerings, where the closing (breaking escrow) depends on reaching a stated aggregate amount of funding by a specified date. All funds must be returned to the investors if the minimum is unmet.

Importance of Escrow

Investor funds should be placed in escrow to minimize the risk of violating SEC Rules 10b-9 and 15c2-4.

Selecting the Right Escrow Agent

When choosing an escrow agent, factors such as speed and efficiency, expertise in regulatory compliance, and transparent fund administration should be considered. Thus, utilizing the right private placement escrow agent ensures that the escrow process complies with the statutory requirements of private placements and provides all parties involved the necessary peace of mind.

Advantages of Trust Companies Over Traditional Banks

Opting for a trust company for escrow services in private placements offers the advantage of enhanced independent oversight. Using a licensed fiduciary increases investor confidence and ensures a higher standard of compliance and security in managing substantial financial transactions involved in private equity and private offerings.

Regulatory Requirements for Private Placement Escrow Accounts

Regulatory Frameworks and Compliance

Broker-Dealer Obligations Under SEC and FINRA Rules

Broker-dealers are mandated under SEC Regulation Best Interest (Reg BI) and FINRA Rule 2111 (Suitability) to investigate the security when recommending it thoroughly. By doing so, the broker-dealers ensure they understand the risks and rewards associated with the private placement offerings and have a reasonable basis to believe that the recommendation is in the best interest of retail customers. Thus, the SEC’s Regulation Best Interest (Reg BI) extends to all recommendations to retail customers involving securities transactions or investment strategies, including Reg D, Reg A, Reg A+, Reg CF (Crowdfunding), or Reg S offerings private placement offerings.

Filing Requirements With FINRA

FINRA Rules 5122 and 5123 stipulate that member firms (broker-dealers) must file offering documents and information for private placement offerings they sell with FINRA’s Corporate Financing Department promptly.

Escrow Handling in Contingency Offerings

Rule 15c2-4 Requirements

Rule 15c2-4 governs the handling of funds by broker-dealers during contingency offerings. It mandates that funds must either be placed in escrow with a bank or deposited in a segregated bank account, where the broker-dealer acts as trustee or agent. This rule protects investors by ensuring that offering proceeds are only transferred or under the offeror’s control upon fulfilling the required contingencies.

Selection of Private Placement Escrow Agents

When selecting a private placement escrow agent, choosing an impartial and independent agent with expertise in private placement escrow services is crucial. The escrow agent should use market-accepted agreements and terms and comply with Know Your Client (KYC), anti-money laundering (AML), taxation, and other legal requirements. By doing so, the escrow agent assists in safeguarding that the escrow process complies with all associated statutes and regulations.

Choosing the Right Escrow Agent

Engaging an escrow agent early in the capital raise process is crucial for presenting a well-prepared pitch to potential investors. Proactively selecting your escrow agent while creating the investor presentation can assist in maximizing investor confidence and credibility.

Critical Factors in Choosing an Escrow Agent

1. Speed and Efficiency: The chosen escrow agent should have a process for quickly setting up the escrow account. Focus on clearly stipulating the escrow conditions when producing the documents to ensure the timely release of funds once the conditions are satisfied.
2. Expertise and Scope: It is essential to select an escrow agent with specific experience in subscription escrow services, private placement compliance, and a deep understanding of industry-specific regulations.
3. Optimized Administration: Look for an escrow agent that offers real-time reporting, same-day disbursements, and the flexibility to adapt to changes in the program. These features indicate an optimized administration solution.
4. Neutrality and Protection: A corporate escrow agent, being neutral, helps protect the legal rights of all parties involved. Engaging an experienced escrow agent from the onset is pivotal in securing the best outcomes for all parties.
5. Experience and Compliance: When selecting an escrow agent, consider their experience, reputation, financial stability, and adherence to regulatory standards. The agent should have robust security measures to safeguard the funds and a process to maintain clear communications with all parties throughout the escrow process.

