Discover the strong privacy protections and effective shields offered by Qualified Settlement Funds (QSFs) against discovery demands. Learn about QSF 360 platform's innovative privacy and protection features.
§ 468B Qualified Settlement Funds (QSFs) are tax-qualified legal entities that are useful to settle single-event, mass torts, and class action lawsuits and allow the consolidation of multiple “related” claims into a single fund for which the establishment and operation are governed by 26 C.F.R. § 1.468B-1, et seq.
Ensuring the privacy and security of a Qualified Settlement Fund and its information is crucial. In the case of pre-funded settlement funds, safeguarding sensitive information to prevent unauthorized or adverse party access protects the defendant’s privacy and the integrity of the funds. The privacy provisions of a QSF and its existence as a separate legal entity can hinder adverse parties from inflating their claims based on knowledge of the settlement fund’s available assets.
Further, a properly designed and drafted confidential settlement fund can provide valuable “discovery limitations.” Maximizing these advantages requires an experienced and steadfast trustee who will vigorously assert the associated privacy and limitation powers to suppress undesirable litigation discovery.
In today's cancel culture, unethical competitors, and law-fare world, defendants (accused) have justifiable apprehension regarding the question of privacy or discoverability of the details by adverse parties. In particular, when a defendant(s) utilizes a QSF to address multiple current or future claims, there can be concerns (albeit largely unfounded) regarding whether others may acquire information related to the defendant’s identity or regarding the existence of the fund and its level of funding by searching a public source or by discovery through discovery.
Unlike other entities, bank accounts, or trusts whose information is readily available through searchable databases or ordinary discovery, Eastern Point’s QSF Confidential platform, has no such public sources or databases. Accordingly, no government database searches are even possible. As such, adverse parties have no likely chance of discovering a Qualified Settlement Fund’s existence or the identity of a defendant associated with it.
Pro Tip: Even if the existence of the settlement fund becomes known, a properly drafted confidential QSF gives the trustee many practical and effective tools to quash discovery inquiries.
Pro Tip: Having a trustee who is a vigorous advocate in defending the privacy of the parties and the trust is a critical element.
Pro Tip: A trustee who maintains a robust and comprehensive privacy policy that applies to any third parties making a claim upon the trust assets or serving a demand for discovery is indispensable in protecting the QSF’s privacy. Non-trustee administrators may have no enforceable privacy policy protections for the QSFs they administer as non-trustees.
With QSF Confidential - privacy is maintained by ensuring the fund’s existence and claimants’ identities remain sealed and confidential. This confidentiality is crucial in sensitive legal matters, protecting the individuals involved from unwanted exposure. To safeguard the anonymity of the parties and the financial condition of the § 468B trust, the trustee plays a vital defensive role in protecting information from prying adverse parties. The trustee may employ various tactics by challenging all requests, imposing legal barriers, decanting, applying jurisdiction selection requirements, and utilizing the courts to avoid subpoenas or quash demands for information.
As mentioned, in a properly drafted confidential settlement, the trustee will have the necessary power to employ decanting, situs-shifting, and other trustee-power tactics to protect the parties’ privacy and defeat discovery fishing expeditions.
QSF Confidential transactions and internal records are private and not part of public records. Additionally, the associated tax reporting does not disclose the identity of the defendant (accused) moreover, the IRS is prohibited from disclosing tax returns based on a civil subpoena. This integrated approach prevents access to private information related to the parties or the trust’s assets and activities. Here again, we see that privacy provisions in an adequately designed trust, such as with QSF Confidential, can protect the privacy of all associated documents and information.
Pro Tip: Courts are highly reluctant to allow third parties (with no standing) to breach all parties' privacy solely for a fishing expedition.
468B settlement funds offer strong privacy protections and can shield against discovery and other inquiry demands. The QSF Confidential platform (powered by the QSF 360) provides the first-of-its-kind confidential, innovative, and robust privacy and protections from the discovery of identities, accusations, and terms.
Explore the 10 critical elements of Qualified Settlement Fund administration. From QSF establishment to termination, the complexities and best practices.
Embarking on the journey of Qualified Settlement Fund Administration can be challenging, but it’s also an opportunity to improve the settlement outcomes. By grasping these ten (10) essential elements, you’ll confidently navigate administering your Qualified Settlement Fund trust, whether you’re an experienced professional or just starting.
What is a Qualified Settlement Fund (QSF)? It is a tax-advantaged statutory “purpose trust” established by the approving governmental authority, pursuant to 26 CFR § 1.468B-1 et seq., to receive and distribute settlement or judicial award proceeds. It allows defendants to claim tax deductions immediately upon funding while providing time for plaintiffs to resolve allocation and financial planning issues. § 468B trusts are commonly used in mass tort, class action, environmental cleanup settlements, and single-event cases.
At the center of a settlement fund account lies an array of legal and tax requirements to ensure the qualified settlement account’s integrity and protect the tax benefits for all parties involved.
Pro Tip: The documents should clearly state which party is classified as the "administrator" within the meaning of Treasury Regulation Section 1.468B2(k)(3) Partner.
Pro Tip: With a trusted and licensed Qualified Settlement Fund Administrator, like Eastern Point Trust Company, they can ensure compliance with all related administration and tax requirements, provide expert guidance, and offer a range of cost-effective services to simplify and streamline the management of your QSF.
Compliance in Qualified Settlement Fund administration isn’t just about following rules—it’s about leveraging experience to fulfill the fund’s purpose and settlement terms, ensuring a secure and confident journey for all involved.
Action Step: Schedule a Compliance Check-Up with a “QSF administration” expert to ensure your fund meets all regulatory requirements.
The heart of a Qualified Settlement Fund’s purpose lies in (i) the tax benefit it provides to all parties and (ii) its ability to disburse funds to claimants promptly and efficiently. A well-managed and proven disbursement process can distinguish between a smooth settlement and a logistical nightmare.
Remember: A trustworthy Qualified Settlement Fund administrator can streamline your disbursement process, ensuring accuracy and timeliness.
Understanding the qualified settlement fund tax treatment is crucial for special masters, attorneys, and claimants. Proper tax management can significantly impact the fund’s overall value and the benefits received by claimants.
Did You Know? Expert settlement administrators can help optimize your fund’s tax strategy, potentially increasing the long-term value of distribution.
Effective settlement administration involves eliminating the conflicts of interest that arise from product placement by the QSF administrator.
Practical Tip: Implement a system of internal audits to ensure ongoing compliance throughout the life of the trust.
Legal Update: Recent case law has emphasized the importance of proactive measures in locating claimants before considering alternative distributions.
Best Practice: Regular stakeholder meetings can help ensure alignment and address potential issues proactively.
Regulatory Note: Under IRC Section 468B, QSFs must maintain sufficient records to support items reported on tax returns.
Legal Consideration: The termination process must comply with Treas. Reg. § 1.468B-2(k) outlines specific requirements for termination.
In conclusion, administering a Qualified Settlement Fund requires a comprehensive understanding of several critical elements, along with ongoing attention to legal updates and best practices. By mastering these aspects, legal professionals and administrators can ensure the smooth functioning of QSFs, ultimately serving the best interests of all parties involved.
While mastering these ten aspects of QSF administration may seem overwhelming, you don't have to navigate this process alone. Professional trustees and financial institutions specializing in QSF account management can provide the expertise and support you need to navigate these complex waters successfully.
Contact a QSF 360 specialist today to learn how their experience can significantly impact administering your Qualified Settlement Fund.
Discover Qualified Settlement Funds (QSFs) taxation rules, including Form 1120-SF filing, tax accounting, and key definitions.
Qualified Settlement Funds (QSFs) have increasingly become pivotal in resolving lawsuits, particularly for personal injury, wrongful death, and property damage claims. QSFs provide a tax-efficient vehicle for the settlement of claims, facilitating smoother and more efficient resolutions. However, the taxation rules surrounding 26 USC § 468B settlement funds are complex, and understanding them is vital for practical usage. This guide sheds light on the pertinent aspects of taxation and the associated reporting and underscores the importance of seeking professional advice for complex issues. Failure to adhere to these reporting requirements can lead to penalties and legal consequences. This reassurance of support from experts in the field can be a valuable resource in your professional role.
26 C.F.R § 1.468B-1 Qualified Settlement Funds have emerged as an essential instrument for resolving various types of claims in legal settlements. Established under § 1.468B-1 et seq. of the Internal Revenue Code, settlement funds manage the proceeds from a legal settlement (or judicial award) and offer substantial benefits to both plaintiffs and defendants. These benefits include tax deferral opportunities and the ability to structure payments over time, empowering the parties with more control over their financial arrangements and providing a sense of reassurance.
Except as provided for in § 1.468B-5(b), a QSF is considered a corporation for tax treatment purposes. Understanding this tax treatment is crucial as it will equip you with the knowledge to navigate the associated taxation.
A QSF is taxed on its “modified gross income.” The term modified gross income generally comprises only the investment income generated. Moreover, settlement payment amounts transferred to a QSF to resolve or satisfy a liability for which the fund is established are excluded from the trust's modified gross income.
A deduction against modified gross income is allowed for QSF administration and other incidental costs and expenses incurred in administering the QSF. Deductible expenses may include administrative costs, such as accounting, legal, and other ministerial expenses, as well as state and local taxes. Also, the costs associated with the determination and notification of claimants and claims administration are deductible.
Note: Administrative costs and other miscellaneous expenses do not include legal fees incurred by or on behalf of claimants and are thus not deductible.
IRS Form 1120-SF is a crucial component in the taxation process of a § 468B trust. It reports the transfers, income generated, deductions claimed, and distributions made. More importantly, it calculates and reports the associated income tax liability. Understanding and confidently navigating the process of filing Form 1120-SF is essential in the QSF taxation process.
The QSF administrator plays a key role in filing the tax return. They are responsible for preparing and filing the income tax return Form 1120-SF by the 15th day of the 4th month following the end of the fund's tax year. The administrator's responsibilities include ensuring all necessary forms and schedules are included, making timely tax deposits, and arranging for the fund's tax professional, financial institution, payroll service, or other trusted third party to make the deposits. It's important to note that there are exceptions for funds with a fiscal tax year ending on June 30 and those with a short tax year ending in June, in which case the filing deadline is earlier.
Private Delivery Services (PDSs) can meet the “timely mailing as timely filing/paying” rule for tax returns and payments. However, it’s essential to note that PDSs cannot deliver items to P.O. boxes, necessitating the use of the U.S. Postal Service for such deliveries.
The return must be signed and dated by the fund’s trustee or administrator. If an employee completes Form 1120-SF, the paid preparer’s space should remain empty. Anyone who prepares the form but doesn’t charge for the filing should not complete that section.
Note: A paid preparer may sign original or amended returns using a rubber stamp, mechanical device, or computer software.
The preparer must complete the required preparer information, sign the return in the designated space, and provide a copy of the return to the trustee or administrator.
If a fund trustee wishes to permit the IRS to discuss its tax return with the paid preparer, it can check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the “Paid Preparer Use Only” section of the tax return and does not apply to the firm.
The authorization allows the IRS to contact the paid preparer to answer any questions that may arise during the processing of the return, provide any missing information from the return, get information about the processing status of the return, and respond to IRS notices about errors, offsets, and return preparation.
This authorization, however, does not allow the paid preparer to receive any refund check, bind the trust to anything, or otherwise represent the fund before the IRS. The authorization automatically ends on the due date (excluding extensions) for filing the QSF’s tax return.
To ensure correct processing, include all schedules alphabetically and other forms in numerical order after Form 1120-SF. If the return requires more space for forms or schedules, separate sheets are allowable if the pages are the same size and format as the printed forms.
The Form 1120-SF return should be filed at the applicable IRS address, which (as of this writing) is as follows:
Department of the Treasury
InternalRevenue Service Center
Ogden, UT 84201-0012
The taxes are due and payable in full by the 15th day of the 4th month after the end of the tax year.
QSFs must use electronic funds transfers to make all federal tax deposits. These transfers are payable using the Electronic Federal Tax Payment System (EFTPS). However, the settlement fund can also arrange for a tax professional, financial institution, payroll service, or other trusted third party to make the deposits.
Generally, a QSF must make installments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more. The installments are due by the 15th day of the tax year’s 4th, 6th, 9th, and 12th months.
Note: If the fund overpaid estimated tax, it may file Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax.
Interest accrues on taxes paid late, even if there is an extension of time to file. Penalties can also be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud.
A Qualified Settlement Fund must use the accrual method of accounting. The accrual method records income and expenses when earned or incurred, regardless of when payment is received or made.
Keeping accurate and detailed tax and accounting records is essential. These records support income, deductions, or credits on the return.
In the context of § 1.468B-1, specific terms are of particular importance:
Understanding the taxation of Qualified Settlement Funds established under 26 C.F.R § 1.468B-1 et seq., s can be complex.
However, platforms such as QSF 360, provided by Eastern Point Trust Company, offer the only online and turnkey service that includes all of the critical aspects of tax reporting, such as Form 1120-SF, filing requirements, and tax payments. As always, seeking professional advice when dealing with complex matters is advisable.
An in-depth exploration of the common myths and realities surrounding Qualified Settlement Funds (QSFs) and their administration. Dispel misconceptions and highlight the benefits for all parties involved in litigation.
Qualified Settlement Funds (QSFs) are qualified tax entities established under the legal framework of 26 U.S.C. § 468B, regulated under 26 C.F.R. § 1.468B-1, and operate as statutory trusts. These Section 468B trusts are settlement funds created upon the approval of a “government authority.” The Qualified Settlement Fund Administrator and associated Administration are critical to a successful implementation, which streamlines the settlement process for efficient distribution to the involved parties. This consolidation simplifies the fund’s administration and introduces tax benefits designed to empower the plaintiffs financially.
This article will explore the common myths regarding Qualified Settlement Funds and Qualified Settlement Fund Administration.
One common misconception about Qualified Settlement Funds is that they are exclusively utilized for mass tort and class action settlements. However, the versatility and application of settlement accounts extend far beyond these areas.
Broad Application: They are designed to resolve and satisfy claims, including those made before the fund is established and funded. This broad application makes them suitable for most torts, breach of contract, and environmental liability cases.
Diverse Case Types: The use of settlement funds spans many cases. They are not only applicable in scenarios with large numbers of plaintiffs, such as product-liability cases, drug cases, and sexual abuse cases, but also in single claimant cases.
Ethics and Compliance: Particularly in cases with multiple plaintiffs, settlement trusts play a crucial role in ensuring compliance with ethics rules.
Uncooperative Defendants: They support structured settlement solutions even when a defendant or insurer is unwilling to enter directly. Moreover, they can effectively pay adverse parties with and without liens and address lien resolutions.
