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In general, a Claimant (a.k.a. beneficiary) of a Qualified Settlement Fund (QSF) trust has a right to certain details about the QSF, which may include seeing the related trust documents.

Understanding a Claimant’s Rights

Claimants of an QSF (which is an irrevocable statutory trust) generally have the right to see the trust documents. This right arises from the Claimants having a beneficial interest in the trust property and being entitled to information about how the trust is being managed and operated. In most cases, the trustee is responsible for providing the Claimants access to the trust documents.

State Law Matters

The specific rules regarding a QSF Claimant’s right to access trust documents can vary by state law and the terms of the trust agreement. However, the general principles apply in most cases to provide access.

What Documents May a Claimant Request

First, it’s essential to understand what types of trust documents are involved. Generally, trust documents include the trust agreement or instrument, which outlines the terms and conditions of the trust, as well as any amendments or modifications to the trust. Trust documents can also include financial statements, tax returns, and other documents related to the management and operation of the trust.

Second, it’s important to note that QSF Claimants do not automatically have access to trust documents. Instead, they must request access to the documents from the trustee. The trustee may be required to provide the documents or allow the Claimant to review them in person.

In some cases, the trustee is required to provide certain trust documents to Claimants without a request. For example, some states require trustees to provide annual accountings to Claimants, which detail the trust’s income, expenses, and distributions. In other cases, the trustee may have the discretion to withhold certain information from the Claimants, such as information that could compromise the privacy or security of the trust or its Claimants.

Third, depending on the terms of the QSF, the trustee may at some level of duty to provide the Claimants accurate and timely information about the trust’s assets and management. If the trustee fails to provide the information requested, the Claimant may have legal recourse to seek redress.

What Recourse Does a Claimant Have to Compel Access

In some cases, Claimants may need to go to court to enforce their right to access QSF documents if the trustee refuses to provide the documents or if there is a dispute over what documents the Claimant is entitled to see. In such cases, the court shall consider factors such as the nature of the documents, the Claimant’s interest in the trust, and the trustee’s fiduciary duty when determining whether to order the trustee to provide access to the documents.

Case Law Analysis

Many cases and legal precedents have addressed a beneficiary’s (Claimant’s) right to access trust documents. Here are a few examples:

• Restatement (Third) of Trusts: The Restatement of the Law Third, Trusts (Restatement), is a legal treatise that provides guidance on the law of trusts. In Section 82 of the Restatement, it states that a beneficiary has the right to information about the trust, including the right to see the trust documents. This has been cited in numerous cases as persuasive authority.
  
• Riggs Nat'l Bank v. Zimmer: In this case, the court held that beneficiaries of a trust have the right to examine trust documents to determine if the trustee has acted properly. The court found that the trustee’s fiduciary duty to the beneficiaries requires the trustee to provide access to the trust documents.
  
• Barnes v. Estate of Barnes: In this case, the court held that beneficiaries have the right to see trust documents, including financial statements and tax returns, to ensure that the trustee is managing the trust property properly. The court found that the trustee’s duty to account to the beneficiaries requires the trustee to provide access to the trust documents.
  
• Restatement (Second) of Trusts: The Restatement of the Law Second, Trusts (Restatement), is another legal treatise that provides guidance on the law of trusts. In Section 173 of the Restatement, it states that a beneficiary has the right to see the trust documents, including the trust agreement, amendments, and financial statements. This has also been cited in numerous cases as persuasive authority.
  
• O’Brien v. Hill: In this case, the court held that beneficiaries have the right to access trust documents to ensure that the trustee is fulfilling its fiduciary duty to manage the trust properly. The court found that the trustee’s duty to account to the beneficiaries requires the trustee to provide access to the trust documents.
  

These authorities demonstrate the importance of a beneficiary’s right to access trust (QSF) documents and the trustee’s duty to provide access. They also highlight that the specific rules and requirements regarding access to trust documents can vary depending on the applicable state law and the terms of the trust agreement.

Summary

In summary, Claimants of a QSF generally have the right to see the associated documents, but this right can be subject to certain limitations and requirements. If you are a Claimant of a QSF and are unsure about your rights to access the documents, you should consult with an attorney who is knowledgeable to help you understand your legal rights and options.

As someone who has worked in the settlement and tax industry for numerous years, I have seen the various complexities of settling cases. One tool that has become increasingly popular in recent years is Qualified Settlement Funds (QSFs). In this paper, we discuss the benefits of QSFs, the complexities that come with them, and tips for effective implementation.

Understanding QSFs

A QSF is a legal arrangement used to settle a lawsuit or claim. It is essentially an escrow account that holds the funds from a settlement until they can be distributed to the appropriate parties. However, it is more than a simple escrow account, a QSF is a Statutory Trust. (More on this below).

One of the key benefits of a QSF is that it allows the plaintiff to defer taxes on the settlement until the distribution of the funds. This feature can be beneficial in cases where the settlement amount is large and the plaintiff would incur a significant tax liability.

A governmental authority must establish a QSF, and a QSF trustee/administrator oversees the QSF administration. The administrator is responsible for managing the funds in the QSF and administering the distribution process.

Benefits of Using QSFs in Settlements

There are several benefits to using a QSF in settlements. One of the most significant benefits is the ability to defer taxes. This advantage can be beneficial in cases where the settlement amount is large and would result in a significant tax liability for the plaintiff. By employing various tax strategies to defer taxes, the plaintiff can keep more settlement funds and use them to cover expenses or invest for the future.

Another benefit of using a QSF is simplifying the settlement process. Instead of negotiating individual settlements with each plaintiff, the defendant can make a single payment to the QSF. The QSF administrator can then distribute the funds to the appropriate parties, saving time and reducing the administrative burden of settling a large case.