Conclusion

Selecting the right escrow agent is a pivotal decision in the private placement process. Speed, efficiency, expertise in regulatory compliance, and effective fund administration ensure the escrow process aligns with the applicable regulatory requirements of private placements. The culminating insight from this examination underscores the significance of escrow accounts in providing a secure, regulated structure that supports the intricate dynamics of private placements, fostering a trustful investment environment. This understanding points to further avenues for discussion and research, particularly in optimizing these financial instruments for future transactions and developments within the sector.

The advantages of using a licensed vendor (such as a trust company) over a traditional bank account are measurable. The provision of active independent oversight by a trust company adds a significant layer of security and integrity to these financial transactions, directly contributing to heightened investor confidence.

The crucial aspect of investor confidence is the linchpin in successfully offering private placements. Private Placement Escrow Accounts safeguard investor assets and streamline the “Breaking Escrow” transaction process under the applicable regulatory framework - thus ensuring all party’s satisfaction.

Additionally, you can open an account on platforms like Eastern Point Trust Company.

‍

Massachusetts is known for Boston, Cape Cod, the Salem Witch Trials, and high taxes. It is no surprise that, when creating a Qualified Settlement Fund (“QSF”) in Massachusetts, the state imposes its aggressive tax policy on QSF income. Therefore, any QSFs used in Massachusetts or established by Massachusetts’ governmental authorities are subject to federal and Massachusetts taxation.

Massachusetts’ applicable income tax rate for the 2023 tax year is a flat five percent (5%) rate on the entirety of the QSFs’ taxable income. As of 2023, an additional 4% tax income over $1 million also applies. Thus, the Massachusetts Department of Revenue’s Letter Ruling 08-7 demonstrates that creating a QSF in Massachusetts is a costly mistake that will result in unnecessarily high taxation.

Background of Letter Ruling 08-7

In Letter Ruling 08-7, issued March 28, 2008, the Massachusetts Department of Revenue established Massachusetts’s position concerning the “Taxation of Qualified Settlement Fund.”

The Massachusetts Department of Revenue ruling outlined the following:

• A QSF is subject to tax under the Massachusetts General Laws, Chapter 62.
• The taxation applies if a Massachusetts governmental authority (including a “Massachusetts Court”) establishes a QSF.
• In general, the ruling provides taxation on income derived from or attributable to sources within Massachusetts, including income from tangible or intangible property located or having a situs in Massachusetts and income from any activities carried on in Massachusetts.
• The Massachusetts Department of Revenue asserts that the situs of trust within Massachusetts applies unless the property has formally acquired a situs elsewhere. This doctrine means a QSF (including a designated settlement fund) shall be presumed to be in Massachusetts if the court or the governmental authority that ordered or approved the establishment of the QSF is in Massachusetts or if trust assets or the situs was in Massachusetts for any part of the year.

Conclusion

While a few states have higher taxes than Massachusetts’s top rate of nine percent (9%), many states have no taxation to a trust-based QSF. Thus, planners and attorneys should carefully consider in which jurisdiction you create a QSF and judge the advantages of QSF 360 to tax optimize and reduce your QSF tax liabilities.

Overview

§ 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.

Privacy in QSFs

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.

Anonymity of Parties

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.

Decanting and Situs Shifting

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.

Non-Public Records

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.

Conclusion

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.

Qualified Settlement Funds (QSFs) are valuable statutory-based financial mechanisms that offer tax benefits and flexibility in managing settlements and the associated settlement administration across various disputes and litigation.

Established under 26 USC §468B and 26 CFR §1.468B-1 et seq., defendants can “transfer” settlement obligations, claim the associated tax deductions immediately, and facilitate the tax-efficient disbursement of funds to the claimant(s).

Here, we explore the proper naming conventions for a Qualified Settlement Fund name, highlighting the key considerations and appropriate naming conventions to support the fund’s integrity and purpose.

