This comprehensive guide demystifies the tax treatment of lawsuit settlements, covering tax implications, strategies to minimize tax liability, and the importance of expert guidance. Learn how to navigate the complexities of tax reporting.
When receiving a settlement or judicial award from a lawsuit, many plaintiffs are often surprised when they discover they must pay taxes on the proceeds. The confusion surrounding the tax implications of lawsuit settlements is compounded by the fact that the income tax rules can be complex and vary depending on the nature of the case and the state in which one resides. This article shall demystify the tax treatment of lawsuit settlements, highlighting the key factors determining these awards’ taxability, explaining why taxes on lawsuit settlements are higher than one may think, and how to avoid paying taxes on settlement money.
We also discuss strategies you can employ to minimize your tax liability in our next article in this series, How to Minimize Tax Liability on Lawsuit Settlements or Avoid Paying Taxes on Settlement Money.
One crucial aspect to consider when it comes to the taxation of lawsuit settlements is the origin of the claim. The IRS bases the taxation of settlement awards on the nature of the underlying claim. For instance, if you sue for wages after being laid off, the settlement amount will be taxed as wages. On the other hand, if you sue for damage to your property caused by a negligent contractor, the damages may not be considered income and may be treated as a reduction in the property's purchase price.
It’s crucial to note that the tax treatment of settlement awards is subject to exceptions and nuances. Therefore, it is essential to carefully evaluate how your particular settlement will be taxed, especially in light of recent tax reforms.
Recoveries for physical injuries and sickness are generally tax-free, while damages awarded for emotional distress are not automatically tax-exempt. Before 1996, all personal damages, including those for emotional distress, were tax-free. However, the tax code was amended to require that injuries be “physical” to qualify for tax-free treatment. If you sue for intentional infliction of emotional distress, your recovery will be subject to taxation. Recoveries for physical symptoms of emotional distress, like anxiety, sleepiness, stomachaches, and headaches, are also taxed. It’s essential to navigate these distinctions carefully to ensure proper tax reporting.
In many legal disputes, multiple issues are at play, and the settlement may involve various types of consideration. It is often possible for the plaintiff and defendant to agree on the allocation of damages, which can have significant tax implications. While these agreements are not binding on the IRS or the courts, they are usually considered. By strategically allocating damages, plaintiffs can potentially minimize their tax burden and optimize the overall tax treatment of their settlement.
One of the most significant tax traps for plaintiffs is the treatment of attorney fees. Suppose you are a plaintiff represented by a contingent fee lawyer. In that case, the IRS considers you to have received 100% of the money recovered, even if the defendant pays your lawyer directly. This “tax doctrine” means that, in most cases, you will be taxed on the entire settlement amount, even if a portion goes to your attorney. For example, if you settle a lawsuit for $100,000, and your lawyer takes $40,000 as a contingency fee, you will still be taxed on the total $100,000.
It’s worth noting that before 2018, there were two ways to deduct attorney fees: above the line and below the line. However, the Tax Cuts and Jobs Act of 2017 eliminated below-the-line deductions for legal fees, leaving above-the-line deductions as the only remaining option. These deductions are available for employment claims and specific whistleblower claims. Seeking early tax advice before settling a case is essential to understanding the potential tax implications of your settlement and the attorney fee portion.
TIP: There is an effective solution for many circumstances – the Plaintiff Recovery Trust – but it must be in place before the settlement or judicial award is finalized.
Unlike compensatory damages, which may be tax-free in certain circumstances, punitive damages and interest are always taxable. If you receive a settlement or judgment that includes compensatory and punitive damages, the compensatory portion may be tax-free, while the punitive portion will be fully taxable. It’s important to distinguish between the different types of damages when assessing your tax obligations. Additionally, interest received before or after a judgment is also subject to taxation and can complicate the overall tax treatment of a settlement.
The recent #MeToo movement has brought increased attention to sexual harassment cases, and there are new wrinkles in the tax treatment of these settlements. While the tax reform law generally does not impact plaintiffs suing their employers, there are exceptions and nuances to consider. It’s essential to consult with a tax professional experienced with the specific tax laws and regulations surrounding sexual harassment cases to ensure accurate tax reporting.