The myth that only plaintiffs benefit overlooks the multiple advantages these funds offer to all parties involved in litigation. The following outlines the benefits for both plaintiffs and defendants, showcasing the unique utility of QSFs:
Deferred Taxation: Plaintiffs benefit from deferring taxes on their settlement amounts until the funds are distributed, providing significant financial planning flexibility.
Flexibility: Plaintiffs gain financial planning and tax benefits by avoiding immediate access to income from the settlement and having ample time for negotiations to address liens and choose distribution methods.
Conflict Resolution: They facilitate the resolution of disputes among multiple plaintiffs and their attorneys, contributing to a more efficient and equitable settlement process.
Settlement Planning: Plaintiff attorneys can secure the settlement proceeds in a § 468B account, providing a safe space to work out a comprehensive settlement plan, address liens, and engage in probate proceedings without the pressure of immediate distribution.
Immediate Tax Deductions: Defendants can immediately claim tax deductions for their contributions to a § 468B trust, even if the funds have not yet been distributed among the plaintiffs. This benefit to the defendant is particularly significant because it allows for deductions when the settlement is paid into the fund rather than upon distribution to each plaintiff.
Litigation Closure: By transferring into a § 468B settlement trust, defendants can remove themselves from the ongoing settlement administration process, often receiving a permanent release upon their contribution. Thus, settlement funds simplify the settlement process and provide financial and legal closure.
Streamlined Process: Forming a qualified settlement account can bridge difficulties when plaintiffs and defendants cannot agree on tax language or reporting, ensuring that all tax, legal fee, and payout issues are managed strictly between plaintiffs and their lawyers outside the influence of defendants.
Contrary to the prevalent belief that establishing a Qualified Settlement Fund is costly, platforms like QSF 360 offer creation for a setup fee of only $500. This affordable process and the transparent costs associated with setting up and maintaining a QSF provide reassurance about the administration and financial aspects.
The myth surrounding the overwhelming complexity of Qualified Settlement Fund administration can deter parties from considering this efficient settlement solution. However, understanding the structured roles and responsibilities can demystify the process:
Dispelling the myth that Qualified Settlement Funds offer limited tax advantages requires an in-depth exploration of the taxation benefits they present for defendants and plaintiffs. Here is a concise breakdown:
Immediate Tax Deduction for Defendants: Upon transferring into a QSF, defendants are eligible for an immediate tax deduction, even if the funds have yet to be distributed to the plaintiffs. The upfront deduction can significantly reduce the defendant’s taxable income in the fiscal year of the contribution.
Income Deferral for Plaintiffs: Plaintiffs can defer taxation on their settlement amounts until distribution. The benefit of deferral can offer substantial financial planning advantages, allowing plaintiffs to potentially lower their tax obligations by receiving funds in years when they may be in a lower bracket.
Structured Settlements and Legal Fees: Both structured settlements and structured legal fees are available post-defendant involvement, providing plaintiffs and their attorneys the flexibility to plan for future financial needs. Notably, structures, including the attorney fees portion of the claimant proceeds, can circumvent constructive receipt and economic benefit doctrines, taxing plaintiffs and their attorneys only upon receiving each payment.
Separate Tax Entity Status: As a separate tax entity, they are subject to taxation on interest, capital gains, and dividend income at the applicable maximum corporate income tax rate. However, the fund benefits from deductions for administrative costs, incidental expenses, and losses sustained in property transactions.
Accrual Accounting and Corporate Treatment: QSFs must employ an accrual method of accounting and are treated as corporations for subtitle F of the Internal Revenue Code. This corporate treatment simplifies tax reporting and compliance, ensuring that the tax imposed on the fund’s modified gross income is treated consistently with corporate tax obligations.
No Explicit Time Limit: The absence of a strict time limit for the existence provides flexibility in managing complex cases that may span several years. This enduring nature ensures that all controversies can be resolved without rushing the process, benefiting all parties involved.
The myths surrounding the Qualified Settlement Fund and its administration are unfounded. However, the QSF Administrator is critical to ensure a seamless operation.
Particularly noteworthy is the capacity of settlement funds to extend beyond limited use scenarios, provide benefits to plaintiffs and defendants, and offer significant tax advantages that can profoundly impact financial planning and legal strategy.
In navigating the complexities and ensuring optimal outcomes within the § 468B framework, engaging a skilled and experienced QSF Administrator is vital. Only a licensed fiduciary for settlement fund administration can ensure compliance, maximize tax benefits, and streamline the settlement process for all parties involved. This professional insight and management are pivotal in harnessing the full tax potential, transforming them from a misunderstood financial instrument into a robust dispute resolution and settlement planning solution.
Learn how QSF Administrators streamline settlements, manage tax benefits, and ensure compliance with IRS regulations for efficient fund administration.
Establishing a Section 468B Qualified Settlement Fund (QSF) is not just a move but a strategic maneuver that benefits both defendants and claimants. It allows defendants to swiftly resolve claims and claim tax benefits, bypassing the usual delay in settlement payments. For claimants, it opens up avenues for settlement planning and independent identification of tax deferral opportunities. This adaptability and the tax-deferred handling of settlement funds serve both parties' interests, underscoring the importance of understanding how these funds operate.
The effective management of these tax tools, such as a QSF, hinges on the expertise of the fund administrator. This role is pivotal for maintaining the integrity and efficiency of the fund. The administrator's duties, which include fund recordkeeping and settlement administration tasks and oversight, are crucial for ensuring compliance with the requirements outlined in section 1.468B 1 of the Internal Revenue Code. This underscores the importance of the administrator's role and expertise with these types of funds.
Moreover, the expertise in settlement strategies that a proficient and knowledgeable fund administrator brings is not just essential, it's a cornerstone of confidence. Their integral role in ensuring the proper functioning of the fund, coupled with their skills and guidance, instills confidence in their abilities and provides a timely settlement process for all parties involved.
Qualified Settlement Funds, or 468B trusts, are tax entities governed by a detailed legal structure crucial for resolving disputes and claims more economically. These trusts are established through a process outlined in 26 CFR § 1.468B 1(c) involving approval from a body, adherence to specific laws, and obtaining a federal tax ID number.
When dealing with a settlement fund, it's crucial to rely on the expertise of a settlement fund administrator (QSF Administrator). These professionals specialize in managing the processes and requirements linked to settlement funds. Engaging their services can benefit individuals and organizations involved in settlement agreements.
One key reason for engaging an administrator is their knowledge and experience overseeing settlement funds. They are well acquainted with the rules and regulations governing funds, ensuring adherence to all tax obligations. Their expertise enables them to navigate the complexities of the settlement process, including distributing funds to plaintiffs and resolving any disputes. Accuracy and compliance will be accomplished by entrusting your settlement fund to an administrator.
Another benefit of utilizing an administrator is the ability to streamline the administration process. The process includes establishing the fund, supervising the fund holdings, and disbursing funds to plaintiffs. A proficient administrator can efficiently handle these responsibilities, thus saving time and effort and relieving you of administrative burdens.
The administrator has the tools and systems to effectively handle funds, ensure operations, and reduce delays or mistakes. With their help, you can focus on other tasks while being reassured that the Qualified Settlement Fund is administered efficiently, providing security and peace of mind.
Moreover, the administrator can offer guidance, assistance, and support throughout the structured settlement process, and their expertise can improve tax and financial outcomes for everyone involved. Additionally, they can advise on tax implications to assist you in making informed decisions about the settlement fund.
Additionally, the fund administrator oversees the fund’s tax filings and payments, ensuring strict compliance with Section 468B. Adherence to this regulation is paramount for ensuring operations conform to the applicable tax laws.
Settlement funds also facilitate claims resolution by providing transparency and tax-deferred benefits to all involved parties. Thus, the administrator plays a crucial role in the settlement administration process, ensuring compliance, financial oversight, and the equitable distribution of funds.
A fund administrator carries out various tasks when administering a settlement fund. These professional administrators are integral to the settlement process by fulfilling tax, financial, and administrative duties with transparency and thoroughness. Key elements include:
The administrator relieves law firms of IOLTA responsibilities, facilitates tax-preferred choices, and ensures prompt and equitable payouts to claimants. This alleviates the administrative burden on law firms, providing reassurance and reducing stress. Selecting the proper administrator involves weighing several factors to ensure proficient and compliant settlement funds. It is essential to consider the expertise and capacity of an administrator.
There are key advantages to having a licensed fiduciary as the administrator. A licensed fiduciary brings knowledge and experience, safeguarding compliance with all regulations and guidelines. Additionally, leveraging a fiduciary with an online portal can simplify tasks, ensuring secure and efficient fund administration and distributions. Furthermore, having a licensed fiduciary in charge instills confidence in stakeholders regarding the fund's assets, adherence, duties, and the protection of sensitive information.
On the other hand, entrusting settlement funds to an unlicensed administrator can pose real risks.
Without licensing and oversight, there is an increased risk of mishandling funds, not following regulations, and failing to protect information. Recent incidents involving trust administrators losing over $100 million in client funds are a stark reminder of the risks associated with unlicensed providers. This information is crucial for the audience to be cautious and aware.
Unlicensed providers often lack the expertise, controls, oversight, safeguards, and resources to accomplish complex administrative tasks effectively. These deficiencies can lead to delays, mistakes, and potential legal problems. Opting for an unlicensed administrator instead of a licensed fiduciary can expose the settlement and its stakeholders to unnecessary risks.
When selecting an administrator, consider their experience and expertise. Look for professionals with a proven administration track record tailored to your settlement needs. Ensure they understand the related tax regulations and are proficient in managing the requirements outlined in the U.S. Tax Code. Key considerations include:
We have highlighted the significance of having an administrator manage Qualified Settlement Fund administration tasks. With the best platforms, the administrator is responsible for creating the QSF, ensuring compliance with regulations, and overseeing the accurate distribution of funds. Their expertise is vital in maintaining settlement rights and ensuring tax compliance. Additionally, administrators work to preserve the fund's tax status, streamline settlement procedures, and expedite resolutions.
In conclusion, appointing a qualified administrator is essential, as they play a crucial role in ensuring a cost-effective, efficient, and compliant administration process.
Learn how a turnkey QSF platform like QSF 360 can provide an end-to-end QSF administration solution.
What is the purpose of utilizing a Qualified Settlement Fund? It administers the settlement and assists in resolving secondary disputes and liens. The QSF, a cornerstone in tax and financial planning, is managed by an independent third-party administrator, ensuring impartiality and fairness.
What are the key advantages of using a Qualified Settlement Fund? Employing a settlement fund offers several benefits, including providing swift resolution for defendants, enhanced financial safeguards, tax deferral benefits, and flexible structure options for attorney fees and claimants.
Can you explain what a Qualified Settlement Fund is? A Section 468B Qualified Settlement Fund is a statutory tax and purpose trust enabling plaintiffs to benefit from tax deferral options. Regardless of size, QSFs are beneficial in most lawsuits.
How are Qualified Settlement Funds taxed? The taxation is governed by Section 468B and its associated regulations. Each fund is assigned its own Employer Identification Number (EIN) by the IRS, and its tax treatment is based on its modified gross income, which excludes the initial deposit of funds, with taxes levied at a maximum rate of 35% only on its investment income (interest). In the world of disputes, Qualified Settlement Funds have emerged as a vital tool for handling litigation and simplifying the process of resolving claims.
Qualified Settlement Funds (QSFs) help manage settlement proceeds with tax advantages and protection for all parties. Learn how a QSF can benefit your case.
Qualified Settlement Funds (QSFs), or 468B Trusts, are tax-qualified trusts designed to manage the proceeds from litigation settlements and judicial awards. These unique financial tools offer many advantages for plaintiffs, defendants, lawyers, and settlement administrators but also have tax implications. Here, we review the Taxation and Benefits of Qualified Settlement Funds.
As per Section 1.468B-1 et seq. of the Internal Revenue Code (IRC), Qualified Settlement Funds operate solely to resolve certain types of litigation, allowing the defendant to deposit funds into a trust and receive a full release of liability. They first arose from class action lawsuits and are now commonly used in various cases, including personal injury actions and other cases involving multiple plaintiffs.
The fund may be a trust, an account, or even a segregated portion of the transferor’s assets. Although a written trust agreement is generally a good practice, an attorney’s trust account could theoretically serve as a QSF. However, particular rules apply to the fund’s establishment and operation.
Defendants can benefit from Qualified Settlement Funds in several ways:
Plaintiffs also stand to gain from the use of Qualified Settlement Funds:
The low cost of QSF 360 to establish a QSF is typically overwhelmingly outweighed by the added benefits gained through vastly improved financial returns.
Since QSFs are separate tax entities, they are required to pay tax on any interest and dividend income. The tax rate is equal to the maximum rate in effect for trusts, which is currently 39.6%. Remember that the tax is a self-financing tax resulting solely from the interest earned on the QSF.
Several other income tax considerations must be taken into account when dealing with QSFs:
It’s crucial to note that the tax implications of Qualified Settlement Funds can be complex, and working with an experienced QSF administrator, such as Eastern Point Trust Company, can assist you in navigating potential pitfalls.
The Regulations require a 468B Trust to have a “QSF Administrator.” If the fund is a trust, the same person can serve as both Trustee and Administrator, or there can be a separate trustee and a separate Administrator. The Trustee/Administrator is responsible for making distributions from the QSF to claimants, State Medicaid Agencies to satisfy liens, CMS to satisfy Medicare liens, ERISA Plans to satisfy ERISA liens, and any other lien holders that require satisfaction from the settlement fund.
The Trustee/Administrator also assists with the proper funding process of structured settlements, including making a § 130 Qualified Assignment to a third-party assignee who shall make the periodic payments.
The QSF Administrator additionally oversees the QSF’s KYC/AML process.
The general rule for the taxability of amounts received from the settlement of lawsuits and other legal remedies is within IRC Section 61 and dictates that all income is taxable from whatever source derived unless exempted by another code section. However, the facts and circumstances surrounding each settlement payment are essential to determine the purpose of the underlying settlement or judicial award because not all amounts received from a settlement are exempt from taxes.
Awards and settlements can be divided into generally distinct groups to determine whether the payments are taxable or non-taxable. The most common are claims relating to physical injuries, and the other is for legal claims relating to non-physical injuries but other damages, as shown below, which may apply:
In conclusion, Qualified Settlement Funds offer a unique solution for managing and distributing litigation settlement proceeds. QSFs provide significant tax and other benefits for all parties involved but also have complex tax regulations that require careful management. Working with experienced professionals, with no conflicts of interest, when dealing with QSFs is crucial to ensure compliance with all tax and regulatory requirements.
In this detailed guide, learn about the federal tax implications of settlements and judgments, including proper tax treatment, the burden of proof, deduction disallowances, and the importance of considering tax implications.