Statutory Trust - What It Means for QSFs

One of the critical components of a QSF is that it is a “statutory trust.” The QSF, as a statutory trust, is created, approved and registered by the government authority approving the QSF as a legal entity that is separate from the QSF administrator and the plaintiffs. The statutory trust is formed when the QSF is approved by the governmental entity and thus established.

What Is a Statutory Trust

A statutory trust is a type of trust created by statute, meaning it is established by a specific law or regulation, in this case, IRC §1.468B-1 et seq., rather than through the traditional trust agreement.

The Restatement of the Law Third, Trusts (Restatement) defines a statutory trust as:

“a trust created by statute other than a trust created by a judgment or decree that imposes a constructive trust, resulting trust, or other trust that arises by operation of law.” ¹

The Restatement further clarifies that a statutory trust differs from other trusts; its establishment is governed by a specific law or statute, which provides the rules and guidelines for the trust’s creation, management, and operation. This “statutory basis” differs from a traditional trust agreement, created through a private contract between the settlor (the person creating the trust) and the trustee.

Statutory trusts are commonly used in business and tax contexts, particularly in forming investment funds, real estate investment trusts (REITs), and various tax arrangements.

The Uniform Trust Code (UTC) is a set of model laws governing trusts, which has been adopted in some form by many states in the United States and also addresses the definition of statutory trusts. The UTC includes provisions related to statutory trusts, similar to the Restatement’s definition.

The UTC defines a statutory trust as:

“a trust created by the filing of a certificate of trust with the secretary of state or similar officer, or as otherwise provided by statute.”

This definition emphasizes the statutory requirement for a formal filing or registration process with a government agency or official. The definition thus applies to QSFs, as IRC §1.468B-1(c) enumerates the statutory requirement for a formal filing, approval, and registration process with an empowered governmental authority.

The UTC also includes terms and provisions which govern the management and operation of the trusts, including the authority of trustees, the rights of beneficiaries, and the procedures for terminating or modifying the trust. Additionally, the UTC provides rules for the liability of trustees and beneficiaries and requirements for trust accounting and record-keeping.

Overall, the provisions related to statutory trusts in the UTC provide guidance and rules for establishing and operating statutory trusts like QSFs.

In summary, a QSF is a statutory trust created by a specific law or statute (i.e., §1.468B-1 et seq.), and as such, it differs from other private trusts agreements in that it is established by law rather than through a private trust agreement.

Do Beneficiaries (Claimants) of a QSF Have to Sign the Trust

No, beneficiaries (claimants) of a QSF do not have to sign the trust agreement because a statutory trust can only exist through a formal filing or registration process with a government authority rather than through a traditional private trust agreement.

A QSF, as a statutory trust, is only created by a proper filing with the appropriate governmental authority, which includes information about the QSF’s terms and conditions, the trustee’s identity, the qualification of the QSF, and the rights, limitations, and responsibilities of the beneficiaries. The associated documents are available, and QSF beneficiaries can review them to understand their rights and obligations under the trust.

Finally, per applicable statutes and a wide array of case law, beneficiaries of a statutory trust are not involved in creating or managing the trust, their role is limited to receiving the benefits provided by the trust, and they are bound to the terms of the statutory trust. The trustee is responsible for managing the trust and making decisions regarding the distribution of trust assets to the beneficiaries in accordance with the terms of the trust agreement and the applicable state and federal laws.

Navigating the Complexities of QSFs

While there are many benefits to using a QSF in settlements, complexities exist; one of the most significant complexities is the tax implications of using a QSF. Because the funds in the QSF are a statutory trust, they are subject to specific tax rules and regulations. Working with an experienced tax professional ensures the QSF satisfies all qualification requirements. Another complexity associated with QSFs is the distribution of funds. The QSF administrator is responsible for distributing the funds to the appropriate parties, and this can be a complex process. Working with an experienced administrator familiar with the QSF process, such as UCC and bankruptcy lien identification, is essential.

Tips for Effective Implementation of QSFs

If you are considering using a QSF in a settlement, several tips can help ensure effective implementation. First, it is crucial to work with an experienced QSF administrator who is familiar with the process and can help to navigate the complexities associated with QSFs. Second, it is essential to work with an experienced tax professional who can ensure that the QSF satisfies the qualification requirements of §1.468B-1 et seq. Finally, it is crucial to communicate clearly with all parties involved in the settlement to ensure everyone understands the process and their role in it.

Factors to Consider When Selecting a QSF Administrator

‍When selecting a QSF administrator, there are several factors to consider. First, selecting an administrator who is experienced with QSFs and familiar with the process is essential. Second, selecting an administrator with a demonstrated track record of success is likewise imperative. Finally, as some QSF administrators take weeks or longer to disburse funds, selecting an administrator who disburses funds timely, is responsive, and is easy to work with is crucial.

QSF Tax Considerations

As mentioned earlier, there are several tax considerations associated with QSFs. One of the most significant tax considerations is the deferral of taxes. The tax deferral can benefit plaintiffs, particularly in cases where the settlement amount is significant. Because a QSF holds the funds in trust, they are not subject to tax until distributed.

Another tax consideration is the reporting and payment of taxes. The QSF administrator is responsible for filing tax returns and paying taxes via IRS Form 1120-SF on behalf of the QSF. Working with an experienced tax professional is key to ensuring the QSF satisfies the qualification requirements enumerated in IRC §1.468B-1(c).

QSF vs. Defense Provided Structured Settlements - Which Is Better?

Careful consideration is warranted when deciding between a QSF and a defense-provided structured settlement. Another factor to consider is the flexibility of the settlement. With a QSF, the plaintiff has more flexibility in how the funds are distributed and can use them as needed. Most importantly, with a defense provided structured settlement, the plaintiff is usually locked into a lower payment schedule that can be less than what might be otherwise available in the insurance marketplace.