Pro Tip: For more information on QSFs, how to create, their benefits, and how they work, see the following links

• Establishing a QSF - Video
• QSF Articles

The Significance of a Proper Qualified Settlement Fund Name

The naming conventions in QSFs are not merely a formality but a necessity. It is important to note that, in addition to the statutory requirements for QSFs. Therefore, let’s do an overview of QSF naming guidelines and statutory requirements:

• Length and Allowable Characters
  ‍The 2024 IRS QSF EIN length requirement is that no Qualified Settlement Fund name may be longer than sixty-four (64) alphanumeric characters. Additionally, the IRS only allows three (3) special characters - a space, the ampersand (&), or a dash (-).
• Neither “QSF” nor “Qualified Settlement Fund” Need to Be Included in the Name
  ‍Neither §468B nor §§1.468B-1 et seq. require that the name of the QSF contain the term “Qualified Settlement Fund” or the abbreviation “QSF”.

Authorizing Governmental Authority Policy

A governmental authority must approve and exercise jurisdiction over a potential QSF for it to become a QSF. That authorizing governmental authority will have its own policies and requirements for QSF naming conventions. Among other things, these policies ensure that the name of a QSF is not intentionally (or unintentionally) misleading.

Misleading or Deceptive Naming

Generally, state and federal law prohibits any entity from being deceptively named. For example, you may not name a trust using the term “Inc.” in an attempt to misrepresent the trust as a corporation. Also, state statutes prohibit naming a sole proprietorship using the term “LLC” to imply it is a Limited Liability Company when it is not.

Moreover, it is crucial to note that a QSF is not an Interest on Lawyers Trust Account (“IOLTA”) nor an account owned by a law firm; thus, no QSF should be labeled to imply that it is. Severe ethical consequences could result. Therefore, it is prudent never to use a name for a QSF that would give the impression that the QSF is an IOLTA or a law firm’s corporate bank account.

Noted QSF commentator Robert Wood, in his article Qualified Settlement Funds Named Like Lawyer Trust Accounts, while discussing the flexibility available in naming a QSF also raises the concern of possible ethical or bad faith issues surrounding the use of a misleading or deceptive QSF name.

Examples

The following provides roadmap examples of QSF names that work and others that may likely cause issues:

• The Robinson Law Firm Trust Account (Bad Idea)
• Robinson Settlement Trust – FBO Sam Jones (Better)

• Jackson Law Firm, PLLC Fund (Bad Idea)
• Jones Matter Settlement Fund -– Case 1234567 (Better)

• Jones Law Firm IOLTA (Never!)
• Smith Family Settlement Trust (Better)

• Clay, Miller & Pitte Law Trust (Bad Idea)
• TJV (initials or Name of Plaintiff) QSF (Better)

• Thomas Firm Client Account (Bad Idea)
• The Roundup Trust (Better; this name references the general matter)

Naming Safe Harbors

Generally speaking, there are safe harbors when naming a QSF:

• Including the term - Qualified Settlement Fund
• Including the term - QSF
• Use an FBO designation within a QSF name
  (example, “FBO Sam Jones Fund”)
• Use the Case name or Plaintiff (or Plaintiff Family) name in the name of the QSF.
  (example, “The VDC-35456av-67 Case Fund”)
  (example, “The Sam Jones Settlement Fund Case VDC-35456av-67”)
  (example, “Jones Family Settlement Trust”)

Standardizing

If a law firm uses, or plans to use, several QSFs, then standardizing naming conventions allows more effective case management and quicker access to essential documents. A consistent naming convention also improves transparency and avoids confusion for audits, legal reviews, and timely and accurate distribution of funds.

Avoidance of Misleading QSF Names

Avoiding misleading or deceptive naming conventions when naming a QSF is crucial. The name should not misrepresent the nature of the fund or its ownership, as this could lead to confusion or legal and ethical challenges.

Pro Tip: See the related article regarding Who Owns a QSF.

Complexity in Name

Avoid overly complex or obtuse names for a QSF. Names that are difficult to understand or remember can hamper communication and operations or lead to mistakes. A straightforward and clear name ensures that all parties, including the defense, claimants, and the associated legal and financial professionals, can easily refer to the QSF without confusion or question.