In the ordinary course of business, it is not uncommon for individuals and organizations to find themselves involved in litigation or arbitration. As a result, settlements and judgments can occur, which may have significant tax implications. However, these implications are often overlooked or misunderstood. Understanding the federal tax treatment of settlements and judgments is crucial for both the payer and the recipient and how to minimize settlement taxation.
The proper tax treatment of a settlement or judgment largely depends on the origin of the claim. Courts often consider the question "In lieu of what were the damages awarded?" to determine the appropriate payment characterization. This characterization determines whether the payment is taxable or nontaxable and, if taxable, whether ordinary income or capital gain treatment is appropriate.
For recipients of settlement amounts, damages received as a result of a settlement or judgment are generally taxable. However, certain damages may be excludable from income, such as payments for personal physical injuries, amounts previously not taxed, cost reimbursements, recovery of capital, or purchase price adjustments. The tax treatment may also vary depending on whether the damages relate to a claim for lost profits or damage to a capital asset.
On the other hand, for the payer, the tax treatment depends on whether the payment is deductible or nondeductible, currently deductible, or required to be capitalized. Payments arising from personal transactions may be considered nondeductible personal expenses. In contrast, costs arising from business activities may be deductible under specific provisions of the Internal Revenue Code. It is important to note that certain payments may be nondeductible or should be capitalized.
Taxpayers bear the burden of proof for the tax treatment and characterization of a litigation payment. The language found in the underlying litigation documents, such as pleadings or a judgment or settlement agreement, is often crucial in determining the tax treatment. Supporting evidence includes legal filings, settlement agreement terms, correspondence between the parties, internal memos, press releases, annual reports, and news publications.
Pro Tip: While various pieces of evidence can be persuasive, the Internal Revenue Service (IRS) generally views the initial complaint as the most persuasive. As such, attorneys must be cognizant of the tax implications of claims made in the initial filings.
When a settlement or judgment encompasses multiple claims or involves multiple plaintiffs, liens, or defendants, allocating damages becomes essential. Factors such as who made and received the payment, who was economically harmed or benefited, against whom the allegations were asserted, who controlled the litigation, and whether costs/revenue were contractually required to be shared are critically important. Also, joint and several liabilities are necessary considerations when determining the allocation.
Settlement agreements or judgments may provide for a specific allocation. The IRS generally accepts these ordered allocations. However, the IRS may challenge the allocation if the facts and circumstances indicate that the taxpayer has another purpose for the allocation, such as tax avoidance. Taxpayers, not the IRS, have the burden of proof when defending the allocation in proceedings with the IRS.
Certain deduction disallowances apply to payments and liabilities resulting from a judgment or settlement. The Tax Cuts and Jobs Act (TCJA) introduced changes to the Internal Revenue Code that disallow deductions for certain payments.
Under Section 162(f), as amended by the TCJA, deductions are disallowed for amounts paid or incurred in relation to a violation of law or an investigation or inquiry into a potential violation of law. However, there are exceptions for restitution, remediation, or compliance with the law, taxes due, and amounts paid under court orders when no government or governmental entity is a party to the suit. Recent regulations further clarify the disallowance, specifying that routine audits or inspections unrelated to possible wrongdoing are not subject to the disallowance.
Another deduction disallowance introduced by the TCJA is in Section 162(q). This provision disallows deductions for settlements or payments related to sexual harassment or abuse subject to a nondisclosure agreement. However, it is essential to note that the disallowance does not apply to the attorneys' fees incurred by the victim.
Additional deduction disallowances include those under Section 162(c) for illegal bribes and kickbacks and Section 162(g) for treble damages related to antitrust violations.
Established under § 1.468B-1 et seq., a Qualified Settlement Fund (QSF) offers a wide variety of tax and financial planning benefits and flexibility that would not otherwise be available to a plaintiff if the settlement or judgment is paid directly to the plaintiff or their attorney.
Pro Tip: Learn more about QSFs.
Plaintiffs often keep less than half of what they should. A Plaintiff pays tax on the settlement award they receive and also pays tax on the portion of the winnings paid to their lawyer - who then again pays tax on the same money. The Plaintiff Recovery Trust avoids the Double Tax, often increasing net recoveries by 50%-150%.
See how to solve the double taxation problem and pay less taxes with the Plaintiff Recovery Trust.
Pro Tip: Learn more regarding the taxation of punitive damages.
Taxpayers must consider the tax implications when negotiating settlement agreements or reviewing proposed court orders or judgments. Failure to do so may result in adverse and avoidable tax consequences or loss of tax management opportunities. By understanding the origin of the claim, properly allocating damages, and considering deduction disallowances, taxpayers can navigate the complexities of taxation in settlements and judgments.
The taxation of settlements and judgments is a complex area that requires careful consideration. The origin of the claim, the allocation of damages, and the deduction disallowances all play a significant role in determining tax treatment. Taxpayers must diligently understand the implications and seek professional advice when necessary. By doing so, taxpayers and their advisors can ensure compliance with tax laws and minimize potential tax liabilities.
Learn about the tax implications of punitive damages in personal injury settlements. Understand the complexities, IRS regulations, and the importance of seeking professional advice for tax compliance.
The world of personal injury settlements is often a complex and intricate labyrinth. One particular aspect, frequently misunderstood, revolves around the taxation of settlements that incorporate punitive damages or interest awarded on the settlement amount. As a critical piece of the puzzle, understanding the nuances of these tax implications is paramount. Let's delve into the intricacies of the Tax Implications of Personal Injury Settlements with Punitive Damages.
Personal injury settlements frequently consist of compensatory and punitive damages. Compensatory damages serve to restore victims to their pre-injury or pre-illness financial state; thus, the Internal Revenue Code (IRC) under Section 104(a)(2) allows such damages received due to physical injuries or illness to be exempt from taxation and provides offer relief to victims and help them recover without the burden of additional tax liabilities.
Contrarily, punitive damages, and interest, the black sheep of the personal injury settlements family, are considered taxable income. Unlike compensatory damages, punitive damages do not restore the victim to their pre-injury or pre-illness state but penalize the defendant for their egregious misconduct and only serve as a penalty deterrent against similar future behavior. Consequently, under U.S. tax law, punitive damages fall squarely into the taxable income category.
A pivotal decision by the U.S. Supreme Court in O'Gilvie v. United States reinforced the idea that punitive damages linked to personal injury suits, regardless of their association with physical injury or illness, are taxable. Thus, punitive damages are includable in the recipient's gross income for tax purposes.
Recipients of personal injury settlements that include punitive damages must report these amounts. Only the punitive and interest components must be listed as "Other Income" on IRS form Form 1040 (2022), Line 8 (See Schedule 1), allowing the Internal Revenue Service (IRS) to correctly identify the income's nature and apply the appropriate taxation.
Another tax problem arises when punitive damages and attorney fees are contingency-based. In Commissioner v. Banks and Commissioner v. Banaitis, the U.S. Supreme Court ruled that, for federal income tax purposes, the percentage of a monetary judgment or settlement paid to a taxpayer's attorney under a contingent fee agreement is taxable income to the taxpayer. The Court ruled that when a settlement or judicial award constitutes income, the taxpayer's income shall include the portion paid to the attorney as a contingent fee. A possible solution to avoid the plaintiff's taxation of the attorney fees portion of punitive damages is the Plaintiff Recovery Trust.
However, it is essential to remember that legal landscapes can vary, and tax laws and regulations are subject to change. It is, therefore, advisable to consult with a tax professional or a personal injury attorney who can navigate the intricate legal and tax pathways of personal injury settlements.
Negotiating settlements also requires a careful evaluation of the tax implications. Plaintiffs can receive lump sums or periodic payments of their settlements to spread and minimize tax liability. An example of such a tactic would be to accept payment in installments over several years or the Plaintiff Recovery Trust, which provides lump-sum payments.
It is crucial, however, to refrain from attempts to evade taxes by misrepresenting punitive damages as compensatory damages. Such actions can lead to IRS penalties and interest on unpaid taxes.
In conclusion, the path of personal injury settlements and their corresponding tax implications can be challenging. While compensatory damages provide financial restoration to victims, punitive damages act as a deterrent for outrageous behavior. The contrasting tax implications of these damages reflect their differing purposes. One should always seek expert tax advice to ensure tax compliance.
As the adage goes, only two things are certain in life - death and taxes. It is, therefore, vital to approach taxation with preparedness and diligence and begin by learning more here – Minimizing Taxation of Settlements.
Explore how 468b Qualified Settlement Funds (QSFs) protect privacy, consolidate claims, and shield sensitive information in legal cases.
Imagine a legal shield that not only consolidates multiple claims but also fiercely guards your privacy. Qualified settlement funds (QSFs), created under Section 468b of the Internal Revenue Code, are specialized tools designed for settling single-event, mass tort, and class action lawsuits. These tax-qualified entities allow related claims to be consolidated into a single, secure fund while ensuring the highest levels of privacy and security.
Privacy is not just a convenience—it's a cornerstone of a well-structured QSF. By existing as separate legal entities, QSFs protect sensitive information from prying eyes. This setup helps prevent adverse parties from inflating claims based on the knowledge of the fund's assets. Properly drafted QSFs also impose discovery limitations, reducing the scope of potential legal inquiries.
One of the most powerful features of QSFs is the ability to maintain confidentiality. The identities of claimants and details of the fund remain sealed, ensuring that transactions are not publicly accessible. Even in rare instances where fund existence is uncovered, a vigilant trustee can take decisive action to block discovery efforts, safeguarding the fund’s integrity.
An experienced QSF trustee is essential for maintaining privacy and protecting against discovery demands. Trustees can implement robust privacy policies, challenge discovery requests, and employ advanced legal strategies, such as decanting or jurisdictional tactics, to block unwarranted access. Their role is indispensable in ensuring the QSF remains a secure and confidential resource for claimants.
Qualified settlement funds are not just financial instruments; they are legal fortresses designed to protect claimants' interests. With robust privacy provisions and a dedicated trustee, QSFs minimize legal exposure and preserve confidentiality. Eastern Point Trust Company’s QSF 360 platform leads the industry in offering innovative solutions to safeguard privacy and defend against discovery demands.
Massachusetts taxes qualified settlement funds at a 5% flat rate, with an extra 4% on income over $1M. Strategic jurisdiction selection can help avoid these costly tax burdens on QSFs.
Massachusetts is renowned for its rich history, but it also has a reputation for high taxes—something that directly impacts qualified settlement funds (QSFs). For the 2023 tax year, Massachusetts imposes a flat 5% tax on all QSF taxable income. For funds generating over $1 million, an additional 4% tax applies, significantly increasing the financial burden. These aggressive tax policies make Massachusetts one of the more costly states for establishing a QSF.
The Massachusetts Department of Revenue’s letter ruling 087 underscores these challenges. It clarifies that QSFs are taxed under Chapter 62 if they are established by a Massachusetts court or governmental authority, or if their assets were held within the state at any time during the tax year. The ruling’s broad interpretation means that even temporary ties to the state could result in tax obligations.
Compared to Massachusetts, many states offer more favorable tax environments for QSFs, with some imposing no taxes at all on trust-based funds. Careful jurisdiction selection can lead to substantial tax savings and better financial outcomes for claimants and trustees alike.
Establishing a QSF is a strategic decision that requires thoughtful planning, particularly when navigating state-specific tax laws. For QSFs in Massachusetts, understanding these tax implications and exploring alternative jurisdictions could mean the difference between a costly burden and a streamlined settlement process. Eastern Point Trust Company’s expertise in QSF management ensures clients can navigate these complexities and achieve optimal results.
Discover 11 reasons attorneys should use Qualified Settlement Funds (QSFs) for small settlements. From tax benefits and flexible fund distribution to safeguarding client interests and streamlining processes, QSFs offer smart solutions for better outcomes and peace of mind.
Imagine securing your client's financial future while reducing your own risks. Sounds too good to be true? Keep watching to discover how qualified settlement funds can transform your legal practice.
1. Qualified settlement funds or QSFs offer significant tax advantages, allowing defendants to take a current year tax deduction and plaintiffs to defer income recognition.
2. Unlike IOLTA accounts, QSFs earn interest for your clients, maximizing their financial benefits from the settlement.
3. A QSF provides clients valuable time to make informed financial decisions, such as opting for structured settlement annuities or setting up special needs trusts.
4. QSFs allow time to resolve liens, bankruptcy, and probate issues, ensuring clients receive their settlement funds free from potential disruptions and financial penalties.
5. By using a QSF, attorneys can avoid the constructive receipt of funds which can have tax implications for plaintiffs.
6. QSFs also help avoid triggering the economic benefit of funds, preventing unnecessary taxation for plaintiffgifts.
7. A QSF protects plaintiffs from the risk of defendant insolvency by securing settlement funds in advance, ensuring clients receive due compensation regardless of the defendant's financial status.
8. QSFs offer a flexible framework for distributing settlement proceeds, accommodating various client needs and preferences for financial planning.
9. By utilizing a QSF, attorneys can ensure compliance with legal and ethical standards, particularly with significant settlement amounts, which helps to safeguard client interests.
10. QSFs streamline the settlement process by allowing for the efficient allocation and management of funds, reducing administrative burdens on attorneys and ensuring a smoother experience for clients.
11. With online solutions like QSF 360, setting up a QSF is quick, easy, and low cost, providing accessible solutions in as little as one day.
Qualified settlement funds provide numerous benefits that can significantly enhance the settlement management process for attorneys and their clients, even in cases involving smaller settlements. Leverage the power of QSFs for better financial outcomes and peace of mind.
Maximize personal injury settlements with structured settlements and QSFs. Discover tax benefits and strategies from Eastern Point Trust experts.
Bloomberg covered the increased use of structured settlements in personal injury cases, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Structured settlements are typically part of a larger settlement plan. In most cases, you can save tax, invest, and protect public benefits, but you have to make those decisions before signing."
Discover how structured settlements boost award value with tax benefits, investment growth, and expert planning tips for plaintiffs and attorneys.
ESPN discussed the regularity of personal injury lawsuit settlements and related financial consequences, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"The tax and investment benefits of structuring greatly increase your settlement value."
Maximize settlements with smart planning: learn how tools like QSFs and strategies can double plaintiff outcomes and ensure long-term security.
Fox Business reported on the growth of settlement planning, structured settlements, and Qualified Settlement Funds, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Settling is first about the amount, but plaintiffs gain a lot by planning ahead."
Watch how to simplify your settlement process with Qualified Settlement Funds (QSFs) approved by governmental entities, not just courts. Discover tax benefits, flexibility, and more.
Create a Qualified Settlement Fund without the hassle of court approval. Keep watching to discover how. Did you know that various governmental entities, not just courts, can approve QSFs? This includes federal, state, and local agencies.
The IRS plays a crucial role in supervising QSFs, ensuring compliance through tax regulations and rules. To establish a QSF, parties must petition a governmental authority which then reviews the proposed trust agreement for compliance.