Regarding taxes on lawsuit settlements, proper reporting and documentation are crucial. Defendants are usually required to issue IRS Form 1099 to plaintiffs for the total settlement amount unless the settlement qualifies for an exemption. To protect your tax position, it’s crucial to negotiate tax language in the settlement agreement to explicitly state the tax treatment of the settlement and address the issuance of Form 1099. By addressing these details upfront, you can avoid potential tax complications.
While the tax implications of lawsuit settlements may seem overwhelming, there are strategies that plaintiffs can employ to minimize their tax burden. These strategies may include proper allocation of damages, strategic negotiation of the settlement agreement, and careful consideration of the timing of payments and reporting. Working closely with a knowledgeable tax advisor can help ensure that you maximize your tax benefits and minimize any potential tax liabilities associated with your settlement.
Given the complexity and ever-changing nature of tax laws, seeking expert guidance is advisable when navigating the tax implications of lawsuit settlements. A qualified tax professional can assist you in understanding the specific taxation rules and regulations that apply to your case, ensuring that you meet your tax obligations while optimizing your tax position. With their guidance, you can navigate the intricacies of tax reporting and make informed decisions to minimize your tax burden.
Taxation of lawsuit settlements is a complex area that requires careful consideration and expert guidance. Understanding the origin of the claim, differentiating between tax-free and taxable damages, and properly reporting attorney fees and other settlement components are crucial to ensure compliance with federal and state income tax laws. In many circumstances, the Plaintiff Recovery Trust may assist in minimizing the tax burden.
One should take proactive steps to optimize one's tax position and always seek professional tax advice to confidently and competently navigate the tax implications of lawsuit settlement taxation.
Explore benefits and applications of Qualified Settlement Funds, an efficient and effective tool for resolving litigation with a single or multiple claimants.
Qualified Settlement Funds (QSFs), also known as 468B Trusts, provide an efficient and effective tool for resolving litigation involving a single claimant or multiple claimants. They offer a valuable option for defendants and claimants, allowing for time-sensitive resolution while maintaining financial and legal advantages. This article delves into the world of QSFs, discussing their benefits, applications, and the services related to their administration.
A QSF is an account or trust set up to settle one or more claims resulting from a tort, contract breach, or other violation of the law. The fund must be established pursuant to an order or approval from the United States, any state, state agency, or political subdivision, including courts of law, and must be subject to the continuing jurisdiction of the same. As a statutory trust created by a governmental authority, a QSF must also qualify as a trust under state law or keep its assets separate from the transferor's.
The Qualified Settlement Fund originated from the Designated Settlement Fund concept introduced in 1986. This concept enabled defendants to deduct amounts paid to settle class action multi-plaintiff lawsuits before agreeing on how these amounts would be allocated individually. The §1.468B-1 et seq QSF was officially promulgated in 1993 to simplify the settlement and administration of settlements and judicial awards, and has since found popularity as a vehicle to settle cases involving multiple and single claimants.
When established, a QSF assumes the liability from the defendant before the settlement is final, at which time the defendant is dismissed with prejudice. The QSF then stands in the shoes of the defendant with the plaintiff until all negotiations are final. This process may include negotiations with the plaintiff(s), healthcare providers with enforceable liens, and others, including government entities, with possible claims on the potential proceeds, and includes addressing legal (and other) experts' fees and costs.
There are several advantages of QSFs to the defendant's side:
On the other side, QSFs also present significant benefits to claimants:
Several services are associated with the administration of QSFs. These can include:
Platforms like QSF 360 offer low-cost turnkey solutions to establish a QSF in as little as one business day, including the integrated administration of the QSF.
QSFs are helpful in various scenarios, including:
While QSFs offer numerous benefits, it is crucial to exercise caution:
In conclusion, QSFs offer a valuable solution for resolving complex litigations. By understanding their benefits, applications, and associated services, you can utilize them effectively. Visit our Resource Library of articles related to various topics associated with Qualified Settlement Funds.
For more information about QSFs, contact us at (855) 979-0322.
Trusts are financial vehicles that can provide numerous benefits, including asset protection, protecting government benefits, tax advantages, and controlling the distribution of the trust’s assets. Learn how trustee fees impact trust value and discover strategies to manage costs effectively.