Working with an experienced attorney, plaintiff-oriented settlement consultant and tax professional is essential to determine the best option.

Conclusion

Navigating the complexities of QSFs can be challenging, but with the right team in place and platforms like QSF 360, it can be an easy and effective tool for settling single and multi-plaintiff cases. By working with experienced QSF administrators and tax professionals, plaintiffs can defer taxes, simplify the settlement process, and gain more flexibility in disbursing settlement funds. If you are considering using a QSF in a settlement, research and work with a team with the experience and expertise to ensure effective implementation.

As a litigator, one of the most critical aspects of your responsibilities is ensuring that your clients receive the maximum and most flexible settlement benefits possible. One powerful tool that can help you achieve this goal is Qualified Settlement Funds (QSFs). This paper explains QSFs, their advantages, the legal framework governing them, and how they can maximize settlement benefits. We shall also discuss common misconceptions about QSFs and how to choose a QSF administrator.

Understanding QSF and Its Benefits for Litigators

What Is a Qualified Settlement Fund (QSF)?

A Qualified Settlement Fund (QSF) is a tax arrangement created under IRC §1.148B-1 et seq. that allows litigants to set aside settlement funds in a trust. This arrangement enables the parties involved to resolve legal disputes without distributing the settlement funds immediately. Instead, the QSF’s funds are held, tax-deferred, within the QSF until disbursed to the intended recipients.

A QSF Is Not an IOLTA

A welcome benefit of a QSF is that you, as the attorney, never receive client funds. As such, a QSF is not an IOLTA and is not reportable to your state Bar. The QSF administrator manages the funds, eliminating the burden and risks that would ordinarily be associated with funds in your firm’s IOLTA.

Advantages of Using a QSF for Settlement Funds

There are several additional advantages to using a QSF for settlement funds. First and foremost, a QSF allows the parties involved to settle a case without immediately disbursing the settlement funds to the plaintiffs. This flexibility and tax defer treatment can be particularly beneficial in cases where there are multiple plaintiffs or uncertainty about the final amount of the settlement due to liens or other issues. Also, by using a QSF, the parties involved can avoid negotiating separate settlement agreements and instead focus on resolving the underlying legal dispute.‍

Another advantage of using a QSF is that it can help to simplify the settlement process. Instead of having to negotiate separate agreements with each plaintiff, the parties involved can negotiate a single settlement agreement outlining the method of allocation and distribution from the QSF. This advantage helps to streamline the settlement process and reduce the administrative burden on all parties involved.

468B: The Legal Framework of a Qualified Settlement Fund

The legal framework governing QSFs is in IRC §1.468B-1 et seq. of the Internal Revenue Code. This section provides the requirements for a QSF to be established, qualified and maintained. These requirements include:

• The QSF must be established pursuant to the approval of a governmental authority
• (Note: there is no requirement that a court approve a QSF see §1.468B-1(c)(1))
• The QSF must be established for the primary purpose of resolving one or more claims or disputes
• The QSF must be subject to the supervision of a governmental authority that approved the QSF
• The QSF must have a TIN (tax identification number) and file annual tax returns

Additionally, a QSF can be invested (usually in a FDIC insured money market account). However, any interest income generated by the QSF (less allowable deductible expenses) is subject to income tax.

How QSF Works in Settlement Negotiations

Maximizing Settlement Benefits Through a QSF

Another of the key benefits of using a QSF is that it allows litigators to offer settlement flexibility to their clients. When utilizing a QSF, litigators empower the plaintiff with the flexibility to choose their payment options (i.e., lump sum, third-party assignment, structured settlement annuity, or any combination thereof) and payment timing.¹
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A QSF also allows the plaintiff to choose their financial advisor(s) and removes the limitations associated with a defense-provided annuity.
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QSFs also provide similar benefits for you as the lawyer by providing you and your firm the flexibility to choose fee payment options (i.e., lump sum, third-party assignment, fee structure, or any combination thereof) and payment timing.

Common Misconceptions About QSF

Despite the many advantages of using a QSF, some common misconceptions exist about this legal arrangement. One of the most common misconceptions is that a QSF is only available in cases with multiple plaintiffs. In reality, a QSF can be beneficial, even with a single plaintiff.
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Another common misconception is that a QSF is too complex and expensive to set up. While it is true that a QSF requires some upfront costs (as low as $500), these costs are typically offset by the long-term benefits that a QSF can provide. Additionally, some QSF administrators specialize in setting up and managing QSFs, which can help simplify the process for litigators. For example, online platforms like QSF 360 offered by Eastern Point Trust Company are low-cost and allow you to create a QSF and receive the necessary governmental approval in as little as one business day.

Choosing the Right QSF Administrator

One of the most important decisions litigators must make when setting up a QSF is choosing the right QSF administrator. The QSF administrator is responsible for managing the funds in the QSF and ensuring that all legal and tax requirements are fulfilled. When choosing a QSF administrator, litigators should consider the administrator’s experience, whether they are licensed fiduciaries, speed of distributions, and fees.

Experience

The QSF administrator should have the necessary trust accounting systems, experience in managing QSFs, and be familiar with the legal and tax requirements governing these arrangements. Additionally, the administrator should have experience working with litigators and be able to provide references from other clients.

License

The QSF administrator’s licensing is also essential. Litigators should research the administrator’s status as a licensed fiduciary (preferably a Trust Company). The administrator should also be able to provide information about the FDIC insurance that applies to the account. Some platforms, such as QSF 360, provide up to $240 million in FDIC coverage; however, these amounts are expandable with the correct structure.

Administration Fees

Finally, litigators should consider the fees that the QSF administrator charges. While choosing an administrator with the experience, systems, and licenses needed to manage the QSF effectively is essential, litigators should also ensure that the fees are reasonable and transparent.