Beyond tax benefits, QSFs reduce administrative burdens, help resolve secondary disputes, and create flexibility.
Traditional court-established methods can be time consuming and costly, but platforms like QSF 360 offer quicker, more affordable solutions. The QSF administrator must file Form 1120 SF annually, ensuring all IRS requirements are met.
Qualified settlement funds operate on a calendar-year basis and begin life upon governmental authority approval regardless of funding status. From tax benefits to streamlined creation options, QSFs offer numerous advantages for both plaintiffs and defendants. Always consult with experienced QSF administration professionals for specific guidance.
Ready to simplify your settlement process? Let's get started.
Learn how to minimize taxes on lawsuit settlements by understanding IRS rules. Allocate funds wisely, use Qualified Settlement Funds, and consult a tax expert for best results.
What legal settlements are taxable and how to minimize taxation of settlement awards. Receiving a settlement from a lawsuit can provide financial relief, but can raise taxability questions. Understanding the tax implications of lawsuit settlements is crucial to maximize compensation, minimize tax impact, and avoid potential pitfalls with the Internal Revenue Service (IRS).
Generally, the primary law regarding the taxability of amounts received from lawsuit awards and settlements is Section 61 of the Internal Revenue Code (IRC). Section 104 excludes taxable income settlements and awards resulting from physical injuries. However, the relevant IRS guidance states that one should consider "the facts and circumstances surrounding each settlement payment" to determine the settlement proceeds' purpose accurately, as "not all amounts received from a judicial award or settlement are exempt from taxes."
Judicial awards and settlements can be divided into two groups to determine whether the associated payments are taxable or non-taxable. Once funds have been classified into one of these two groups, a further subdivision is made. Proceeds from personal physical injuries or sickness are generally excludable from gross income, but emotional distress recoveries are only excludable if they stem from physical injuries.
Strategies to minimize tax liability include allocating damages to non-taxable categories like physical injuries and medical expenses, and using qualified settlement funds (QSFs) to provide short-term tax deferral and flexibility.
Navigating the complex tax implications of lawsuit settlements requires guidance. Consulting with a settlement tax expert before finalizing a settlement agreement can provide valuable insights and help negotiate more favorable tax outcomes.
The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
[7/16/2024] — In a thought-provoking article published in Tax Notes* Lawrence J. Eisenberg, an experienced tax attorney, describes the perplexing issues affecting individual plaintiffs in litigation recoveries and considers how those issues can be addressed, including by using a charitably-based trust-based solution. The article “The Individual Plaintiff Tax Trap — A Conundrum and a Solution” delves into the intricacies of the taxation of litigation recoveries and addresses methods to mitigate the adverse tax consequences some individual plaintiffs face.
Background
Eisenberg’s article highlights the strange and often inconsistent tax treatment of individual plaintiff litigation recoveries under the Internal Revenue Code. Despite the Supreme Court’s 2005 decision in “Commissioner v. Banks”, which held that plaintiffs must report the entire recovery as taxable income—including the portion payable to attorneys—many plaintiffs (and their attorneys and advisors) remain unaware of the potential tax pitfalls when such recoveries do not fall under tax-free categories, e.g., damages for physical injuries.
The Individual Plaintiff Tax Trap
The crux of the issue lies in the deductibility of attorney’s fees. Some recoveries are tax-free, so attorney fee deductibility is not relevant, or allow for an above-the-line deduction of these fees. Other recoveries can result a “double tax”, because in those situations, the attorney fee portion of the recovery is taxable, but the attorney fee itself is not deductible. This leads to significantly diminished net recoveries. Eisenberg’s article includes a detailed example demonstrating how a plaintiff’s net recovery can be less than 10% of the total amount, with the government and attorneys each receiving several times more than the plaintiff!
A Trust-Based Solution
To address this inequity, Eisenberg proposes that a plaintiff affected by the double tax create a Plaintiff Recovery Trust (PRT). A PRT allows plaintiffs to transfer their litigation claims to a specially designed split-interest charitable trust. By doing so, the litigation claim becomes an asset of the trust, and any recovery is received by the trust, which then pays the net recovery to the trust beneficiaries, including the plaintiff. The PRT uses ordinary trust law principles and aims to achieve fairer tax treatment by separating the ownership of the litigation claim from the individual plaintiff.
Key Benefits of the Plaintiff Recovery Trust
- Equitable Tax Treatment: By treating the litigation claim as a trust asset, a Plaintiff Recovery Trust results in the plaintiff not being taxed on the portion of the recovery paid to their attorneys.
- Structured recovery: The PRT trust structure allows for a more organized and potentially tax-efficient distribution of recoveries. (It also permits the use of structured settlements as part of the solution.)
- Charitable Component: The PRT includes a charitable beneficiary, adding a philanthropic dimension to the solution.
Conclusion
Eisenberg’s article is a call to action for tax professionals and litigation attorneys to recognize and address the unfair tax treatment many individual plaintiffs face. The PRT trust-based solution offers a way to alleviate the financial burden imposed by current tax law, so that plaintiffs retain a fair share of their recoveries.
See the full article on the taxation of settlement proceeds.
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Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know. Learn about their purpose, benefits, eligibility, tax implications, QSF administration, etc.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know:
FOR IMMEDIATE RELEASE
[7/8/24] Joe Sharpe, ETPC President, explained, “QSFs are powerful financial tools to streamline and manage settlements, especially in complex cases. They provide tax benefits, flexibility, and efficient administration for all parties involved. With platforms like QSF 360™, creating and managing a QSF is quick, easy, and fully compliant. From establishing a QSF to understanding the roles of administrators, tax implications, and investment options, our comprehensive listicle covers all you need to know about these financial mechanisms.”
Learn the advantages of QSFs over other settlement structures, QSF regulatory oversight, and best practices for effective management. Make the most of your settlements with QSFs and ensure a smooth, compliant, and beneficial process.
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore more and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete listicle and learn more about the advantages of QSFs, visit https://www.easternpointtrust.com/articles/qualified-settlement-funds-listicle-of-12-things-to-know.
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Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes.
Eastern Point Trust Company Unveils Comprehensive Guide on Navigating Post-Settlement Disputes and Complexities with Qualified Settlement Funds
[5/17/2024] — Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes. The guide focuses on utilizing Qualified Settlement Funds (QSFs), also known as 468B trusts, as a streamlined solution for efficient settlement fund management and dispute resolution.
It is not uncommon for secondary disputes to arise following a litigation settlement or court award. These disputes can range from family disagreements over their "fair share" to lawyers disputing fee splits, plaintiffs contesting attorney fees, and third-party lien holders emerging to stake claims against the litigation proceeds. Such complexities often hinder the settlement process and prolong the resolution.
Eastern Point Trust Company's newly released guide provides detailed insights into how QSFs can be employed to manage these disputes effectively. By offering a structured approach to fund management and tax compliance and providing the necessary time for informed decision-making, QSFs present a viable solution to post-settlement challenges.
Sam Kott, Vice President of Eastern Point Trust Company, emphasized the significance of the guide, stating, "This guide explores the advantages of QSFs, specifically their ability to address complex issues such as post-settlement disputes, secondary litigation, and lien resolution. The guide also provides direction on navigating post-settlement challenges and highlights the benefits of QSFs in achieving the best possible outcomes for all parties involved."
The guide delves into the various advantages of utilizing QSFs, including:
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore the guide and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete guide and learn more about the advantages of QSFs, visit here.
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Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
FOR IMMEDIATE RELEASE
[5/17/2024] — Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements. This comprehensive guide delves into the intricate workings of taxable and non-taxable settlements, offering invaluable insights into compensatory damages, punitive damages, and the tax treatment of various settlement types.
Ms. Rachel McCrocklin, Eastern Point’s Chief Trust Officer, commented, “The guide provides a detailed understanding of the pivotal role of IRS Section 104 and the taxability of various settlement types. Our goal is to equip readers with the knowledge to make informed decisions and minimize potential tax liabilities.”
The guide explores strategic methods to minimize tax obligations on settlements, including leveraging structured settlement annuities, Plaintiff Recovery Trusts, and proper allocation in settlement agreements. It is an essential resource for individuals and businesses navigating the complex landscape of settlement taxation.
Arm yourself with knowledge, make informed decisions, and minimize potential tax liabilities with Eastern Point's newest guide.
For more information on Unveiling the Complex World of Taxable and Tax-Free Settlements, please visit https://www.easternpointtrust.com/articles/unveiling-tax-free-settlements-what-you-need-to-know or contact 855-222-7513.
CTRO
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A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
FOR IMMEDIATE RELEASE
[5/2/2024] — A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
It reviews the advantages of choosing a trust company over a traditional bank account for escrow services, emphasizing active independent oversight that enhances transaction security and integrity.
Ned Armand, CEO, noted, “The guide also highlights the critical role of an escrow agent in managing funds prudently, ensuring a smooth progression of transactions under the regulatory frameworks.” Offerors of private equity and Reg D, Reg A, Reg A+, Reg CF, and Reg S offerings are encouraged to explore this guide, available on Eastern Point Trust Company.
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In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability.
In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
FOR IMMEDIATE RELEASE
[2/27/2024] — In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
The Qualified Settlement Fund stands as a testament to expediency, with the capability to be established and funded within a mere business day, a stark contrast to the lengthy processes associated with ERTs. By swiftly assuming environmental liabilities from present and future claims under CERCLA, state, and local law, QSF ensures immediate action and resolution.
One of the most compelling aspects of QSF is its affordability, with establishment costs as low as $500. This cost-effectiveness, coupled with the tax advantages it provides over ERTs, makes QSF an attractive proposition for businesses seeking prudent financial solutions.
Flexibility is another hallmark of QSF, allowing for single-year or multi-year funding without any maximum duration constraints, ensuring adaptability to diverse business needs. Furthermore, the ability to hold real estate expands the horizons of asset management within the fund.
The benefits extend to tax optimization, with QSF accelerating the transferor's tax deduction for funds transferred to the current tax year, thereby enhancing financial planning and efficiency. Moreover, by shifting liability and associated funding transfers irrevocably to the QSF, businesses can streamline their balance sheets, mitigating risks and enhancing transparency.
In addition to these financial advantages, QSF facilitates seamless settlement agreements to capitate and resolve environmental liabilities, assuring regulators and interested parties of the irrevocable availability of funds for amelioration.
The transition to QSF not only eliminates future administrative burdens but also entrusts the fund's administration to a dedicated trustee, relieving businesses of operational complexities and enhancing focus on core activities.
In conclusion, the Qualified Settlement Fund stands as a beacon of innovation in environmental liability management, offering unmatched advantages over traditional Environmental Remediation Trusts. Its expediency, affordability, flexibility, and tax optimization capabilities redefine the landscape, empowering businesses to navigate environmental challenges with confidence and efficiency.
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Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Eastern Point Trust provides services across the U.S. and internationally.
FOR IMMEDIATE RELEASE
[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”
Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”
Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners
About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.
With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.
About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust
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Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation
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[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.
Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”
About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.
Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.
About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.
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Qualified Settlement Funds (QSFs) are powerful financial tools to administer settlements, especially in complex matters. Parties involved in disputes contemplated under 1.46B-1 et seq. can effectively manage and benefit from Qualified Settlement Funds’ tax and financial advantages.
Qualified Settlement Funds (QSFs), a 468B trust, are valuable and crucial in managing litigation settlements efficiently and effectively. "QSF", which stands for "Qualified Settlement Fund", is a fund established as a trust or account established to hold settlement proceeds from litigation. According to the definition under Treasury Regulations, it is an escrow account, trust, or fund established according to an order of or approved by a government authority to resolve or satisfy claims.
This comprehensive infographic guide explains the essential aspects of Qualified Settlement Funds:
The guide provides valuable insights, tips, and rules of thumb for legal professionals, claimants, and other stakeholders about how a QSF account benefits the settlement process. A QSF offers many advantages, including immediate tax deduction for defendants, tax deferral for claimants, and efficient management of settlement proceeds. QSFs are commonly used in class action lawsuits, mass tort litigation, and cases with multiple claimants, but can also provide benefits in single claimant cases.
Setting up a QSF involves petitioning a government authority and appointing a QSF Administrator to oversee the fund. The QSF Administrator, often a platform like QSF 360, is responsible for obtaining an EIN, handling tax reporting, overseeing QSF administration, and making distributions to claimants. Online QSF portals streamline the Qualified Settlement Fund administration process.
Partnering with an experienced QSF Administrator is essential. Services like QSF 360 from specialize in QSFs for both large and small cases and can help ensure compliance with IRC § 1.468B-1 and other regulations.
In summary, Qualified Settlement Funds are a powerful tool for managing settlement proceeds. With proper planning and administration, QSFs provide significant tax benefits, enable efficient distribution of litigation proceeds, and help bring litigation closure. Understanding what is QSF and how to leverage QSFs is invaluable for any legal professional involved in today's settlements.
Discover how a Qualified Settlement Fund (QSF) played a crucial role in securing the future of a child after a legal settlement. This case study highlights the power of QSFs and its long term benefits for a minor.
In the heart of Georgia, a family’s world shattered when John Doe, a 34-year-old father, tragically lost his life due to the negligence of his employer. Left behind were his grieving spouse and minor children, including a 12-year-old daughter, Emily. As the family grappled with their loss, they faced the daunting task of navigating a complex legal landscape. Such a circumstance is where the power of a Qualified Settlement Fund (QSF) came into play, offering hope for Emily’s future.
The wrongful death suit resulted in a $3 million settlement, bringing relief and responsibility. Under Georgia law, the spouse and children were equal beneficiaries, with the spouse guaranteed at least one-third of the settlement. However, the presence of a minor beneficiary added complexity to the case.
The family’s attorney recognized the need for a solution to protect Emily’s interests while allowing for thoughtful, long-term financial planning. “In cases involving minors, we must think beyond immediate needs,” the lawyer noted. “We needed a mechanism to give us time to craft a comprehensive plan for Emily’s future.”
Emily’s lawyer proposed the establishment of a Section 468B Qualified Settlement Fund, a legal tool that would prove invaluable in this case. The QSF offered several key advantages:
A Qualified Settlement Fund, established under IRS Section 1.468B-1, is a financial and legal mechanism used primarily in settling lawsuits, particularly cases involving multiple claimants. It’s a settlement trust account established to receive and administer funds from a defendant in a legal settlement.
Considering a Qualified Settlement Fund as part of your strategy for crafting a secure future can be beneficial when involved in a legal settlement. It’s essential to consult with legal and financial professionals to determine if a QSF aligns with your specific situation and long-term financial goals.
With the plan in place and the luxury of time to plan, Emily’s guardian, her mother, worked closely with financial advisors to create a comprehensive plan. They explored various options, including:
“The 468B Settlement Trust gave us breathing room,” Emily’s mother shared. “Instead of making rushed decisions, we could carefully consider Emily’s future and make choices that truly honored her father’s memory.”