Trusts are financial vehicles that can provide numerous benefits, including asset protection, protecting government benefits, tax advantages, and controlling the distribution of the trust’s assets. However, one often overlooked aspect of trust management is the impact of trustee fees on the overall value of the trust. While trustee fees are important for all trusts, the impact of fees is especially relevant for Special Needs Trusts (“SNTs”) and Settlement Protection Trusts (“SPTs”).
Trustee fees are costs associated with the administration and management of a trust. These costs can range from standard administrative operations to more complex financial tasks, and they can significantly impact the overall value of the trust over time.
Trustee fees are a necessary cost of conducting trust operations. However, if not properly managed, these fees can significantly eat into the value of the trust.
Note: An attorney has an ethical duty to ensure that he or she is always acting in the best interest of its client(s). This duty applies to the safeguarding of clients’ assets and other property, and by extension, an attorney must ensure trustee fees for a trust holding any client assets are reasonably commensurate. As such, best practice would necessitate having documentation that demonstrates that comparative due diligence was exercised by an attorney before the execution of any trust instrument. This position is bolstered by various courts’ recent application of fiduciary duties to individuals and circumstances to which such duties have not traditionally applied.
Trustee fees might seem minor at first, but over time they, can significantly reduce the value of the trust. These costs are typically deducted directly from the trust’s assets, reducing the funds available for distribution to beneficiaries.
The impact of trustee fees is especially significant in the case of ongoing trusts that operate over several decades. In such cases, even small fees can compound over time, substantially reducing the trust’s value.
The long-term impact of trustee fees on a trust’s value underscores the importance of understanding and managing these costs.
Not all trustees are equally transparent regarding fees; in particular, trustees that charge primarily on a time and billing basis have an open road to impose fees that may be more than the grantor would have agreed to had the total amount been fully disclosed. Time-based billing should be limited to “extraordinary” events and not part of ordinary trust administration.
The trustees’ fees should be fully transparent and detailed within the trust documents.
Also, so-called “Pooled Trusts” often fail to fully disclose all fees, particularly the fees associated with the investment pool.
Unlike licensed fiduciaries, Pooled Trusts are unregulated and have no supervising government agency that oversees or examines their activities. Unregulated financial entities expose clients to a greater risk of financial loss.
The calculation of trustee fees can vary depending on the specifics of the trust and the jurisdiction in which it operates. Some trustees may charge a flat fee for their services, while others may charge a percentage of the trust’s assets. Other trustees have fixed or base annual fees, dramatically increasing the effective fee rate over time as the trust holds fewer assets.
Sometimes, the trust document itself may specify the trustee’s compensation. However, if the trust document does not guide this matter, you may have little recourse to limit fees as the trustee is typically entitled to “reasonable compensation” for their services.
Determining what constitutes “reasonable compensation” can be a complex matter, and it often involves consideration of several factors that typically require a court to resolve, including:
Accordingly, the best practice is always to require a fully disclosed and incorporated fee schedule within the trust documents.
Consider a trust with a stable value of $1,500,000. If the trustee charges a fee of 1.46% annually (the national average trustee fee according to some sources) the fees would amount to $14,600 annually. Over 20 years, these fees would total $292,000 – or almost 19.5% of the trust’s initial value.
Furthermore, this calculation does not consider the opportunity cost of these fees. In other words, if not consumed in fees and invested, the funds used to pay trustee fees would generate additional returns for the trust.
By comparison, a trustee fee of 0.65% would save $195,000 over 20 years and reduce the effective trustee fee rate even further with the added investment gains.
This example illustrates the potential impact of trustee fees on a trust’s value and the importance of carefully considering these costs when setting up and managing a trust.
Given the potential impact of trustee fees on a trust’s value, attorneys, trustees, and beneficiaries must manage these costs actively. Here are some strategies that can help:
While trustee fees are a necessary part of trust administration, they can significantly impact the overall value of a trust if not properly managed. By understanding the trustee fees and implementing strategies to address these costs, trustees and beneficiaries can help ensure that trusts continue to serve their intended purpose without being unduly eroded by fees.
The importance of careful management of trustee fees underscores the value of professional advice in trust administration. Whether you are a trustee or a beneficiary, working with an experienced team of professionals can help navigate the complexities of trust administration and ensure the trust is efficiently and cost-effectively managed.