Conclusion

Why QSF Is the Best Option for Litigators and Settlemend Funds

In conclusion, Qualified Settlement Funds (QSFs) are a powerful tool that can help litigators to maximize settlement benefits for their clients and themselves. By using a QSF, litigators can provide your clients (and your firm) with the flexibility that includes a structured, third-party assignment, or a lump-sum payment. Additionally, a QSF can help to simplify the settlement process and reduce the administrative burden on all parties involved.
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Despite some common misconceptions, QSFs are not complex or expensive to set up. With the help of a qualified QSF administrator, litigators can establish and manage a QSF that meets all legal and tax requirements in as little as one business day. In summary, when choosing a QSF administrator, litigators should consider the administrator’s experience, systems, licensing, fiduciary, escrow, and ministerial services and fees.
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If you are a litigator interested in using a QSF, do your research and speak with a qualified QSF administrator (preferably a Trust Company.) Using a QSF can help ensure your clients, and your firm, receive the flexibility to maximize settlement benefits, fee and financial planning options.

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As someone who may receive a pending settlement or judgment in a lawsuit, you may wonder how to manage best and maximize your funds. One option that has gained popularity recently is using a Qualified Settlement Fund (QSF) under IRC Section 1.468B-1. In this article, we shall explore what a QSF is, its advantages, how to set one up, and common misconceptions about them.

Introduction to Qualified Settlement Funds (QSFs)

What Is a QSF? Understanding the Basics

A QSF is a type of trust that is created to hold settlement funds in a legal dispute. They are often used in cases where there are multiple plaintiffs or where the distribution of funds may otherwise be delayed due to ongoing litigation. Essentially, a QSF is a temporary holding account for settlement funds until they can be properly distributed to the intended parties.

IRC Section 1.468B-1: Rules and Regulations

IRC Section 1.468B-1 outlines the rules and regulations governing QSFs. This section of the tax code provides a safe harbor for using QSFs in legal settlements, and it outlines the requirements for establishing and maintaining a QSF and the tax treatment of funds held in a QSF.

Advantages of a QSF

The Efficiency

‍One of the most significant advantages of using a QSF is that it allows for a more efficient and organized distribution of settlement funds. Rather than waiting for all parties to agree on a distribution plan, funds can be placed in a QSF and distributed as soon as possible. This advantage can be beneficial in cases with multiple plaintiffs or where some parties may be difficult to locate.

How to Maximize Your Settlement Benefits With a QSF

Another advantage of using a QSF is the tax benefits it can provide. Funds held in a QSF are not subject to income tax until distributed to the intended parties (settlement proceeds for personal injury are never taxable). Additionally, funds held in a QSF can be invested, potentially increasing the overall value of the settlement, and are usually held in FDIC-insured bank deposits. Some QSF administrators have custodial platforms that provide up to $240 million in FDIC coverage. These advantages allow for more flexibility in financial planning and reducing the tax consequences of a settlement payment.

Common Misconceptions About QSFs

Choosing the Right QSF Administrator

One common misconception about QSFs is that they are challenging to set up and manage. While it is true that specific requirements must be met, such as having a qualified administrator, the process is not overly complicated. However, choosing the right QSF administrator is essential to ensure that the funds are properly managed and distributed. Platforms like QSF 360 offered by Eastern Point Trust Company are low-cost and allow you to create a QSF in as little as one business day.

QSF vs. Other Settlement Options

Another misconception is that QSFs can only be used in certain types of legal disputes. While QSFs are more commonly used in cases with multiple plaintiffs or complex distribution issues, they can be a valuable tool in any settlement, including those with only one plaintiff. Compared to other options, such as a defense-provided structured settlement or a lump-sum payment, a QSF offers more flexibility, better financial outcomes and tax benefits.

Conclusion

In conclusion, a Qualified Settlement Fund under IRC Section 1.468B-1 is a valuable tool for managing and maximizing settlement funds. By understanding the basics of what a QSF is, its advantages, and the misconceptions surrounding it, you can make an informed decision about whether it is the right option for your situation. To ensure your QSF is appropriately managed, choose a qualified administrator who can guide you through the process and help you make the most of your settlement.

Definition of Governmental Authority

According to IRS regulation §1.468B-1(c)(1) and (e), a Qualified Settlement Fund (“QSF”) is a specialized type of statutory trust established by a “governmental authority” to resolve claims arising from specific events such as breaches of contracts, torts, or violations of law pursuant to 26 CFR §1.468B-1. The term governmental authority is defined within the regulations as:

“…the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing…”

Thus, the governmental authority must issue its initial or preliminary approval (or order) to establish the QSF. Often overlooked is that the initial approval or order may be subject to review or revision. However, this does not detract from the validity of the QSF once the governmental authority gives its initial approval.
 
Note: So, called “Firmwide QSFs” mix unrelated claims in violation of the “related claims” requirement of §1.468B-1(c)(2) and therefore do not satisfy the qualification requirements to operate as a Qualified Settlement Fund. (See Firmwide QSFs - What Can Go Wrong? Part 1 and Part 2)

Retroactive Effect

A key provision within §1.468B-1(e) clarifies that the governmental authority’s order or approval has no retroactive effect. This part of the regulation means that a fund, account, or trust cannot be deemed a Qualified Settlement Fund before the date the approval is granted. The regulation ensures that the statutory establishment of a QSF follows a transparent chronological process and maintains accountability for the fund’s activities.
 