The implementation of the QSF, in this example case, serves as a model for similar situations. It demonstrates how thoughtful legal and financial planning can turn a tragedy into an opportunity for long-term security and growth.
The lawyer reflected on the case: “By utilizing a QSF, we were able to transform a moment of profound loss into a foundation for Emily’s future. It’s a powerful reminder of how the right legal and tax tools can make a real difference in people’s lives.”
As Emily grows, she’ll have the financial resources she needs to pursue her dreams, thanks to the foresight and care taken in managing her settlement via a Qualified Settlement Fund. While nothing can replace the loss of a parent, the security provided by this approach offers some solace and hope for the future.
Using a Qualified Settlement Fund can be a game-changer for families facing similar circumstances. It provides the time and flexibility needed to make informed decisions, ensuring that the interests of minor beneficiaries are protected and nurtured for years to come.
Learn more about how Qualified Settlement Funds benefit the minor’s settlement process.
Contact a QSF 360 specialist today at (855) 979-0322.
Understanding the significance of KYC procedures in finance, including customer KYC verification, risk assessment, and compliance with AML laws to prevent money laundering, terrorism financing, and other financial crimes.
In 2021, reported fraud losses experienced a significant increase, reaching $5.8 billion, which represented a surge of over 70 percent within a single year [1]. To combat the rise in financial fraud and money laundering, one effective strategy is to reduce the prevalence of anonymous bank accounts and closely monitor suspicious activities. Financial organizations, including banks, credit unions, and Fortune 500 financial firms, need to adopt measures to know their customers and continuously monitor for risk factors. This process is known as KYC or "Know Your Customer" [1].
While the specific programs to meet KYC requirements are developed by individual organizations, financial institutions must comply with complex regulations to verify customer identity, known as KYC [1]. It is essential for businesses in various industries to prioritize KYC compliance; non-compliance can result in steep fines, increased fraud risk, and reduced consumer trust [1].
KYC, which stands for "Know Your Customer," is a due diligence process employed by financial companies to verify the identity of their customers and assess and monitor their risk [2]. The purpose of KYC is to ensure that customers are who they claim to be [2]. Complying with KYC regulations plays a crucial role in preventing money laundering, terrorism financing, and other types of fraud [2]. By verifying a customer's identity during the account opening process and continuously monitoring transaction patterns, financial institutions can more accurately identify suspicious activities [2]. To meet KYC requirements, clients are typically required to provide proof of their identity and address, such as ID card verification, face verification, biometric verification, and document verification [2]. Examples of KYC documents include a passport, driver's license, or utility bill [2]. KYC is not only essential for determining customer risk but also a legal requirement to comply with Anti-Money Laundering (AML) laws [2].
The importance of KYC in banking lies in its role as a legal requirement for financial institutions and financial services companies to establish the identity of their customers and identify risk factors [3]. KYC procedures help prevent various financial crimes, including identity theft, money laundering, financial fraud, terrorism financing, and other illegal activities [3]. Failing to meet KYC requirements can lead to severe consequences, including substantial fines and penalties [3]. The implementation of KYC regulations gained momentum after the 9/11 attacks, leading to stricter requirements under the Patriot Act [3].
Under the Patriot Act's Title III, financial institutions are required to fulfill two core components of KYC: the Customer Identification Program (CIP) and Customer Due Diligence (CDD) (CDD may also include Enhanced Due Diligence (EDD) for high risk or suspicious activity clients.)[3]. The current KYC procedures embrace a risk-based approach to counter identity theft, money laundering, and financial fraud [3]. KYC helps establish proof of a customer's legal identity, preventing the creation of fake accounts and identity theft through forged or stolen documents [3]. Additionally, it limits the ability of criminal sectors to use dummy accounts for illegal activities such as narcotics, human trafficking, smuggling, tax fraud and racketeering [3]. KYC also helps prevent fraudulent financial activities, such as sham loans or fraudulent loan applications using fake or stolen IDs to obtain funding through fraudulent accounts [3].
AML (Anti-Money Laundering) and KYC (Know Your Customer) are closely related but distinct concepts. AML refers to the framework of legislation and regulations to which financial institutions must adhere in order to prevent money laundering, while KYC is a key component of the overall AML framework, requiring organizations to know their customers and verify their identities [3]. Financial institutions are responsible for developing their own KYC processes and ensuring compliance with specific AML standards dictated by any applicable jurisdiction or country [3].
Financial institutions that deal with customers while opening and maintaining financial accounts are required to have KYC processes in place [3]. This includes banks, credit unions, wealth management firms, broker-dealers, finance tech applications (fintech apps) depending on their activities, private lenders, and lending platforms [3]. KYC regulations have become increasingly critical for almost any institution involved in financial transactions due to the need to limit fraud, as well as the requirements imposed by banks on organizations with whom they conduct business [3].
Discover the tax consequences of plaintiff recoveries, including double tax issues, deductions, penalties, and ways to reduce taxes for plaintiffs with taxable recoveries. Learn how to increase after-tax recovery and address taxes before and after settlement.
The taxation of plaintiff litigation recoveries is confusing. But it’s important to know the right answers. This is because the income tax consequences are so significant, especially where there are “double tax” issues.
1. Recoveries in connection with personal injuries are not always tax-free.
2. Many other types of individual plaintiff recoveries are taxable.
Compensatory and emotional distress damages for physical injuries are tax-free, but the related punitive damages and interest are taxable.
These include non-physical injuries and related emotional distress, mental anguish, defamation, breach of contract, malpractice, fraud, securities law violations, intellectual property and more.
3. Many individual plaintiffs receiving taxable recoveries CANNOT DEDUCT their legal fees.
Personal attorney fees are “miscellaneous itemized deductions,” which are nondeductible. IRC §67(g). There are limited exceptions (e.g., employment discrimination, whistleblower). It’s important to know whether the IRC permits the deduction of your attorney fee.
4. The U.S. Supreme Court held that plaintiffs must include the attorney fee portion of their taxable recovery in income – creating the double tax.
This is the 2004 ruling in Commissioner v. Banks. As a result, in taxable cases where the attorney fee is not deductible, both the plaintiff and lawyer pay tax on the attorney fee portion of the recovery – hence the “double tax.”
5. In “double tax” situations, plaintiffs in high-tax jurisdictions end up with little or nothing.
A plaintiff might keep 10% after paying 40% to their lawyer and 50% in taxes. (Looking at you California!) And if their lawyer had significant expenses that are not covered by the contingent fee, the plaintiff may end up with nothing.
6. Defendants are subject to huge 1099 penalties in taxable cases if they don’t issue a 1099, or if they exclude the attorney fee portion.
The penalty can be 10% of the unreported amount, without limit. IRS Regulation 1.6041-1(f); IRC §6722(e).
7. Plaintiff lawyers must consider client tax issues.
American Bar Association (ABA) materials advise that “competent representation” of plaintiffs requires “considering the tax implications of the settlement.” ABA, Ethical Guidelines for Settlement Negotiations (August, 2002). Ethics rules require that personal injury lawyers tell clients the consequences of not addressing taxes or seeking competent tax advice.
8. Many suggested ways of reducing plaintiff recovery taxes don’t work.
These include reporting to the IRS only the portion of the recovery received by the plaintiff (excluding the attorney fee portion), treating the attorney-client relationship as a partnership or business, or excluding the structured portion of the attorney’s fees. Not only do these not work, they subject the plaintiff to massive penalties and interest if the IRS finds out.
9. Plaintiffs with taxable recoveries can increase their after-tax recovery if they act before a final resolution of the claim.
One way to do so is to draft the complaint or settlement agreement to consider the taxes (to the extent the facts allow). Another way to avoid taxation on the attorney fee portion of the recovery is to contribute the claim to a Plaintiff Recovery Trust (PRT). A PRT uses a traditional charitable trust planning arrangement, modified to the litigation context to achieve this result. There are other methods to reduce the taxes associated with a taxable recovery, such as selling the claim.
10. Addressing taxes after settlement is hard.
Tax planning to reduce plaintiff taxes on their recoveries is possible while the case is contingent and doubtful, i.e., not finally resolved. Careful planning is required. There are limited opportunities once the claim resolves. In this regard, few accountants are familiar with plaintiff recovery taxation matters and they tend to get involved only after the recovery, when it’s too late.
Learn about the tax implications of punitive damages in personal injury settlements. Understand the complexities, IRS regulations, and the importance of seeking professional advice for tax compliance.
The world of personal injury settlements is often a complex and intricate labyrinth. One particular aspect, frequently misunderstood, revolves around the taxation of settlements that incorporate punitive damages or interest awarded on the settlement amount. As a critical piece of the puzzle, understanding the nuances of these tax implications is paramount. Let's delve into the intricacies of the Tax Implications of Personal Injury Settlements with Punitive Damages.
Personal injury settlements frequently consist of compensatory and punitive damages. Compensatory damages serve to restore victims to their pre-injury or pre-illness financial state; thus, the Internal Revenue Code (IRC) under Section 104(a)(2) allows such damages received due to physical injuries or illness to be exempt from taxation and provides offer relief to victims and help them recover without the burden of additional tax liabilities.
Contrarily, punitive damages, and interest, the black sheep of the personal injury settlements family, are considered taxable income. Unlike compensatory damages, punitive damages do not restore the victim to their pre-injury or pre-illness state but penalize the defendant for their egregious misconduct and only serve as a penalty deterrent against similar future behavior. Consequently, under U.S. tax law, punitive damages fall squarely into the taxable income category.
A pivotal decision by the U.S. Supreme Court in O'Gilvie v. United States reinforced the idea that punitive damages linked to personal injury suits, regardless of their association with physical injury or illness, are taxable. Thus, punitive damages are includable in the recipient's gross income for tax purposes.
Recipients of personal injury settlements that include punitive damages must report these amounts. Only the punitive and interest components must be listed as "Other Income" on IRS form Form 1040 (2022), Line 8 (See Schedule 1), allowing the Internal Revenue Service (IRS) to correctly identify the income's nature and apply the appropriate taxation.
Another tax problem arises when punitive damages and attorney fees are contingency-based. In Commissioner v. Banks and Commissioner v. Banaitis, the U.S. Supreme Court ruled that, for federal income tax purposes, the percentage of a monetary judgment or settlement paid to a taxpayer's attorney under a contingent fee agreement is taxable income to the taxpayer. The Court ruled that when a settlement or judicial award constitutes income, the taxpayer's income shall include the portion paid to the attorney as a contingent fee. A possible solution to avoid the plaintiff's taxation of the attorney fees portion of punitive damages is the Plaintiff Recovery Trust.
However, it is essential to remember that legal landscapes can vary, and tax laws and regulations are subject to change. It is, therefore, advisable to consult with a tax professional or a personal injury attorney who can navigate the intricate legal and tax pathways of personal injury settlements.
Negotiating settlements also requires a careful evaluation of the tax implications. Plaintiffs can receive lump sums or periodic payments of their settlements to spread and minimize tax liability. An example of such a tactic would be to accept payment in installments over several years or the Plaintiff Recovery Trust, which provides lump-sum payments.
It is crucial, however, to refrain from attempts to evade taxes by misrepresenting punitive damages as compensatory damages. Such actions can lead to IRS penalties and interest on unpaid taxes.
In conclusion, the path of personal injury settlements and their corresponding tax implications can be challenging. While compensatory damages provide financial restoration to victims, punitive damages act as a deterrent for outrageous behavior. The contrasting tax implications of these damages reflect their differing purposes. One should always seek expert tax advice to ensure tax compliance.
As the adage goes, only two things are certain in life - death and taxes. It is, therefore, vital to approach taxation with preparedness and diligence and begin by learning more here – Minimizing Taxation of Settlements.
Learn about the benefits, requirements, and comparison of QSFs with IOLTAs in the legal industry. Make informed decisions to preserve the client's best interests and comply with ethical standards.
Lawyers and law firms are bound by specific rules and regulations when managing client funds to ensure ethical and responsible financial practices. Two standard methods for handling client funds are through Qualified Settlement Funds (QSFs) and Interest on Lawyer Trust Accounts (IOLTAs). In this article, we will explore whether a lawyer or law firm may create a Qualified Settlement Fund by discretion or at the client’s direction; or if the lawyer or law firm must deposit the client funds in an IOLTA.
IOLTAs have been an essential tool for law firms since their introduction in 1981. Before IOLTAs, lawyers and law firms were required to deposit client funds into non-interest-bearing checking accounts, ensuring that lawyers and law firms couldn’t financially benefit from their clients’ money. However, with the introduction of IOLTAs, lawyers and law firms were permitted to place these funds into an interest-bearing trust account, with the interest being used to fund legal representation for indigent defendants by the respective state’s Legal Services Corporation.
Additionally, the interest generated from IOLTAs is used to finance various other activities such as providing legal aid for low-income residents, funding law school scholarship programs, improving the administration of justice, assisting those who cannot afford legal services, and supporting non-profit organizations and public service programs. It’s important to note that while IOLTA programs are available in every state, the specific guidelines and requirements may vary.
Three significant shortcomings of holding funds in an IOLTA are:
QSFs are another mechanism used in the legal industry to receive settlement payments. QSFs provide a way to hold and manage settlement proceeds before they are distributed to the intended recipients. As such, a QSF receives funds directly from the defendant and is separate and apart from any associated requirement to hold funds in an IOLTA pursuant to IRC §1.468B-1 et seq.
When utilizing a QSF, the lawyer or law firm never takes possession of the settlement proceeds, and, as such, the lawyer or law firm need not place the funds in the IOLTA.
In general, establishing a QSF requires the approval of a governmental authority as provided for in IRC §1.468B-1(c) et seq. While a lawyer or law firm may utilize their discretion to determine that a QSF is the best option in the circumstances, often clients direct the lawyer or law firm to create a QSF (subject to the governmental authority approval process). Lawyers or law firms may find that having a clear written directive from the client to establish a QSF eliminates any questions regarding the client’s intent and knowledge and demonstrates disclosure. Platforms like QSF360 offer simple – free to use – draft client QSF directive forms and can create a QSF in as little as one business day.
Practice point: Consider the benefit of the QSF in preserving special tax treatment, having the time to seek more competitive financial product returns, and the interest earned by the plaintiff which would all otherwise be lost if the funds were held in an IOLTA; all of which can be significant and frequently justify the small costs of utilizing a QSF in smaller settlements.
The decision to deposit client funds in an IOLTA depends on several factors, including the nature and amount of the funds and the duration for which the funds will be held. IOLTAs are primarily intended for holding smaller amounts of client funds for very short periods of time.
However, in cases where a significant amount of funds (>$250,000) shall be held for a modest period of time, establishing a QSF is often a more suitable option. QSFs provide the necessary structure to manage and distribute settlement funds while ensuring compliance with legal and tax requirements and offer the benefit of additional time for the plaintiff to plan and preserve beneficial tax treatment to elect a stream of future periodic payments.