Conclusion

When navigating QSFs, carefully selecting a compliant name is not merely a governmental requirement; it can also remove barriers and eliminate questions. Recognizing common pitfalls and adhering to IRS rules and nondeceptive guidelines in choosing a name can avoid potential ethical conflicts and ensure the fund’s smooth operation.

‍

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.

Myth 1: QSFs Are Exclusively for Mass Tort and Class Action Settlements

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.

Myth 2: Only Plaintiffs Benefit from QSFs

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:

For Plaintiffs

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.

For Defendants

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.

Myth 3: Establishing Is an Expensive Process

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.

1. Initial Setup and Maintenance Costs

• Drafting of Trust Document: Essential for the legal establishment.
• Ancillary Services: These may include legal advice, fund management, and other services necessary for the operation.
• Government Filing Fees: Required for the legal establishment of the fund.
• Administration and Trustee Fees: For the day-to-day management and oversight.
• Tax Preparation Fees: Preparing tax returns is crucial for maintaining the fund’s compliance with state and federal laws.
• Technology and Support Services: Platforms like QSF 360 offer cost-effective solutions for creating and administration, bypassing traditional expenses and court delays.

2. Process of Establishment

• Petitioning Governmental Authority: Involves submitting the document and details of the underlying matter for approval, ensuring compliance with qualification requirements.
• Obtaining Federal Tax ID Number: A mandatory step for the fund’s operation.
• Approval: § 1.468B-1 provides that approval by a “governmental authority” is required - irrespective of whether the settlement or litigation is a federal or state matter, providing flexibility in the establishment.

3. Comprehensive Services at a Glance

• QSF 360: Offers a same-day* online solution that includes document preparation, disbursement of payments, UCC and bankruptcy lien management, and tax filings, among others, providing a holistic approach to QSF administration.
• Licensed Administrator Selection: The best outcomes typically result from using a specialized fiduciary or individual to ensure proper service.
• Creating a QSF: This can be as straightforward as spending only 15 minutes online, making the process simple and easy to manage, providing a sense of ease and comfort to the audience.

Myth 4: Qualified Settlement Fund Administration Is Overwhelmingly Complex

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:

Role of the QSF Administrator

• Comprehensive Management and Coordination: Ensures the smooth operation and administration of the fund, including asset custody and oversight.
• Documentation Preparation: Involves drafting necessary legal and financial documents to maintain compliance and facilitate settlement.
• Disbursements Management: Handles disbursements to claimants, accurately managing gross payments to individual claimants and distributions on behalf of claimants.
• Post-Distribution Activities: Conducts audits, oversees funds, and oversees post-distribution tasks, ensuring the fund’s closure aligns with all legal requirements.

Expertise and Compliance

• Knowledge and Experience: A licensed fiduciary serving as the administrator brings a wealth of knowledge, ensuring compliance with regulations and guidelines.
• Tax Regulation Proficiency: Managing tax-related requirements outlined in the U.S. code is crucial, with administrators handling the fund’s EIN application and annual tax returns.
• Selection Criteria: When selecting a QSF Administrator, their experience in related tax regulations and management capabilities is paramount.

Qualified Settlement Fund Taxation

• Taxation and EIN: Settlement funds are taxed separately on the income they earn, with the need for their own EIN, simplifying tax reporting and compliance.

Myth 5: QSFs Offer Limited Tax Advantages

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:

Tax Benefits for Defendants and Plaintiffs

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.

Operational and Taxation Aspects

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.

Flexibility and Longevity

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.

Conclusion

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.

Questions to ask Prospective Administrators:

• What specific criteria must be met for a government authority to approve the establishment of a Qualified Settlement Fund?
• Do you have any conflicts of interest in selling insurance or other financial products?
• How quickly can you produce final documents and secure the approval?
• What are your privacy and confidentiality protections?
• How do you handle the distribution process among multiple plaintiffs with varying claims?
• How quickly are distributions processed?
• Are you a licensed fiduciary?
• What base costs and additional costs might arise during the ongoing administration of a Qualified Settlement Fund beyond the initial setup fee?