However, §1.468B-1(j) (2) provides a method for a QSF to be deemed coming into existence via a “relation-back rule” election as on the later of the date the fund, account, or trust meets the requirements of paragraphs (c)(2) and (c)(3) of 1.468B-1 or January 1 of the calendar year in which all the requirements of paragraph (c) of 1.468B-1 are satisfied:

§1.468B-1(j) (2)
“Relation-back rule—(i) In general. If a fund, account, or trust meets the requirements of paragraphs (c)(2) and (c)(3) of this section prior to the time it meets the requirements of paragraph (c)(1) of this section, the transferor and administrator (as defined in §1.468B–2(k)(3)) may jointly elect (a relation-back election) to treat the fund, account, or trust as coming into existence as a qualified settlement fund on the later of the date the fund, account, or trust meets the requirements of paragraphs (c)(2) and (c)(3) of this section or January 1 of the calendar year in which all the requirements of paragraph (c) of this section are met. If a relation-back election is made, the assets held by the fund, account, or trust on the date the qualified settlement fund is treated as coming into existence are treated as transferred to the qualified settlement fund on that date.”

Conclusion

In conclusion, the governmental authority plays a pivotal role in establishing and regulating a QSF, but the approval can be difficult, costly, and time-consuming. QSF 360 provides a turnkey solution to establish a QSF with the necessary governmental authority approvals in as little as one business day, making the process quick and easy. The order or approval from the governmental authority serves as the definitive starting point for a QSF, ensuring that the Qualified Settlement Fund operates within the established regulatory framework.

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In the intricate world of legal proceedings the Qualified Settlement Fund (QSF) stands out for its distinctiveness. A QSF, although perhaps not widely recognized by the general public and even many lawyers, holds a unique and pivotal role in the resolution of legal cases, particularly those involving multiple claimants such as class-action lawsuits and mass tort litigation. QSFs are also widely used in single event cases and single plaintiff cases. In essence, the QSF serves as a temporary holding ground for settlement funds (in effect, the funding is held in “tax limbo”), offering an array of unusual and beneficial characteristics that make it a crucial instrument in settlements and judicial award distributions.

TIP: There is no IRS restriction regarding a “Single Claimant” QSF – see Actually, Single-Claimant Settlement Funds Are Valid (Wood, Brown - Tax Notes Federal, February 10, 2020).

At its core, a QSF is a legal entity that meets the qualification requirements of §1.468B-1 et seq. The purpose of a QSF is to receive and disburse settlement funds in cases where one or more claims are being satisfied. The nature of QSFs lends itself to certain characteristics that are not only unusual but also vital in modern legal proceedings.

Temporary Financial Reservoir

One of the most remarkable aspects of QSFs is their role as a temporary financial reservoir. In scenarios where one or more claims conclude with a settlement agreement (or judicial award), defendants deposit the associated sums into the QSF. This core feature is the essential facet of a QSF’s function: it is a short-term container that safeguards the settlement funds until properly allocated to the respective claimant(s). Unlike traditional settlements where claimants receive compensation directly from the defendant, a properly constructed QSF introduces a layer of separation that ensures organized and deliberate distribution(s) while triggering no economic benefit or constructive receipt.

Deferred Taxation Benefits

Perhaps one of the most advantageous features of the QSF is its capacity to defer taxation. When deposited into the QSF, the settlement funds assume a “contingent liability” status, effectively postponing the recognition of income and taxation for the claimant(s). This unique attribute can have substantial financial implications. The claimant(s) can strategize and plan for the tax consequences of their settlements, a luxury not commonly afforded in other settlement frameworks. The deferral of taxation can prove invaluable, especially for a claimant who might otherwise face immediate and potentially burdensome tax liabilities.

Controlled Distribution Mechanism

The QSF introduces a controlled distribution mechanism that minimizes potential accelerated taxation, chaos, and confusion in cases involving several claimants, liens, secondary claims, or the desire to preserve other beneficial tax treatments. Often, in class-action or mass tort litigation, the number of individuals seeking compensation can be substantial, with varying degrees of damages or injuries. The QSF administrator or trustee plays a pivotal role in overseeing the distribution process, ensuring the disbursement of funds per the terms outlined in the settlement agreement. This controlled distribution mechanism safeguards against potential misallocation and promotes equity and transparency in the compensation process.

A Haven for Complex Cases

The realm of complex litigation, which encompasses cases with numerous claimants or intricate legal dynamics, finds a haven in the QSF structure. Its versatility makes it particularly suitable for these complex scenarios. As a QSF allows for a more flexible and accommodating approach, a QSF may be necessary when determining eligibility, appropriate allocation, lien resolution, and resolving other secondary matters that demand meticulous scrutiny and time. Also, the claimant(s) benefits from additional time to exercise due diligence in reviewing and approving the intricacies of the settlement distribution plan.

Varied State Taxation

One must bear in mind that the state tax landscape surrounding QSFs can vary significantly based on jurisdiction. Some states like California apply high state income tax rates on the QSFs “Modified Gross Income,” as defined by 1.468B-2 et seq. Therefore, legal professionals and stakeholders must consider levels of state taxation when selecting the situs of a QSF. Platforms such as QSF 360 utilize low or zero state tax jurisdictions thereby reducing state tax burdens.

Conclusion

In conclusion, a QSF is a unique and valuable tool.  A QSF’s unusual characteristics, ranging from serving as a temporary financial reservoir to deferring taxation, make it a vital tool in legal professionals’ and claimants’ arsenal. The controlled distribution mechanism ensures fairness and transparency, while its adaptability renders it well-suited for the complexities of modern litigation. As legal frameworks and practices evolve, the QSF’s solutions, such as QSF 360, continue to provide the state of the art in settlement administration.

To learn more about Qualified Settlement Funds – click here.

Qualified Settlement Funds (QSFs), or 468B Trusts, are tax-qualified trusts designed to manage the proceeds from litigation settlements and judicial awards. These unique financial tools offer many advantages for plaintiffs, defendants, lawyers, and settlement administrators but also have tax implications. Here, we review the Taxation and Benefits of Qualified Settlement Funds.

What Is a Qualified Settlement Fund?