Additionally, with a QSF, the client receives the credited interest earned on the funds. In cases with larger settlements (>$250,000), the client receiving the credited interest resolves several potential ethical issues for the plaintiff’s lawyer as only the QSF preserves the client’s best interests.
Determining whether to use a QSF or an IOLTA requires consideration of the specific circumstances and legal requirements. An often used general rule is that if the settlement exceeds $250,000, use a QSF to ensure that 100% of the settlement is covered by FDIC insurance. As always, legal professionals should adhere to all applicable ethical standards and the rules of professional conduct.
In summary, lawyers and law firms have options for managing client funds depending on the circumstances. While IOLTAs are commonly used for holding smaller amounts of funds for shorter periods, QSFs offer a structured approach for managing more significant settlement amounts, economically benefit the client by the receipt of earned interest, provide valuable time to plan financial decisions more carefully, and preserve unique tax options that are lost when funds are placed in an IOLTA. Understanding what is in your client’s best interest ensures ethical compliance.
QSFs empower a tax-advantaged method for parties in litigation settlements to manage funds, with flexible duration aligned with taxable years. Enjoy added tax and compliance benefits.
A Qualified Settlement Fund (QSF) provides an empowering and secure way for parties in a litigation settlement (or nonlitigation dispute settlement) to manage the settlement funds. A significant aspect of QSFs, established under §1.468B-1, involves their duration, which allows for an efficient and effective settlement process.
A QSF is typically established under state law and approved by a “Governmental Authority” as defined in §1.468B-1(c). These regulations cover transfers to the fund, income earned by the fund, and distributions made by the fund [2]. While not required, a court may also order that settlement proceeds be paid into a QSF [3]. The defendant or insurer pays the agreed settlement amount into the QSF in these cases. Once the fund is set up, the trustee who becomes the administrator has the option to apply §1.468B-1 through 1.468B-4 to the fund.
The timeline of a QSF under these regulations is linked to the taxable years and has no stipulated maximum time frame. The provisions of §1.468B-1 through 1.468B-4 apply to the fund’s activity in associated taxable years [2]. This ensures that the fund aligns with the tax year, simplifying tax reporting and compliance.
However, as noted, the QSF does not have a set expiration date defined in the regulations. Instead, its duration is tied to the completion of its purpose: distributing the settlement funds to the rightful recipients once resolving all outstanding secondary issues. As such, a QSF can have durations of multiple years or even decades. A QSF is only dissolved after the final disbursement of the funds and the filing of a “final” IRS Form 1120-SF.
It’s also important to note that the QSF is treated as the owner of the settlement assets for federal income tax purposes when held in the QSF [1]. This approach offers added protection to the funds while they are held in the QSF and ensures the QSF is appropriately administered and in line with federal tax regulations.
Noted tax commentators have suggested that funds held in a QSF should be disbursed within twelve (12) calendar months of resolving all associated secondary matters to avoid the potential abuse of a QSF as a mere tax deferral scheme. Platforms like QSF 360 provide integrated management of the associated QSF duration.
In conclusion, a QSF’s duration under §1.468B-1 is defined by the time to fulfill its intended purpose and resolve all related secondary matters such as liens, secondary litigation, appeals, and other conditional matters. This flexible duration, combined with the safeguards of a QSF, offers a comprehensive solution for managing settlement funds. Its lifespan adheres to the taxable years for clarity in tax compliance, and the QSF enjoys the status and protection of a trust.
Qualified Settlement Funds (QSFs) offer a practical solution for parties involved in litigation (and non-litigation disputes) to fulfill monetary settlements.
Qualified Settlement Funds (QSFs) offer a practical solution for parties involved in litigation (and non-litigation disputes) to fulfill monetary settlements. Notably, their formation and operation as trusts falls under the scope of regulation §1.468B-1 in the U.S. federal tax code [1][2].
Under §1.468B-1, QSFs are treated as trusts for federal income tax purposes [1]. These entities are deemed to be owned by the transferor as dictated by section 671 and its subsequent regulations. This regulation holds, except for paragraph (b) of the section and §1.468B-4, which deal with different aspects of the fund.
Importantly, if a fund, account, or trust classified as a QSF aligns with the definition of a trust under §301.7701–4, it is classified as a QSF for all purposes of the Internal Revenue Code [2]. This classification provides additional legal and financial protection for the parties involved in the settlement.
The trust formed as a QSF constitutes a separate taxable entity per section 1.468B-1(c) of the Income Tax Regulations [3]. Being separate from the parties involved, the fund can independently manage the financial obligations associated with the settlement.
The IRS’s EIN system additionally classifies a QSF under the Trust Section of the online EIN system, notwithstanding that investment income is taxed at the corporate rate and a QSF files an IRS Form 1120-SF.
Note: The settlement payments transferred in a QSF are not taxable income to a QSF. Only investment income (interest) earned by the QSF is taxable.
Moreover, the QSF trust is taxed on its modified gross income, a term defined under section 1.468B-2(b) of the Income Tax Regulations [3]. This taxation is equivalent to the maximum corporate rate, underscoring the fund's distinctness as a taxable entity.
In summary, forming QSFs as trusts provides a structured method for handling settlement funds, aligns with federal tax obligations, and offers protection for all parties involved in the legal proceeding. Adhering to regulations such as §1.468B-1 allows for a consistent, statutorily established approach to managing and distributing funds arising from settlements.
Massachusetts taxes qualified settlement funds at a 5% flat rate, with an extra 4% on income over $1M. Strategic jurisdiction selection can help avoid these costly tax burdens on QSFs.
Massachusetts is renowned for its rich history, but it also has a reputation for high taxes—something that directly impacts qualified settlement funds (QSFs). For the 2023 tax year, Massachusetts imposes a flat 5% tax on all QSF taxable income. For funds generating over $1 million, an additional 4% tax applies, significantly increasing the financial burden. These aggressive tax policies make Massachusetts one of the more costly states for establishing a QSF.
The Massachusetts Department of Revenue’s letter ruling 087 underscores these challenges. It clarifies that QSFs are taxed under Chapter 62 if they are established by a Massachusetts court or governmental authority, or if their assets were held within the state at any time during the tax year. The ruling’s broad interpretation means that even temporary ties to the state could result in tax obligations.
Compared to Massachusetts, many states offer more favorable tax environments for QSFs, with some imposing no taxes at all on trust-based funds. Careful jurisdiction selection can lead to substantial tax savings and better financial outcomes for claimants and trustees alike.
Establishing a QSF is a strategic decision that requires thoughtful planning, particularly when navigating state-specific tax laws. For QSFs in Massachusetts, understanding these tax implications and exploring alternative jurisdictions could mean the difference between a costly burden and a streamlined settlement process. Eastern Point Trust Company’s expertise in QSF management ensures clients can navigate these complexities and achieve optimal results.
Explore how 468b Qualified Settlement Funds (QSFs) protect privacy, consolidate claims, and shield sensitive information in legal cases.
Imagine a legal shield that not only consolidates multiple claims but also fiercely guards your privacy. Qualified settlement funds (QSFs), created under Section 468b of the Internal Revenue Code, are specialized tools designed for settling single-event, mass tort, and class action lawsuits. These tax-qualified entities allow related claims to be consolidated into a single, secure fund while ensuring the highest levels of privacy and security.
Privacy is not just a convenience—it's a cornerstone of a well-structured QSF. By existing as separate legal entities, QSFs protect sensitive information from prying eyes. This setup helps prevent adverse parties from inflating claims based on the knowledge of the fund's assets. Properly drafted QSFs also impose discovery limitations, reducing the scope of potential legal inquiries.
One of the most powerful features of QSFs is the ability to maintain confidentiality. The identities of claimants and details of the fund remain sealed, ensuring that transactions are not publicly accessible. Even in rare instances where fund existence is uncovered, a vigilant trustee can take decisive action to block discovery efforts, safeguarding the fund’s integrity.
An experienced QSF trustee is essential for maintaining privacy and protecting against discovery demands. Trustees can implement robust privacy policies, challenge discovery requests, and employ advanced legal strategies, such as decanting or jurisdictional tactics, to block unwarranted access. Their role is indispensable in ensuring the QSF remains a secure and confidential resource for claimants.
Qualified settlement funds are not just financial instruments; they are legal fortresses designed to protect claimants' interests. With robust privacy provisions and a dedicated trustee, QSFs minimize legal exposure and preserve confidentiality. Eastern Point Trust Company’s QSF 360 platform leads the industry in offering innovative solutions to safeguard privacy and defend against discovery demands.
Discover 11 reasons attorneys should use Qualified Settlement Funds (QSFs) for small settlements. From tax benefits and flexible fund distribution to safeguarding client interests and streamlining processes, QSFs offer smart solutions for better outcomes and peace of mind.
Imagine securing your client's financial future while reducing your own risks. Sounds too good to be true? Keep watching to discover how qualified settlement funds can transform your legal practice.
1. Qualified settlement funds or QSFs offer significant tax advantages, allowing defendants to take a current year tax deduction and plaintiffs to defer income recognition.
2. Unlike IOLTA accounts, QSFs earn interest for your clients, maximizing their financial benefits from the settlement.
3. A QSF provides clients valuable time to make informed financial decisions, such as opting for structured settlement annuities or setting up special needs trusts.
4. QSFs allow time to resolve liens, bankruptcy, and probate issues, ensuring clients receive their settlement funds free from potential disruptions and financial penalties.
5. By using a QSF, attorneys can avoid the constructive receipt of funds which can have tax implications for plaintiffs.
6. QSFs also help avoid triggering the economic benefit of funds, preventing unnecessary taxation for plaintiffgifts.
7. A QSF protects plaintiffs from the risk of defendant insolvency by securing settlement funds in advance, ensuring clients receive due compensation regardless of the defendant's financial status.
8. QSFs offer a flexible framework for distributing settlement proceeds, accommodating various client needs and preferences for financial planning.
9. By utilizing a QSF, attorneys can ensure compliance with legal and ethical standards, particularly with significant settlement amounts, which helps to safeguard client interests.
10. QSFs streamline the settlement process by allowing for the efficient allocation and management of funds, reducing administrative burdens on attorneys and ensuring a smoother experience for clients.
11. With online solutions like QSF 360, setting up a QSF is quick, easy, and low cost, providing accessible solutions in as little as one day.
Qualified settlement funds provide numerous benefits that can significantly enhance the settlement management process for attorneys and their clients, even in cases involving smaller settlements. Leverage the power of QSFs for better financial outcomes and peace of mind.
Maximize settlements with smart planning: learn how tools like QSFs and strategies can double plaintiff outcomes and ensure long-term security.
Fox Business reported on the growth of settlement planning, structured settlements, and Qualified Settlement Funds, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Settling is first about the amount, but plaintiffs gain a lot by planning ahead."
Discover how structured settlements boost award value with tax benefits, investment growth, and expert planning tips for plaintiffs and attorneys.
ESPN discussed the regularity of personal injury lawsuit settlements and related financial consequences, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"The tax and investment benefits of structuring greatly increase your settlement value."
Maximize personal injury settlements with structured settlements and QSFs. Discover tax benefits and strategies from Eastern Point Trust experts.
Bloomberg covered the increased use of structured settlements in personal injury cases, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
"Structured settlements are typically part of a larger settlement plan. In most cases, you can save tax, invest, and protect public benefits, but you have to make those decisions before signing."
Watch how to simplify your settlement process with Qualified Settlement Funds (QSFs) approved by governmental entities, not just courts. Discover tax benefits, flexibility, and more.
Create a Qualified Settlement Fund without the hassle of court approval. Keep watching to discover how. Did you know that various governmental entities, not just courts, can approve QSFs? This includes federal, state, and local agencies.
The IRS plays a crucial role in supervising QSFs, ensuring compliance through tax regulations and rules. To establish a QSF, parties must petition a governmental authority which then reviews the proposed trust agreement for compliance.
Beyond tax benefits, QSFs reduce administrative burdens, help resolve secondary disputes, and create flexibility.
Traditional court-established methods can be time consuming and costly, but platforms like QSF 360 offer quicker, more affordable solutions. The QSF administrator must file Form 1120 SF annually, ensuring all IRS requirements are met.
Qualified settlement funds operate on a calendar-year basis and begin life upon governmental authority approval regardless of funding status. From tax benefits to streamlined creation options, QSFs offer numerous advantages for both plaintiffs and defendants. Always consult with experienced QSF administration professionals for specific guidance.
Ready to simplify your settlement process? Let's get started.
Learn how to minimize taxes on lawsuit settlements by understanding IRS rules. Allocate funds wisely, use Qualified Settlement Funds, and consult a tax expert for best results.
What legal settlements are taxable and how to minimize taxation of settlement awards. Receiving a settlement from a lawsuit can provide financial relief, but can raise taxability questions. Understanding the tax implications of lawsuit settlements is crucial to maximize compensation, minimize tax impact, and avoid potential pitfalls with the Internal Revenue Service (IRS).
Generally, the primary law regarding the taxability of amounts received from lawsuit awards and settlements is Section 61 of the Internal Revenue Code (IRC). Section 104 excludes taxable income settlements and awards resulting from physical injuries. However, the relevant IRS guidance states that one should consider "the facts and circumstances surrounding each settlement payment" to determine the settlement proceeds' purpose accurately, as "not all amounts received from a judicial award or settlement are exempt from taxes."
Judicial awards and settlements can be divided into two groups to determine whether the associated payments are taxable or non-taxable. Once funds have been classified into one of these two groups, a further subdivision is made. Proceeds from personal physical injuries or sickness are generally excludable from gross income, but emotional distress recoveries are only excludable if they stem from physical injuries.
Strategies to minimize tax liability include allocating damages to non-taxable categories like physical injuries and medical expenses, and using qualified settlement funds (QSFs) to provide short-term tax deferral and flexibility.
Navigating the complex tax implications of lawsuit settlements requires guidance. Consulting with a settlement tax expert before finalizing a settlement agreement can provide valuable insights and help negotiate more favorable tax outcomes.
Learn the truth behind some common myths about qualified settlement funds.
Qualified settlement funds are IRS qualified tax entities, and operate as statutory trusts. Critical to a successful QSF implementation is the administrator and associated administration, which streamlines the settlement process.
One common misconception about qualified settlement funds is that they are exclusively utilized for mass tort and class action settlements. QSFs are designed to resolve and satisfy claims, including those made before the fund is established, making them suitable for most types of torts, breach of contract, and environmental liability cases.
The second myth is that only plaintiffs benefit from qualified settlement funds, which overlooks the multiple advantages. Plaintiff attorneys can secure the settlement proceeds in a QSF, providing a safe space to work out a comprehensive settlement plan without pressure.