For more detailed information on trustee fees and how they can impact a trust, visit www.easternpointtrust.com. We can provide solutions tailored to your situation and fully transparent information about trust administration.
Finally, remember that trust administration is a complex process that requires attention to detail, a strong understanding of financial and legal concepts, and a commitment to acting in the best interests of the trust’s beneficiaries. By educating yourself about the process and seeking professional advice when needed, you can help ensure that your trust serves its intended purpose and provides for your loved ones in the most effective manner possible.
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This article explores the tax implications of compensatory and punitive damages from lawsuit settlements. Learn about taxability, planning, damages allocation, and attorney fees' role in tax liabilities.
When you secure a financial settlement from a lawsuit, it's crucial to understand the associated tax implications. There are two primary types of damages you could receive from a lawsuit: compensatory and punitive. Each of these damages has different tax implications, which we will explore in this article.
Lawsuit settlements are financial awards granted to plaintiffs to compensate for their losses and/or to punish the defendant for their actions.
Compensatory damages compensate the plaintiff for the actual losses sustained due to the defendant's actions. These damages aim to restore the plaintiff's financial status as if the incident leading to the lawsuit had not occurred.
Economic damages are quantifiable monetary costs incurred by the plaintiff. These include medical expenses, property damage, and lost wages due to missed work.
Non-economic damages cater to intangible losses such as pain and suffering, mental anguish, and decreased quality of life. Assigning a monetary value to these damages can be challenging as they are subjective and vary from case to case.
Punitive damages punish the defendant for reckless behavior and deter others from committing similar acts. They are usually awarded in cases where the defendant's conduct was particularly egregious.
The reason for the award determines the taxability of compensatory damages. Generally, compensatory damages for physical injuries are not taxable income, implying that you do not need to report it as taxable income if your lawsuit settlement includes compensatory damages for bodily injuries.
However, non-physical injuries such as emotional distress, defamation, and humiliation are typically taxable income. See Plaintiff Recovery Trust for solutions to reduce taxation on settlements and Understanding Intricacies of Plaintiff Taxation.
Unlike compensatory damages, punitive damages are always taxable, regardless of the reason for the award. They must be reported as "Other Income" when filing taxes. See Plaintiff Recovery Trust for solutions to reduce taxation on settlements and Understanding Intricacies of Plaintiff Taxation.
Tax planning is crucial before settling a lawsuit to avoid surprise tax bills. It's essential to know the breakdown of your settlement, and understand which portions of the damages are compensatory and which are punitive, for tax purposes.
It's possible to allocate damages into compensatory and punitive categories to optimize tax treatment. While this allocation does not bind the IRS, the IRS usually does not ignore these agreements.
If you hire a contingency fee lawyer, 100% of the money recovered is considered received by you for tax purposes, even if your lawyer takes a percentage off the top. Thus, you will be liable to pay taxes on the entire settlement amount, not just your share after attorney fees.
Understanding the tax implications of your lawsuit settlement can help you plan your finances better and avoid potential tax liabilities. It's always a good idea to consult with a tax professional or attorney to understand the tax implications of any damages you may receive.
And remember, the tax treatment of damages can be complex. So, having a knowledgeable industry leader to guide you through these complex financial matters is invaluable.
This article thoroughly explains Qualified Settlement Funds (QSF), their legislative background, functioning, advantages, and potential disadvantages. Learn more about QSFs here.
In the complex financial landscape of litigation settlements and judicial awards, Qualified Settlement Funds (QSFs) present a robust solution that simplifies the process for all parties involved. This article offers a comprehensive understanding of QSFs, what QSFs mean, the legislative background, how they function, their advantages, and potential disadvantages.
A Qualified Settlement Fund or “QSF” is a specialized trust or fund established under state law primarily dedicated to holding the proceeds from a legal settlement. QSFs are Qualified Settlement Trusts, 468B Trusts, or 468B funds. The term “468B” originates from Section 468B of the Internal Revenue Code, which authorizes establishing these funds. When created as a trust, a QSF is a Statutory Trust established by the governmental authority.