As per Section 1.468B-1 et seq. of the Internal Revenue Code (IRC), Qualified Settlement Funds operate solely to resolve certain types of litigation, allowing the defendant to deposit funds into a trust and receive a full release of liability. They first arose from class action lawsuits and are now commonly used in various cases, including personal injury actions and other cases involving multiple plaintiffs.

The fund may be a trust, an account, or even a segregated portion of the transferor’s assets. Although a written trust agreement is generally a good practice, an attorney’s trust account could theoretically serve as a QSF. However, particular rules apply to the fund’s establishment and operation.

Key Features of a QSF

1. Easy: With QSF 360, Qualified Settlement Funds are quick, easy, and straightforward to establish and maintain.
2. Tax Benefits: Defendants can get an immediate tax deduction, while Plaintiffs can defer their income.
3. Flexibility: Plaintiffs can plan when and how to be paid.
4. Release of Liability: Defendants receive a full release of liability once they deposit the funds into the QSF.
5. Orderly Administration: § 468B Trusts also offer an orderly way to manage and distribute settlement proceeds.
6. Advantages of Qualified Settlement Funds: a win-win solution for all parties involved in litigation; they provide defendants with a quick exit strategy, plaintiffs with financial control, attorneys with flexible fee structures, and even help settlement administrators by simplifying the process.

Advantages for Defendants

Defendants can benefit from Qualified Settlement Funds in several ways:

• Immediate Release from Litigation: Defendants can extricate themselves from litigation by depositing the agreed settlement amount into the § 468B trust. The plaintiffs can then take their time in allocating the settlement among themselves and dealing with various liens.
• Immediate Tax Deduction: Instead of waiting for “economic performance” to occur, defendants and their insurers can obtain immediate tax deductions.

Advantages for Plaintiffs

Plaintiffs also stand to gain from the use of Qualified Settlement Funds:

1. Control Over Settlement Allocation: With the defendant out of the picture, the plaintiff has greater flexibility in dividing the settlement among injured parties, often leading to more advantageous outcomes.
2. Immediate Income from Settlement: The plaintiff may start immediately receiving income from the settlement once received by the § 468B trust.
3. Time for Negotiations: A § 468B settlement trust gives the plaintiff extra time to negotiate and satisfy liens from Medicare, Medicaid, ERISA, and third-party insurers.
4. Choice of Distribution Methods: The plaintiff can decide how much of the settlement to take as a lump sum and how much to structure.
5. Resolution of Conflicts Among Plaintiffs: If a lawsuit involves multiple plaintiffs with conflicting interests, a Qualified Settlement Fund can provide time to resolve these conflicts.

The low cost of QSF 360 to establish a QSF is typically overwhelmingly outweighed by the added benefits gained through vastly improved financial returns.

Taxation of Qualified Settlement Funds

Since QSFs are separate tax entities, they are required to pay tax on any interest and dividend income. The tax rate is equal to the maximum rate in effect for trusts, which is currently 39.6%. Remember that the tax is a self-financing tax resulting solely from the interest earned on the QSF.

Several other income tax considerations must be taken into account when dealing with QSFs:

• Economic Performance: The defendant receives an immediate tax deduction upon depositing the funds in the § 468B settlement fund.
• Constructive Receipt: The deposit of the funds in the QSF is not “constructive receipt,” as the taxpayer’s (Claimant’s) receipt of income is subject to substantial limitations.
• Economic Benefit: The deposit of the funds in the QSF is not “Economic Benefit,” as the taxpayer’s (Claimant’s) receipt of income is (i) not fixed nor vested, (ii) subject to the claims of other Claimants, and (iii) is subject to the QSF’s creditors.
• Gross Settlement Proceeds: The transfer of settlement proceeds into a QSF does not represent gross income to the § 468B settlement fund, and when the fund pays them, they do not represent a tax deduction to the QSF. The QSF administrator/trustee must determine whether disbursements are subject to withholding requirements (such as backup withholding or, in the case of wage cases - wage-based withholding). Disbursements of attorneys’ fees in the underlying litigation are always reportable as taxable income.

It’s crucial to note that the tax implications of Qualified Settlement Funds can be complex, and working with an experienced QSF administrator, such as Eastern Point Trust Company, can assist you in navigating potential pitfalls.

The Role of the QSF Trustee/Administrator

The Regulations require a 468B Trust to have a “QSF Administrator.” If the fund is a trust, the same person can serve as both Trustee and Administrator, or there can be a separate trustee and a separate Administrator. The Trustee/Administrator is responsible for making distributions from the QSF to claimants, State Medicaid Agencies to satisfy liens, CMS to satisfy Medicare liens, ERISA Plans to satisfy ERISA liens, and any other lien holders that require satisfaction from the settlement fund.

The Trustee/Administrator also assists with the proper funding process of structured settlements, including making a § 130 Qualified Assignment to a third-party assignee who shall make the periodic payments.

The QSF Administrator additionally oversees the QSF’s KYC/AML process.

Taxability of Settlement Funds

The general rule for the taxability of amounts received from the settlement of lawsuits and other legal remedies is within IRC Section 61 and dictates that all income is taxable from whatever source derived unless exempted by another code section. However, the facts and circumstances surrounding each settlement payment are essential to determine the purpose of the underlying settlement or judicial award because not all amounts received from a settlement are exempt from taxes.

Awards and settlements can be divided into generally distinct groups to determine whether the payments are taxable or non-taxable. The most common are claims relating to physical injuries, and the other is for legal claims relating to non-physical injuries but other damages, as shown below, which may apply:

• Actual Damages: resulting from physical or non-physical injury;
• Emotional Distress Damages: arising from the actual physical or non-physical injury;
• Punitive, Statutory, or Penalty Damages: awarded in addition to actual damages in certain circumstances. Punitive, Statutory, or Penalty damages are considered punishment and typically awarded at the court’s discretion.
• Interest on the Judgement Damages: in such events, the interest compensates the plaintiff for the lost time value of money.