Contrary to the third myth that establishing a qualified settlement fund is a costly affair, QSF 360 offers the creation with a setup fee of only $500. The fourth myth surrounds the complexity of creating and administering QSFs and often deters parties from considering this as an efficient settlement solution.
Qualified administrators ensure the smooth operation and administration, including asset custody and oversight. Dispelling the fifth myth that qualified settlement funds offer limited tax advantages requires exploration of the tax benefits they present for defendants and plaintiffs. Upon contributing to a QSF, defendants are eligible for an immediate tax deduction, even if the funds have yet to be distributed to the plaintiffs. Plaintiffs can defer taxation on their settlement amounts until distribution.
The benefit of deferral can offer substantial financial planning advantages, allowing plaintiffs to potentially lower their tax obligations. Don't let the myths surrounding qualified settlement funds prevent you from utilizing this valuable tool. Be sure to like this video and subscribe to our channel for the latest.
Taxation of settlements can leave as little as 10 cents on the dollars for the plaintiff. The Plaintiff Recovery Trust (PRT) reduces settlement taxation.
Revenge porn litigation, bad behavior, abysmal tax treatment, and possible zero net recovery.
Revenge porn is not rare. It's estimated that one in eight social media users in the US are revenge porn targets. Revenge porn victims (RPVs) can pursue various types of civil causes of action, including intentional infliction of emotional distress, invasion of privacy, and defamation. Some states have civil laws allowing RPVs to seek compensatory damages.
Other states have specific laws allowing for a private cause of action against the person sharing the private images. Revenge porn damages include reputational harm, emotional distress, pain and suffering, lost income, medical expenses (including mental health care) and punitive damages. Unfortunately, because of the plaintiff double tax, and RPV suffers twice: first by the underlying violative action itself, and second by how their litigation recovery is taxed.
The double tax applies to many types of non-business litigation cases, including those involving no physical injuries, such as defamation, emotional distress, and punitive damages. The entire award is taxable income in those cases, but the related attorney fee cannot be deducted on the victim's tax return. An RPV might consider a plaintiff recovery trust, a specially designed trust that exists to hold the litigation claim.
If there is a successful recovery, the plaintiff recovery trust will significantly increase the RPV after tax recovery, perhaps by 100% or more depending on the recovery amount and where the RPV resides.
Qualified Settlement Funds drive growth in settlement planning, as reported by CNBC. Eastern Point Trust Company innovations lead the QSF fund industry.
CNBC highlighted the importance of settlement planning and use of Qualified Settlement Funds in interviews with Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).
“The right settlement planning can double what plaintiffs keep, even with the defense paying less.”
Discover how to effectively utilize a Qualified Settlement Fund as a resolution tool, streamlining settlements and ensuring compliance for all parties involved.
Recognizing when and how to use qualified settlement funds can significantly enhance the resolution process in your practice. Often referred to as a QSF, a qualified settlement fund is a tax-qualified statutory trust, which allows the defendant a full release when a settlement is paid into an account that acts as a temporary trust account. Those settlement funds can then be paid in cash, fund a structured settlement, attorney fee structure or assignment, and settle liens or allocation issues between parties.
A QSF created under Section 468 B is flexible and allows for a wide array of case types from class action, mass tort, even single-event and single-plaintiff cases. Moreover, most plaintiff's attorney has encountered a defense representative or attorney making things more difficult than necessary. The solution is to have the settlement paid into the QSF, thus removing the defense from the post-settlement process.
With Eastern Point Trust Company's QSF 360 platform, submitting a QSF can be easily accomplished in 15 minutes online for as little as $500 typically established within a single business day. The QSF is then ready to accept assets from a transferer, defendant, or defense carrier and provide the transferer with a complete release of liability.
Recognizing when and how to utilize qualified settlement funds can grow your practice, reduce risks, and produce improved financial outcomes for you and your clients. Eastern Point's QSF 360 platform makes the process quick, easy, and turnkey providing everything from the necessary documents to the required governmental approval and IRS registration. Be sure to like this video and subscribe to our channel for the latest videos.
Learn the importance of correctly naming Qualified Settlement Funds (QSFs) with our detailed guide, ensuring compliance and streamlined administration.
Qualified Settlement Funds are valuable financial mechanisms that offer tax benefits and flexibility in managing settlements across various disputes and litigation.
Let's explore the proper naming conventions for a Qualified Settlement Fund. Appropriate naming conventions support the fund’s integrity and purpose. The 2024 IRS naming requirement states no QSF name may be longer than 64 alphanumeric characters. A governmental authority must approve and exercise jurisdiction over a potential QSF. That authority will have its own policies and requirements to ensure the name is not misleading.
It is crucial to note that a QSF is not an interest on lawyer's trust account, nor an account owned by a law firm. No QSF should be labeled to imply that it is. However, including the term Qualified Settlement Fund, including the term QSF or using an FBO designation, or using the case name, plaintiff name, or plaintiff family name are safe harbors when naming a QSF.
If a law firm uses or plans to use numerous Qualified Settlement Funds, standardizing naming conventions allows for more effective case management and quicker access to essential documents. A consistent naming convention improves transparency, avoids confusion during audits and legal reviews, and allows for the timely and accurate distribution of funds. When navigating QSFs, carefully selecting a compliant name is not merely a governmental requirement. It can remove barriers and eliminate questions.
Explore the history of Qualified Settlement Funds (QSFs) in this informative video, uncovering their origins, evolution, and role in settlement planning.
The need for Qualified Settlement Funds (QSFs) emerged in the 1980s. Insurance companies grew anxious that settlements made with an entity (or directly to an individual) would not qualify for immediate tax deductions. They lobbied Congress for the ability to deduct payments in the year of the settlement, instead of when the payments were distributed. Congress acted in 1986 by enacting Section 468B of the Internal Revenue Code, a Qualified Settlement Fund and 468B allows the defendant to receive an immediate tax deduction.
With a QSF a defendant can transfer settlement funds, receive a current-year tax deduction, and obtain a release of claims. Also, plaintiffs may finalize the settlement terms without tax implications until the funds from the Qualified Settlement Fund are dispersed. This framework allows the QSF administrator to determine the allocation among the claimants.
While Section 468B initially focused on designated settlement funds, it was later amended by Congress to grant the Treasury powers to develop regulations. Qualified Settlement Fund accounts were thus born by regulation.
It is worth noting that in the past some insurance companies and large self-insured businesses have opposed the implementation of QSFs. However, numerous recent favorable court cases stipulating using QSFs have made such objections moot.
To qualify a QSF must be established pursuant to an order from, or approval by, a governmental authority. Additionally, it must settle one or more disputed or undisputed claims, asserting at least one liability. All claims must stem from an event or a related series of events. Unrelated events are not allowed. Finally, the QSF must be created as a trust under state laws or the assets are segregated from those of the transfer and related parties.
QSFs have provided many tax and other financial advantages for the defendant and the plaintiff for decades. To access more educational content on QSFs and various other trust products, visit EasternPointTrust.com/articles
Explore the ultimate guide to escrow accounts for private placements, with expert insights on managing funds, compliance, and ensuring smooth transactions.
Escrow accounts hold investor funds until the satisfaction of the offering, ensuring regulatory compliance to safeguard investor funds. These accounts hold funds raised from investors until the satisfaction of specific offering terms, ensuring compliance with regulatory requirements and safeguarding investor interests.
Opting for a trust company over a traditional bank account introduces the advantage of active independent oversight and FDIC insurance coverage up to $150 million per account. Using an escrow agent underscores the commitment to the prudent management of funds in private offerings.
Selecting an escrow agent to establish an account can typically take one to two weeks. Platforms like Eastern Point Trust Company can take as little as one business day. The escrow process also involves waiting for the investors transmittal of funds, either directly into the escrow or through a broker dealer, which is critical to proceed with breaking escrow. Once the terms of the offering have been satisfied, the offeror may request to break escrow and begin receiving funds.
The advantages of using a licensed vendor such as a trust company over a traditional bank account are measurable. Active independent oversight by a trust company adds a significant layer of security and integrity to these financial transactions, ensuring compliance with SEC and FINRA rules, directly contributing to investor confidence.
Learn how to navigate the tax implications of lawsuit settlements with expert insights from EPTC on minimizing tax burdens and maximizing financial outcomes.
In the aftermath of winning or settling a lawsuit, it is essential to understand the potential federal and state income tax implications and the strategies you can employ to minimize your tax liability. In this comprehensive guide, we’ll explore various factors that affect the taxability of lawsuit settlements and provide actionable tips to help you navigate the complex world of taxes on settlement money.
Not all amounts received from a settlement are exempt from federal and state income taxes. In determining the taxability of a settlement, it’s crucial to consider the purpose for which the settlement or award was received. Settlements related to physical injuries or illnesses where there is observable bodily harm are generally not considered taxable by the IRS. While settlements for physical injuries or illnesses are tax exempt, emotional distress awards are typically subject to taxes. Settlements designated explicitly for medical expenses are generally not taxable. However, punitive damages, awarded to punish the defendant for their wrongdoing, are almost always taxable. The tax treatment of legal fees depends on the nature of the settlement.
Now, let’s explore some practical strategies to minimize your settlement tax liability.
1. Allocate damages appropriately.
2. Spread payments over time.
3. Consider Qualified Settlement Funds.
4. Take advantage of capital gains treatment.
5. Seek professional tax advice.
and
6. Eliminate the taxation of the attorney fee portion.
There is, however, an effective solution for eliminating double taxation on the attorney fee portion: the Plaintiff Recovery Trust (PRT). Keep in mind the PRT must be in place before the settlement or judicial award is finalized. Winning or settling a lawsuit is a significant achievement, but it’s crucial to understand the potential tax implications of your settlement. For the full guide or to learn more about Qualified Settlement Funds and the Plaintiff Recovery Trust, please visit easternpointtrust.com.
Explore insights on defamation, double taxation, and financial strategies. Learn how to tackle complex legal and tax issues with the Plaintiff Recovery Trust.
In the current digital and highly charged political age, the power of words has never been more salient.
It has become all too commonplace for words to be used as weapons for making untrue statements about a person or entity. A single untrue utterance can ripple through society casting shadows of controversy and sometimes engendering significant legal implications. Unfortunately, because of the plaintiff double tax, defamation victims suffered twice: first by the defamation itself and second by how their litigation recovery is taxed.
Commissioner v. Banks is a Supreme Court case that addressed the question of whether, for federal income tax purposes, the taxable components of a judgment or settlement paid to a taxpayer's attorney under a contingent fee agreement is taxable income to the taxpayer. Having to pay taxes on the total value of the award where the related attorney fee is not deductible is the plaintiff's double tax.
Assume a defamation victim lives in New York City and recovers $1,500,000 in non-physical injury and emotional distress damages and an additional $1,500,000 In punitive damages. The entire $3 million of gross settlement proceeds are taxable to the plaintiff, but none of the attorney fees are deductible. Worst yet, with New York city taxes, the plaintiff ends up with a net of only $300,000. After tax, that is only 10 cents on the dollar.
A defamation victim seeking to avoid this unfortunate scenario created by Banks might consider a plaintiff recovery trust (PRT), a specially designed trust that exists to hold the litigation claim. If there is a successful recovery, the PRT will significantly increase the net after-tax recovery, perhaps by 100% or more, depending on the recovery amount and where the defamation victim is domiciled.
Discover how the Plaintiff Recovery Trust can assist in cases like E. Jean Carroll’s, offering solutions for defamation, settlements, and financial recovery.
After the plaintiff double tax reduces her settlement, E. Jean Carroll may find herself shopping at Walmart.
As you may know, E. Jean Carroll was recently awarded $83 million in her defamation case against former President Donald J. Trump. After the case Ms. Carroll quipped to Rachel Maddow on MSNBC, “I have such great ideas for all the good I'm going to do with this money”.
“First thing Rachel, you and I are going to go shopping at Bergdorf’s.”
But wait, there is the double tax bite. As all of Ms. Carroll's settlement proceeds are taxable, It is therefore subject to the plaintiff's “double tax” under the Supreme Court's banks taxation ruling. Thus, if her attorney receives a typical 40% contingency fee, then, of the $83 million, she will only end up with approximately $7.5 million; just nine cents on the dollar. Even if her award is reduced on appeal, the same double taxation treatment applies.
The good news is that the Plaintiff Recovery Trust, sponsored by Eastern Point Trust Company and Forward Giving, can eliminate the double tax burden. It does so by eliminating the plaintiff's requirement to pay tax on the attorney fee portion of the settlement, thereby materially increasing the plaintiff's net after-tax proceeds.
Contact Eastern Point to learn how the Plaintiff Recovery Trust may increase your after tax recovery up to 150%.
Discover how Qualified Settlement Funds (QSFs) simplify the litigation settlement process, ensuring efficiency, compliance, and financial flexibility.
Litigation settlements and awards are typically sent to the plaintiff attorneys’ IOLTA account, but that may not be the best option for you, the attorney, or your client. Funds received into your IOLTA expose you, as well as your clients, to financial disadvantages including immediate taxation on taxable elements, loss or reduction of government benefits, and loss of the ability to structure or assign the proceeds.
However, a Qualified Settlement Fund (also known as a QSF) solves these problems. Being IRS qualified, the QSF holds the settlement funds, tax deferred, while affording you and your clients time to plan. Unlike an IOLTA a QSF preserves your ability to structure or assign any portion of your fees. Additionally, a QSF preserves your client's ability to structure or fund a special needs or settlement protection trust.
Most importantly, a QSF does all this without triggering constructive receipt or loss of government benefits. Authorized by the IRS in 1993, QSFs have a 30-year track record of providing tax and financial advantages to clients and law firms alike. Whether a single event case with a single plaintiff or multi-claimant complex litigation, QSFs offer unmatched advantages and flexibilities.
Motivated by multiple advantages, large and small law firms nationwide are adopting QSFs at an ever-increasing rate.
Join the growing number of law firms using Qualified Settlement Funds. Reach out to us today. Discuss how the quick, easy, and affordable QSF 360 platform can benefit you, your firm and your clients.
Learn how Eastern Point simplifies the use of Qualified Settlement Funds (QSFs), offering expert solutions for managing settlements efficiently and compliantly.
Take a minute of your time and learn why creating a Qualified Settlement Fund with Eastern Point Trust Company allows you to leverage on of the most effective settlement tools with one of the industry's most reputable licensed trustee. Utilizing technology EPTC has revolutionized the QSF offering to ensure it is the highest quality product and service delivered at industry leading low cost price points and the quickest establishment and distribution timing in the industry. Find out more today by contact 855-222-7513 or visiting our website www.easternpointtrust.com.
Watch our educational series to learn how to establish a Qualified Settlement Fund (QSF) with Eastern Point Trust Company and manage settlements with ease.