Are Punitive Damages Taxable?

Punitive damages are always fully taxable. This unwelcome and often unknown fact is true when punitive damages are awarded in conjunction with a tax-free compensatory award (e.g., physical injuries or sickness) or a taxable claim (e.g., non-physical injuries, defamation, or another tort).

How Much Tax Is Paid on a Lawsuit Settlement

The taxes you will pay are likely much higher than you think. Under the current tax code, you must pay taxes on the portion of the punitive award you do not even receive – like the attorney’s fees and costs.

Double Taxation of Punitive Proceeds

Unfortunately, under our tax laws, a person as a plaintiff receiving punitive damages is fully taxed on the punitive portion and is thus treated more punitively than the defendant paying them. This harsh tax reality is because of the odd but real “plaintiff double tax.” ¹

The plaintiff’s double tax arises because the plaintiff is taxed on the entire taxable recovery – including the punitive damages – but cannot deduct the attorney fees and costs associated with the recovery. That is because such fees and costs are treated as “miscellaneous itemized deductions” (MIDs), which are not fully deductible.

Double Tax Example

Here is a realistic example: Joan, living in California, receives $2,000,000 in damages for a physical injury and an additional $10,000,000 in punitive damages. The $2,000,000 isn’t taxed, but the $10,000,000 punitive portion of the settlement is.

Out of the above, Joan owes her attorneys a 40% contingency fee on the punitive portion ($4,000,000). However, she cannot deduct the attorney’s fees for federal or state income tax purposes. Also, her combined Federal and State income tax rate is around 50% since she’s in the top tax bracket. As a result, her “net-net” (after-tax and attorney fees) proceeds on the punitive portion is around $1,000,000 - just 10 cents on the dollar of the total punitive proceeds, and could be even less!

WOW, poor Joan – Regretfully, there are other unpleasant realities Joan shall be surprised to learn:

• Not being able to deduct the attorney fees due to the plaintiff’s double tax costs Joan $2,000,000 in increased taxes, more than twice what Joan received! (50% tax of the $4,000,000 in attorney’s fees is an extra $2,000,000 in taxes).
• For any incurred case costs, Joan must reimburse her lawyer; she shall further reduce her “net-net” after-tax proceeds, meaning Joan shall likely receive far less than 10 cents on the dollar.
• Also, if Joan lives in a municipality with a city tax, her net-net proceeds would be even lower.

Talk about punitive! (Other epithets may come to mind.)

In certain limited case types, such as employment and civil rights discrimination, an “above the line” deduction is indeed allowable for attorney’s fees and costs, avoiding the plaintiff’s double tax. However, this deduction rarely applies since punitive damages are infrequently awarded in those cases.

Caution – PRO TIP: Various dubious suggestions haunt the internet and purport to circumvent the plaintiff’s paying taxes on the attorney portion of the taxable recovery. These suspect “tax tricks” are designed to misclassify a portion of the proceeds, including issuing separate Form 1099s for the plaintiff and the attorney or alleging a quasi-partnership arrangement between the plaintiff and the attorney. Thus, take caution; the Supreme Court precluded these approaches in the Commissioner v. Banks Supreme Court decision. Employing such tenuous schemes may open the door to significant tax underpayment penalties and possibly even more severe allegations and actions by the IRS. Also, the above-the-line deduction is plainly shown on the tax return and is a glaring audit signal to the IRS; the larger the deduction, the more likely the audit risk.

There is a Solution

Plaintiffs who may receive punitive damages may wish to consider a Plaintiff Recovery Trust (PRT) before the claim becomes final or fully settled. A PRT is a specially designed trust that could increase the after-tax recovery by 50% to 150%, and the PRT does not rely on the “above the line deduction.” However, timely action is necessary, and the PRT must be in place before the matter is finalized, including appeals, so the earlier in the case cycle, the better, and a failure to act promptly could result in unnecessary taxation.