Conclusion

In conclusion, Qualified Settlement Funds offer a unique solution for managing and distributing litigation settlement proceeds. QSFs provide significant tax and other benefits for all parties involved but also have complex tax regulations that require careful management. Working with experienced professionals, with no conflicts of interest, when dealing with QSFs is crucial to ensure compliance with all tax and regulatory requirements.

FATCA stands for the Foreign Account Tax Compliance Act. FATCA is an information-sharing agreement, created via a 2010 U.S. federal law, between the United States and more than 100 foreign countries. The goal of FATCA is to identify non-U.S. financial accounts opened or controlled by U.S. citizens or businesses for the purpose of avoiding U.S. taxes—for instance, in tax havens, tax-free countries, or countries with lower corporate tax rates to avoid taxation.

FATCA does not require reporting related to non-U.S. citizens. So, if you are not a U.S. Citizen (or company) and have an account in one or more U.S. financial institutions, FATCA does NOT apply. However, foreign companies controlled by U.S. citizens are subject to FATCA reporting.

FATCA Objective

The objective of FATCA is to identify U.S. persons who may evade U.S. taxes by placing assets in foreign (non-U.S.) accounts -- either directly or indirectly through certain foreign entities such as corporations or trusts.

Who or What Is a U.S. Person for U.S. Tax Purposes?

• A citizen of the U.S., including an individual who was born in the U.S. but resides in another country, who has not renounced U.S. citizenship
  
• A lawful resident of the U.S., including a U.S. green card holder
  
• A person residing in the U.S.
  
• Certain persons who spend a significant number of days in the U.S. each year. (For example, some Canadian "snowbirds" may be considered U.S. persons. However, the Canada-U.S. tax treaty allows them to claim benefits to be treated as Canadian rather than U.S. taxpayers. Similar relief is provided under many other treaties with the U.S.)
  
• U.S. corporations, U.S. estates, and U.S. trusts

FATCA Fundamentals and International Tax Compliance

For foreign (non-U.S.) financial institutions (FFIs) in countries that have not entered into an intergovernmental agreement with the U.S., FATCA requires FFIs to either:

• Enter into agreements with the United States' Internal Revenue Service (IRS) and report information about financial accounts held by U.S. taxpayers -- or held by foreign entities in which U.S. taxpayers hold an ownership interest -- directly to the IRS, or
  
• Face punitive U.S. withholding tax on U.S.-source payments
  

To address privacy and regulatory concerns related to FATCA, many countries negotiated intergovernmental agreements (IGAs) with the U.S. These IGA "partner countries" entered into one of two standard model agreements, and implemented laws to require financial institutions to collect and report information required by FATCA.

FFIs comply with FATCA in one of three ways:

1. In countries with Model 1 IGA, FFIs comply under local legislation and report to their local tax authority; in turn, the local tax authority exchanges information with the IRS
   
2. In countries with a Model 2 IGA, FFIs comply with local legislation to enter into agreements with, and report directly to, the IRS
   
3. In countries without an IGA, FFIs enter into agreements with, and report directly to the IRS. (A 30% withholding tax will be deducted from U.S. source payments received by FFIs in non-IGA countries if they do not enter into agreements with the IRS.)
   

U.S. financial institutions are automatically required to comply with FATCA.

Note: the term U.S. Reportable Account is an account owned by a U.S. individual (person), U.S. entity, or a non-U.S. entity that has U.S. controlling persons -- regardless of the currency of the account itself. FATCA applies to all types of financial accounts, including insurance, investments, trust, assignment, escrow, and other business accounts.

EPTC complies with FATCA regulations in all jurisdictions in which it operates.

What Is the Difference Between a FATCA Model 1 Country and a Model 2 Country?

In general, the countries that are included in FATCA have entered into either a Model 1 or Model 2 agreement. In a Model 1 country, financial data about United States citizens is collected by the partner country's various financial institutions and sent to that country's governmental tax authority. That authority then passes the information on to the IRS, which uses it to ensure the person is paying the amount of tax they legally owe. A total of 94 countries fall under the Model 1 agreement.

In a Model 2 country, the partner government's tax authority is removed from the transfer chain and information is passed directly from the country's financial institutions to the IRS. 14 countries have entered into a Model 2 agreement. Both models also include variants in which the US would reciprocate by providing similar information about any of the partner country's citizens residing in the U.S.

What Countries Are FATCA Model 1 Countries?

Note: Countries marked with ** have a signed agreement or an agreement in substance, but the agreement has not yet entered into force.

What Countries Are FATCA Model 2 Countries?

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Note: Countries marked with ** have a signed agreement or an agreement in substance, but the agreement has not yet entered into force.

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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.

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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."

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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."

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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."

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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.

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‍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.

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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.

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The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.

[7/16/2024] — In a thought-provoking article published in Tax Notes* Lawrence J. Eisenberg, an experienced tax attorney, describes the perplexing issues affecting individual plaintiffs in litigation recoveries and considers how those issues can be addressed, including by using a charitably-based trust-based solution. The article “The Individual Plaintiff Tax Trap — A Conundrum and a Solution” delves into the intricacies of the taxation of litigation recoveries and addresses methods to mitigate the adverse tax consequences some individual plaintiffs face.

Background

Eisenberg’s article highlights the strange and often inconsistent tax treatment of individual plaintiff litigation recoveries under the Internal Revenue Code. Despite the Supreme Court’s 2005 decision in “Commissioner v. Banks”, which held that plaintiffs must report the entire recovery as taxable income—including the portion payable to attorneys—many plaintiffs (and their attorneys and advisors) remain unaware of the potential tax pitfalls when such recoveries do not fall under tax-free categories, e.g., damages for physical injuries.