Eastern Point Trust Company is your most complete, efficient, and economical Qualified Settlement Fund solution. Our patented technology allows us to perform tasks same day as opposed to weeks or even months with other providers in the industry.
Setup is simple. Click the “Get Started” button on our homepage, login, click “Create Trust”, and select the necessary information, easily broken out with explanations along the way. A one-click submission allows for instant receipt by our dedicated team of specialists. Your approval and accompanying documents are delivered securely in as little as one business day.
Benefits include same day distributions, tax reporting, real-time access to balances and statements, 24/7 access to an online document library, and more, all with security of a licensed trustee and fiduciary oversight at the industry’s most competitive price: $500 to establish and $500 to administer. Thank you for considering EPTC for your qualified settlement fund needs. Reach out to us with any questions. We look forward to working with you.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know. Learn about their purpose, benefits, eligibility, tax implications, QSF administration, etc.
Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know:
FOR IMMEDIATE RELEASE
[7/8/24] Joe Sharpe, ETPC President, explained, “QSFs are powerful financial tools to streamline and manage settlements, especially in complex cases. They provide tax benefits, flexibility, and efficient administration for all parties involved. With platforms like QSF 360™, creating and managing a QSF is quick, easy, and fully compliant. From establishing a QSF to understanding the roles of administrators, tax implications, and investment options, our comprehensive listicle covers all you need to know about these financial mechanisms.”
Learn the advantages of QSFs over other settlement structures, QSF regulatory oversight, and best practices for effective management. Make the most of your settlements with QSFs and ensure a smooth, compliant, and beneficial process.
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore more and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete listicle and learn more about the advantages of QSFs, visit https://www.easternpointtrust.com/articles/qualified-settlement-funds-listicle-of-12-things-to-know.
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The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.
[7/16/2024] — In a thought-provoking article published in Tax Notes* Lawrence J. Eisenberg, an experienced tax attorney, describes the perplexing issues affecting individual plaintiffs in litigation recoveries and considers how those issues can be addressed, including by using a charitably-based trust-based solution. The article “The Individual Plaintiff Tax Trap — A Conundrum and a Solution” delves into the intricacies of the taxation of litigation recoveries and addresses methods to mitigate the adverse tax consequences some individual plaintiffs face.
Background
Eisenberg’s article highlights the strange and often inconsistent tax treatment of individual plaintiff litigation recoveries under the Internal Revenue Code. Despite the Supreme Court’s 2005 decision in “Commissioner v. Banks”, which held that plaintiffs must report the entire recovery as taxable income—including the portion payable to attorneys—many plaintiffs (and their attorneys and advisors) remain unaware of the potential tax pitfalls when such recoveries do not fall under tax-free categories, e.g., damages for physical injuries.
The Individual Plaintiff Tax Trap
The crux of the issue lies in the deductibility of attorney’s fees. Some recoveries are tax-free, so attorney fee deductibility is not relevant, or allow for an above-the-line deduction of these fees. Other recoveries can result a “double tax”, because in those situations, the attorney fee portion of the recovery is taxable, but the attorney fee itself is not deductible. This leads to significantly diminished net recoveries. Eisenberg’s article includes a detailed example demonstrating how a plaintiff’s net recovery can be less than 10% of the total amount, with the government and attorneys each receiving several times more than the plaintiff!
A Trust-Based Solution
To address this inequity, Eisenberg proposes that a plaintiff affected by the double tax create a Plaintiff Recovery Trust (PRT). A PRT allows plaintiffs to transfer their litigation claims to a specially designed split-interest charitable trust. By doing so, the litigation claim becomes an asset of the trust, and any recovery is received by the trust, which then pays the net recovery to the trust beneficiaries, including the plaintiff. The PRT uses ordinary trust law principles and aims to achieve fairer tax treatment by separating the ownership of the litigation claim from the individual plaintiff.
Key Benefits of the Plaintiff Recovery Trust
- Equitable Tax Treatment: By treating the litigation claim as a trust asset, a Plaintiff Recovery Trust results in the plaintiff not being taxed on the portion of the recovery paid to their attorneys.
- Structured recovery: The PRT trust structure allows for a more organized and potentially tax-efficient distribution of recoveries. (It also permits the use of structured settlements as part of the solution.)
- Charitable Component: The PRT includes a charitable beneficiary, adding a philanthropic dimension to the solution.
Conclusion
Eisenberg’s article is a call to action for tax professionals and litigation attorneys to recognize and address the unfair tax treatment many individual plaintiffs face. The PRT trust-based solution offers a way to alleviate the financial burden imposed by current tax law, so that plaintiffs retain a fair share of their recoveries.
See the full article on the taxation of settlement proceeds.
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Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes.
Eastern Point Trust Company Unveils Comprehensive Guide on Navigating Post-Settlement Disputes and Complexities with Qualified Settlement Funds
[5/17/2024] — Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes. The guide focuses on utilizing Qualified Settlement Funds (QSFs), also known as 468B trusts, as a streamlined solution for efficient settlement fund management and dispute resolution.
It is not uncommon for secondary disputes to arise following a litigation settlement or court award. These disputes can range from family disagreements over their "fair share" to lawyers disputing fee splits, plaintiffs contesting attorney fees, and third-party lien holders emerging to stake claims against the litigation proceeds. Such complexities often hinder the settlement process and prolong the resolution.
Eastern Point Trust Company's newly released guide provides detailed insights into how QSFs can be employed to manage these disputes effectively. By offering a structured approach to fund management and tax compliance and providing the necessary time for informed decision-making, QSFs present a viable solution to post-settlement challenges.
Sam Kott, Vice President of Eastern Point Trust Company, emphasized the significance of the guide, stating, "This guide explores the advantages of QSFs, specifically their ability to address complex issues such as post-settlement disputes, secondary litigation, and lien resolution. The guide also provides direction on navigating post-settlement challenges and highlights the benefits of QSFs in achieving the best possible outcomes for all parties involved."
The guide delves into the various advantages of utilizing QSFs, including:
Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore the guide and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete guide and learn more about the advantages of QSFs, visit here.
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Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.
FOR IMMEDIATE RELEASE
[5/17/2024] — Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements. This comprehensive guide delves into the intricate workings of taxable and non-taxable settlements, offering invaluable insights into compensatory damages, punitive damages, and the tax treatment of various settlement types.
Ms. Rachel McCrocklin, Eastern Point’s Chief Trust Officer, commented, “The guide provides a detailed understanding of the pivotal role of IRS Section 104 and the taxability of various settlement types. Our goal is to equip readers with the knowledge to make informed decisions and minimize potential tax liabilities.”
The guide explores strategic methods to minimize tax obligations on settlements, including leveraging structured settlement annuities, Plaintiff Recovery Trusts, and proper allocation in settlement agreements. It is an essential resource for individuals and businesses navigating the complex landscape of settlement taxation.
Arm yourself with knowledge, make informed decisions, and minimize potential tax liabilities with Eastern Point's newest guide.
For more information on Unveiling the Complex World of Taxable and Tax-Free Settlements, please visit https://www.easternpointtrust.com/articles/unveiling-tax-free-settlements-what-you-need-to-know or contact 855-222-7513.
CTRO
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A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
FOR IMMEDIATE RELEASE
[5/2/2024] — A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.
It reviews the advantages of choosing a trust company over a traditional bank account for escrow services, emphasizing active independent oversight that enhances transaction security and integrity.
Ned Armand, CEO, noted, “The guide also highlights the critical role of an escrow agent in managing funds prudently, ensuring a smooth progression of transactions under the regulatory frameworks.” Offerors of private equity and Reg D, Reg A, Reg A+, Reg CF, and Reg S offerings are encouraged to explore this guide, available on Eastern Point Trust Company.
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In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability.
In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
FOR IMMEDIATE RELEASE
[2/27/2024] — In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.
The Qualified Settlement Fund stands as a testament to expediency, with the capability to be established and funded within a mere business day, a stark contrast to the lengthy processes associated with ERTs. By swiftly assuming environmental liabilities from present and future claims under CERCLA, state, and local law, QSF ensures immediate action and resolution.
One of the most compelling aspects of QSF is its affordability, with establishment costs as low as $500. This cost-effectiveness, coupled with the tax advantages it provides over ERTs, makes QSF an attractive proposition for businesses seeking prudent financial solutions.
Flexibility is another hallmark of QSF, allowing for single-year or multi-year funding without any maximum duration constraints, ensuring adaptability to diverse business needs. Furthermore, the ability to hold real estate expands the horizons of asset management within the fund.
The benefits extend to tax optimization, with QSF accelerating the transferor's tax deduction for funds transferred to the current tax year, thereby enhancing financial planning and efficiency. Moreover, by shifting liability and associated funding transfers irrevocably to the QSF, businesses can streamline their balance sheets, mitigating risks and enhancing transparency.
In addition to these financial advantages, QSF facilitates seamless settlement agreements to capitate and resolve environmental liabilities, assuring regulators and interested parties of the irrevocable availability of funds for amelioration.
The transition to QSF not only eliminates future administrative burdens but also entrusts the fund's administration to a dedicated trustee, relieving businesses of operational complexities and enhancing focus on core activities.
In conclusion, the Qualified Settlement Fund stands as a beacon of innovation in environmental liability management, offering unmatched advantages over traditional Environmental Remediation Trusts. Its expediency, affordability, flexibility, and tax optimization capabilities redefine the landscape, empowering businesses to navigate environmental challenges with confidence and efficiency.
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Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation
FOR IMMEDIATE RELEASE
[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.
Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.
Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”
About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.
Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.
About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.
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Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Eastern Point Trust provides services across the U.S. and internationally.
FOR IMMEDIATE RELEASE
[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.
Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”
Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”
Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners
About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.
With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.
About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust
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Qualified Settlement Funds (QSFs) are powerful financial tools to administer settlements, especially in complex matters. Parties involved in disputes contemplated under 1.46B-1 et seq. can effectively manage and benefit from Qualified Settlement Funds’ tax and financial advantages.
Qualified Settlement Funds (QSFs), a 468B trust, are valuable and crucial in managing litigation settlements efficiently and effectively. "QSF", which stands for "Qualified Settlement Fund", is a fund established as a trust or account established to hold settlement proceeds from litigation. According to the definition under Treasury Regulations, it is an escrow account, trust, or fund established according to an order of or approved by a government authority to resolve or satisfy claims.
This comprehensive infographic guide explains the essential aspects of Qualified Settlement Funds:
The guide provides valuable insights, tips, and rules of thumb for legal professionals, claimants, and other stakeholders about how a QSF account benefits the settlement process. A QSF offers many advantages, including immediate tax deduction for defendants, tax deferral for claimants, and efficient management of settlement proceeds. QSFs are commonly used in class action lawsuits, mass tort litigation, and cases with multiple claimants, but can also provide benefits in single claimant cases.
Setting up a QSF involves petitioning a government authority and appointing a QSF Administrator to oversee the fund. The QSF Administrator, often a platform like QSF 360, is responsible for obtaining an EIN, handling tax reporting, overseeing QSF administration, and making distributions to claimants. Online QSF portals streamline the Qualified Settlement Fund administration process.
Partnering with an experienced QSF Administrator is essential. Services like QSF 360 from specialize in QSFs for both large and small cases and can help ensure compliance with IRC § 1.468B-1 and other regulations.
In summary, Qualified Settlement Funds are a powerful tool for managing settlement proceeds. With proper planning and administration, QSFs provide significant tax benefits, enable efficient distribution of litigation proceeds, and help bring litigation closure. Understanding what is QSF and how to leverage QSFs is invaluable for any legal professional involved in today's settlements.
Discover how a Qualified Settlement Fund (QSF) played a crucial role in securing the future of a child after a legal settlement. This case study highlights the power of QSFs and its long term benefits for a minor.
In the heart of Georgia, a family’s world shattered when John Doe, a 34-year-old father, tragically lost his life due to the negligence of his employer. Left behind were his grieving spouse and minor children, including a 12-year-old daughter, Emily. As the family grappled with their loss, they faced the daunting task of navigating a complex legal landscape. Such a circumstance is where the power of a Qualified Settlement Fund (QSF) came into play, offering hope for Emily’s future.
The wrongful death suit resulted in a $3 million settlement, bringing relief and responsibility. Under Georgia law, the spouse and children were equal beneficiaries, with the spouse guaranteed at least one-third of the settlement. However, the presence of a minor beneficiary added complexity to the case.
The family’s attorney recognized the need for a solution to protect Emily’s interests while allowing for thoughtful, long-term financial planning. “In cases involving minors, we must think beyond immediate needs,” the lawyer noted. “We needed a mechanism to give us time to craft a comprehensive plan for Emily’s future.”
Emily’s lawyer proposed the establishment of a Section 468B Qualified Settlement Fund, a legal tool that would prove invaluable in this case. The QSF offered several key advantages:
A Qualified Settlement Fund, established under IRS Section 1.468B-1, is a financial and legal mechanism used primarily in settling lawsuits, particularly cases involving multiple claimants. It’s a settlement trust account established to receive and administer funds from a defendant in a legal settlement.
Considering a Qualified Settlement Fund as part of your strategy for crafting a secure future can be beneficial when involved in a legal settlement. It’s essential to consult with legal and financial professionals to determine if a QSF aligns with your specific situation and long-term financial goals.
With the plan in place and the luxury of time to plan, Emily’s guardian, her mother, worked closely with financial advisors to create a comprehensive plan. They explored various options, including:
“The 468B Settlement Trust gave us breathing room,” Emily’s mother shared. “Instead of making rushed decisions, we could carefully consider Emily’s future and make choices that truly honored her father’s memory.”
The implementation of the QSF, in this example case, serves as a model for similar situations. It demonstrates how thoughtful legal and financial planning can turn a tragedy into an opportunity for long-term security and growth.
The lawyer reflected on the case: “By utilizing a QSF, we were able to transform a moment of profound loss into a foundation for Emily’s future. It’s a powerful reminder of how the right legal and tax tools can make a real difference in people’s lives.”
As Emily grows, she’ll have the financial resources she needs to pursue her dreams, thanks to the foresight and care taken in managing her settlement via a Qualified Settlement Fund. While nothing can replace the loss of a parent, the security provided by this approach offers some solace and hope for the future.
Using a Qualified Settlement Fund can be a game-changer for families facing similar circumstances. It provides the time and flexibility needed to make informed decisions, ensuring that the interests of minor beneficiaries are protected and nurtured for years to come.
Learn more about how Qualified Settlement Funds benefit the minor’s settlement process.
Contact a QSF 360 specialist today at (855) 979-0322.
Eastern Point Trust Company se complace en ofrecer a los clientes de habla hispana un número gratuito exclusivo, así como acceso a un equipo de servicios al cliente compuesto por personal hispanohablante nativo profesional y de alto nivel.
Para obtener más información, comuníquese con el equipo al (855) 412-5100, esperamos trabajar con usted.
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