Qualified Settlement Funds first emerged as part of the Tax Reform Act of 1986. Initially, the law introduced Designated Settlement Funds (DSFs), designed for insurance companies to deposit money to settle claims. However, DSFs had limited applicability and flexibility, leading to the introduction of Qualified Settlement Funds in 1993 through Treasury regulations. Unlike DSFs, QSFs have broader applications and increased flexibility, making them a popular choice in all tort litigation and other cases, whether complex or simple.
According to Treasury Regulation 1.468B-1(c), a fund must meet three critical criteria to qualify as a QSF:
A QSF simplifies the litigation settlement process by providing a structure that benefits both plaintiffs and defendants. The defendant or their insurance company deposits the agreed-upon settlement amount into the QSF. Upon deposit, the defendant can claim an immediate tax deduction for the total amount and is released from further liabilities associated with the lawsuit.
Once the defendant is released from the case, the QSF allows for the resolution of post-litigation issues. These can include allocation of settlement amounts between different plaintiffs, negotiation of liens, and planning for the settlement’s financial impact. The QSF acts as a temporary holding tank for the settlement proceeds until all allocation issues are resolved, and all funds are disbursed.
There are several advantages to using a QSF in a litigation settlement:
Despite its advantages, establishing a QSF can come with potential disadvantages. One minor downside is the cost involved in setting up a QSF. However, using a low-cost platform like QSF 360 makes QSFs fast and affordable. Unlike QSF 360’s low costs, other vendor’s costs can include high fees for drafting the trust document, filing fees, administration fees, and potential CPA fees for preparing tax returns.
There are several key tax considerations associated with QSFs:
The QSF regulations require the appointment of an “Administrator,” who is usually selected by the plaintiff’s attorney. The Administrator is responsible for distributing the funds held in the QSF to claimants, claimants’ attorneys, state Medicaid agencies, CMS for Medicare liens, ERISA plans, and other lien holders. They also fund, from the QSF, structured settlements, including making a §130 Qualified Assignment to a third party who will make the periodic payments.
So-called Single Claimant QSFs have become increasingly common, and several recent court cases have affirmed their use in single-plaintiff cases. While some naysayers continue to oppose the idea of a Single Claimant QSF, during the last 30 years (or the life of 468B), the IRS has not made any known adverse finding or taken any adverse action against any “Single Claimant QSF.” This includes cases of so-called Single Claimant QSFs, which were being audited for other reasons. Finally, the leading commentator on QSFs finds no basis for the Single Claimant QSF myth. (See Actually, Single-Claimant Settlement Funds Are Valid)
In conclusion, “QSF” means a “Qualified Settlement Fund” that provides a strategic solution for managing litigation awards and settlements. A QSF offers a structured approach that benefits all parties involved, simplifying the process and providing time for careful planning and negotiation. Their benefits make them a valuable tool in the litigation process.
Visit our Resource Library of articles related to various topics associated with Qualified Settlement Funds.
For more information about QSFs, contact us (855) 979-0322.
Unravel the complexities of plaintiff recovery taxation, including the "double tax" issue, focusing on Commissioner v. Banks. Understand tax implications, deductions, and proactive measures for optimizing after-tax recovery.
The taxation of plaintiff litigation recoveries often induces confusion, yet understanding it is indispensable. Especially significant are the implications of the “double tax” issues. This article explores this intricate topic, focusing on the landmark case of Commissioner v. Banks.
The tax implications are not always straightforward when dealing with litigation recoveries. While compensatory and related emotional distress damages for physical injuries are tax-free, other related non-personal injury components, including punitive damages and interest, are taxable.
In many other plaintiff recoveries, the situation becomes more complicated. These include (but are not limited to) non-physical injuries such as emotional distress, defamation, breach of contract, malpractice, fraud, and intellectual property violations. In these instances, the recoveries are typically taxable.
Surprisingly, many individual plaintiffs receiving taxable recoveries cannot deduct their legal fees. These fees are considered “miscellaneous itemized deductions,” which are nondeductible according to the Internal Revenue Code §67(g). Only limited exceptions exist, making it crucial for plaintiffs to understand whether the IRS permits deducting their attorney fees.