The Individual Plaintiff Tax Trap

The crux of the issue lies in the deductibility of attorney’s fees. Some recoveries are tax-free, so attorney fee deductibility is not relevant, or allow for an above-the-line deduction of these fees. Other recoveries can result a “double tax”, because in those situations, the attorney fee portion of the recovery is taxable, but the attorney fee itself is not deductible. This leads to significantly diminished net recoveries. Eisenberg’s article includes a detailed example demonstrating how a plaintiff’s net recovery can be less than 10% of the total amount, with the government and attorneys each receiving several times more than the plaintiff!

A Trust-Based Solution

To address this inequity, Eisenberg proposes that a plaintiff affected by the double tax create a Plaintiff Recovery Trust (PRT). A PRT allows plaintiffs to transfer their litigation claims to a specially designed split-interest charitable trust. By doing so, the litigation claim becomes an asset of the trust, and any recovery is received by the trust, which then pays the net recovery to the trust beneficiaries, including the plaintiff. The PRT uses ordinary trust law principles and aims to achieve fairer tax treatment by separating the ownership of the litigation claim from the individual plaintiff.

Key Benefits of the Plaintiff Recovery Trust

- Equitable Tax Treatment: By treating the litigation claim as a trust asset, a Plaintiff Recovery Trust results in the plaintiff not being taxed on the portion of the recovery paid to their attorneys.

- Structured recovery: The PRT trust structure allows for a more organized and potentially tax-efficient distribution of recoveries. (It also permits the use of structured settlements as part of the solution.)

- Charitable Component: The PRT includes a charitable beneficiary, adding a philanthropic dimension to the solution.

Conclusion

Eisenberg’s article is a call to action for tax professionals and litigation attorneys to recognize and address the unfair tax treatment many individual plaintiffs face. The PRT trust-based solution offers a way to alleviate the financial burden imposed by current tax law, so that plaintiffs retain a fair share of their recoveries.

See the full article on the taxation of settlement proceeds.

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Eastern Point Trust Company 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.

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Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.

FOR IMMEDIATE RELEASE

[5/17/2024] — Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements. This comprehensive guide delves into the intricate workings of taxable and non-taxable settlements, offering invaluable insights into compensatory damages, punitive damages, and the tax treatment of various settlement types.

Ms. Rachel McCrocklin, Eastern Point’s Chief Trust Officer, commented, “The guide provides a detailed understanding of the pivotal role of IRS Section 104 and the taxability of various settlement types. Our goal is to equip readers with the knowledge to make informed decisions and minimize potential tax liabilities.”

The guide explores strategic methods to minimize tax obligations on settlements, including leveraging structured settlement annuities, Plaintiff Recovery Trusts, and proper allocation in settlement agreements. It is an essential resource for individuals and businesses navigating the complex landscape of settlement taxation.

Arm yourself with knowledge, make informed decisions, and minimize potential tax liabilities with Eastern Point's newest guide.

For more information on Unveiling the Complex World of Taxable and Tax-Free Settlements, please visit https://www.easternpointtrust.com/articles/unveiling-tax-free-settlements-what-you-need-to-know or contact 855-222-7513.

CTRO

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A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.

FOR IMMEDIATE RELEASE

[5/2/2024] — A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.

It reviews the advantages of choosing a trust company over a traditional bank account for escrow services, emphasizing active independent oversight that enhances transaction security and integrity.

Ned Armand, CEO, noted, “The guide also highlights the critical role of an escrow agent in managing funds prudently, ensuring a smooth progression of transactions under the regulatory frameworks.” Offerors of private equity and Reg D, Reg A, Reg A+, Reg CF, and Reg S offerings are encouraged to explore this guide, available on Eastern Point Trust Company.

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In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.

FOR IMMEDIATE RELEASE

[2/27/2024] — In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.

The Qualified Settlement Fund stands as a testament to expediency, with the capability to be established and funded within a mere business day, a stark contrast to the lengthy processes associated with ERTs. By swiftly assuming environmental liabilities from present and future claims under CERCLA, state, and local law, QSF ensures immediate action and resolution.

One of the most compelling aspects of QSF is its affordability, with establishment costs as low as $500. This cost-effectiveness, coupled with the tax advantages it provides over ERTs, makes QSF an attractive proposition for businesses seeking prudent financial solutions.

Flexibility is another hallmark of QSF, allowing for single-year or multi-year funding without any maximum duration constraints, ensuring adaptability to diverse business needs. Furthermore, the ability to hold real estate expands the horizons of asset management within the fund.

The benefits extend to tax optimization, with QSF accelerating the transferor's tax deduction for funds transferred to the current tax year, thereby enhancing financial planning and efficiency. Moreover, by shifting liability and associated funding transfers irrevocably to the QSF, businesses can streamline their balance sheets, mitigating risks and enhancing transparency.

In addition to these financial advantages, QSF facilitates seamless settlement agreements to capitate and resolve environmental liabilities, assuring regulators and interested parties of the irrevocable availability of funds for amelioration.

The transition to QSF not only eliminates future administrative burdens but also entrusts the fund's administration to a dedicated trustee, relieving businesses of operational complexities and enhancing focus on core activities.

In conclusion, the Qualified Settlement Fund stands as a beacon of innovation in environmental liability management, offering unmatched advantages over traditional Environmental Remediation Trusts. Its expediency, affordability, flexibility, and tax optimization capabilities redefine the landscape, empowering businesses to navigate environmental challenges with confidence and efficiency.

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Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation

FOR IMMEDIATE RELEASE

[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.

Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.

Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”

About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.

Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.

About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.

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Eastern Point Trust provides services across the U.S. and internationally.

FOR IMMEDIATE RELEASE

[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.

Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”

Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”

Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners

About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.

With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.

About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust

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Qualified Settlement Funds (QSFs), 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.