How to Reduce Taxation on Your Settlement Proceeds

To learn more about PRTs, visit the PRT web page or call (855) 222-7513 to speak with a PRT Expert to see if your case qualifies.

Massachusetts Taxes on QSFs: What You Need to Know

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.

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.

‍

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.

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."

‍

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."

‍

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."

‍

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.

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.

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.

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.

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.”

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.

‍

‍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. 

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

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.

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.

Overview

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.

What is the Plaintiff Double Tax?

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.

‍

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%.

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.

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.

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:

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.

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

###

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.

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

###

‍

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:

• Efficient Fund Management: QSFs ensure that settlement funds are FDIC-insured, reduce misallocation risks, and ensure fair distribution.
• Tax Compliance: QSFs help maintain compliance with tax regulations, thereby minimizing potential tax liabilities for the parties involved.
• Informed Decision-Making: By providing time and space for thoughtful decision-making, QSFs help to resolve disputes amicably and equitably.

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.

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

###

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

PRESS Contact
www.EasternPointTrust.com

[email protected]

Phone: 855-222-7513

###

‍

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.

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

###

‍

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.

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

###

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.

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

###

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

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

###

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:

• What is a Qualified Settlement Fund and its purpose
• Key benefits
• Eligibility requirements
• The approval process
• How to create a Qualified Settlement Fund
• Qualified Settlement Fund tax treatment and tax reporting
• Investment options
• QSF administration process
• Qualified Settlement Fund Administrator role and responsibilities
• Procedures for making distributions
• Compliance and regulatory matters
• Complex cases
• Minor's Settlements

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.

Wrongful Death Case Study

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 Legal Labyrinth

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.”

Opting for the Qualified Settlement Fund

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:

1. Protection of Emily’s Interests: The fund acted as a safeguard, holding Emily’s portion of the settlement in FDIC-insured money market accounts until the supervising court approves the minors’ settlement.
2. Flexibility in Distribution: The QSF allowed for careful planning of how and when funds are available, considering Emily’s evolving needs as she grew.
3. Long-term Financial Planning: With the pressure of immediate distribution removed, the family had time to consult with financial advisors and structure the settlement optimally.
4. Tax Benefits: The defendant could fund the QSF, claim their tax deduction, and remove themselves from the post-settlement process, simplifying matters for all parties.

What is a QSF?

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.

Key Features:

1. Temporary Holding: A QSF acts as a temporary repository for settlement funds.
2. Tax Benefits: It offers potential tax advantages for both defendants and claimants.
3. Time Flexibility: Claimants gain more time to make informed decisions about their settlement proceeds.
4. Protection: It provides a layer of protection for settlement funds.

How QSF Contributes to Crafting a Secure Future

1. When dealing with legal settlements, a Qualified Settlement Fund can be instrumental in ensuring a more secure financial future:
2. Informed Decision-Making: By allowing claimants more planning time, 468B trust enables better financial decisions.
3. Professional Management: Funds in a 468B Settlement Fund are typically managed by experienced trustees and QSF Administrators.
4. Structured Settlements: QSFs facilitate the creation of structured settlements, which can provide long-term financial stability.
5. Risk Mitigation: Experienced and licensed Qualified Settlement Fund administrators mitigate risks associated with large settlement payments and the related tax implications.

Integrating QSF in Your Financial Planning

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.

Crafting a Secure Future for Emily

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:

• Structured Settlements: A portion of Emily’s funds was allocated to a structured settlement, providing guaranteed periodic payments throughout her college years and beyond.
• Education Trust: Creating an education trust to cover future tuition and related expenses, ensuring Emily’s academic aspirations have funding.
• Health and Wellness Fund: Allocation of funds to address the potential long-term emotional impact of losing a parent and the associated counseling or health-related needs, for potential.

“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.”

Securing a Future with a QSF

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.