The double tax issue arises from the 2004 U.S. Supreme Court ruling in Commissioner v. Banks. (Commissioner v. Banks, 543 U.S. 426 (2005)). This case established that plaintiffs must include the attorney fee portion of their taxable recovery in income, resulting in a “double tax.” As a result of Commissioner v. Banks, in contingent fee cases, plaintiffs must generally recognize gross income equal to one hundred percent (100%) of their recoveries, even if the attorney is paid directly by the defendant and the plaintiff receives only a settlement payment net of the attorney fees. This strict tax rule generally requires plaintiffs to devise a method for deducting their 40 percent (or other) contingency fee and other attorney costs.
In taxable cases where the attorney fee is not deductible, the plaintiff and the attorney pay tax on the attorney fee portion of the recovery. This double taxation can significantly reduce plaintiffs' recovery, especially those in high-tax jurisdictions. In extreme cases, such as high-tax states like New Jersey, New York, and California, plaintiffs may end up with little or nothing (sometimes less than 15% of the gross settlement) after paying their lawyer and offsetting case expenses and taxes.
Defendants in taxable cases are also subject to significant penalties if they fail to issue a 1099 or exclude the attorney fee portion. The penalty could be 10% of the unreported amount, without limit, according to IRS Regulation 1.6041-1(f) and IRC §6722(e). This point is critical and frequently misunderstood or ignored, as the plaintiff should expect the defendant to be unwilling to ignore or “fudge” any tax treatment reporting.
The American Bar Association advises that competent representation of plaintiffs requires considering the tax implications of the settlement. It’s an ethical obligation for personal injury lawyers to inform clients about the taxation of the litigation proceeds and the consequences of not addressing taxes properly or seeking competent tax advice.
Many suggested ways of minimizing plaintiff recovery taxes are ineffective. These include reporting only the portion of the recovery received by the plaintiff to the IRS, treating the attorney-client relationship as a partnership or business, excluding the structured part of the attorney’s fees, or improperly treating the claims as “civil rights” violations. These strategies fail to work and expose the plaintiff to severe penalties and interest and the possibility of tax fraud allegations if discovered by the IRS.
There is a deduction in the Internal Revenue Code that allows plaintiffs in employment and civil rights lawsuits to be taxed on their net recoveries (i.e., the attorney fees and costs for these types of cases are deductible). The limit results in no problem where all legal fees are paid in the same tax year as the recovery. However, the issue remains if the plaintiff paid hourly legal fees over more than one year. In such an event, there is no income to offset, so one cannot deduct the legal fees above the line. An aggressive approach – unlikely to withstand review - would have the lawyer pay back the prior fees and have the lawyer charge them once again in the tax year of the settlement.
This above-the-line deduction only applies to attorney fees paid because of “unlawful discrimination” claims as defined by Code §62(e). The definition of “unlawful discrimination” only includes claims brought under the following federal statutes:
If the pleadings in the case do not explicitly cite a violation of at least one of these statutes or an employment-based claim, one should consider carefully the risk of asserting unlawful discrimination to avail the taxpayer of the above-the-line deduction. It has been suggested by numerous tax professionals that taking an above-the-line deduction may well be a major IRS audit flag and may result in substantial underpayment penalties.
Drafting the complaint or settlement agreement to consider the taxes is a strategy to avoid the double tax when the facts and circumstances allow. Another method involves contributing the claim to a Plaintiff Recovery Trust (PRT), a charitable trust planning arrangement adapted for litigation. A plaintiff may also consider selling the claim to reduce taxes associated with a taxable recovery, but the sale must be valid and have substance.
Tax planning to reduce plaintiff taxes on recoveries is possible while the case is ongoing and unresolved. However, opportunities are limited once the claim is resolved. Few accountants are familiar with plaintiff recovery taxation issues, and they often get involved only after the recovery when it’s too late. There are post-settlement planning opportunities, but they aren’t as effective as addressing the tax issues before the case is resolved.
The complexities of plaintiff recovery taxation, particularly the controversial double tax issue, have profound implications that affect plaintiffs, attorneys, and defendants alike. While the tax treatment of plaintiff recoveries remains a contested area, understanding the intricacies of these issues is crucial.
In conclusion, while the taxation of plaintiff recoveries and the double tax phenomena can be daunting, understanding these aspects is crucial for all parties involved in litigation. The Commissioner v. Banks case is a critical reference point in this complex tax landscape, highlighting the need for experienced advisors early in the process and well before settlement or adjudication.
The Commissioner v. Banks case underscores the importance of competent legal and tax advice for plaintiffs embarking on litigation.
To learn more about Commissioner v. Banks, its impacts, and solutions like the Plaintiff Recovery Trust, visit the Eastern Point Trust Company Resource Library of articles on various topics associated with Commissioner v. Banks.
As individuals with disabilities navigate their financial planning, two important options often arise, Special Needs Trusts (SNTs) and ABLE accounts. This comprehensive guide will explore the intricacies of Special Needs Trusts and ABLE accounts, comparing their features, benefits, and limitations.
As individuals with disabilities navigate their financial planning, two important options often arise, Special Needs Trusts (SNTs) and ABLE accounts. Both are possible tools for managing funds and maintaining eligibility for public benefits. However, it’s crucial to understand the critical differences between these two options to make informed decisions that align with specific needs and goals.
This comprehensive guide will explore the intricacies of Special Needs Trusts and ABLE accounts, comparing their features, benefits, and limitations. By the end, you will clearly understand how these tools work and which may be the most suitable for your circumstances.
When planning for individuals with disabilities, Special Needs Trusts (SNTs) and ABLE accounts have revolutionized the landscape. These tools offer opportunities for individuals to maintain eligibility for critical public benefits while securing funds for long-term care, education, housing, and other disability-related expenses.
While SNTs and ABLE accounts serve similar purposes, they differ significantly in control, funding limits, qualified expenses, and payback requirements. Understanding these differences is essential for individuals and families who wish to make informed decisions that align with their circumstances and goals.
In the following sections, we will explore the details of Special Needs Trusts and ABLE accounts, exploring their features, benefits, and limitations. We will also consider the critical differences between these two options to assist you in choosing the most suitable option based on individual needs.
A Special Needs Trust, also known as a Supplemental Needs Trust, is a legal arrangement designed to protect the assets of an individual with disabilities while preserving their eligibility for means-tested public benefits, such as Supplemental Security Income (SSI) and Medicaid (in which the government measures a family’s income against the federal poverty line when determining eligibility). An SNT is overseen by a trustee who makes decisions regarding the disbursement of funds for the benefit of the trust’s beneficiary.
The primary purpose of a Special Needs Trust is to enhance the quality of life for the beneficiary with disabilities by supplementing public benefits and allowing the trust funds to cover various expenses that improve the beneficiary’s well-being.
One significant aspect of Special Needs Trusts is the control and management of the SNT assets. The trustee, who can be a family member, friend, or professional fiduciary, is responsible for managing the trust and making decisions regarding the disbursement of funds.
It is typically unwise to allow family members to serve as trustees as they rarely have the professional knowledge, training, or oversight that an institutional trustee possesses.
Unlike ABLE accounts, where the individual with disabilities has direct control over the account with no guidance on the possible loss of government benefits, Special Needs Trusts grant the trustee the authority to oversee the trust and guide the beneficiary. An SNT thus provides an additional layer of oversight and ensures that the funds are not misused and are for the sole benefit of the individual with disabilities.
Special Needs Trusts’ funding occurs through various sources, including personal injury settlements, inheritances, and gifts from family members. There are no specific funding limits or restrictions on the amount placed into a Special Needs Trust, however, it’s essential to consider the impact of large sums of money on public benefits eligibility.
Unlike ABLE accounts, institutional SNT trustees assist with guidance and knowledge to preserve government benefits.
While ABLE accounts have annual contribution limits, Special Needs Trusts may accept unlimited funding. This advantage of SNTs allows for flexibility in financing SNTs by accommodating significant financial contributions while maintaining eligibility for means-tested government benefits.
Special Needs Trusts allow for a broad range of qualified expenses using SNTs’ funds. These expenses include medical and dental care, therapy and rehabilitation services, housing and utilities, transportation, education and vocational training, entertainment and recreation, legal and advocacy fees, and other disability-related expenses.
It’s important to note that in the case of either an SNT or an ABLE account, the funds must be solely for the benefit of the individual with disabilities and used in a manner that does not jeopardize their eligibility for public benefits. The trustee must carefully manage the disbursement of funds and keep detailed records of expenses to demonstrate compliance with the trust’s requirements.
One critical aspect of both ABLE accounts and Special Needs Trusts is the potential payback requirement to the state upon the beneficiary’s death. When the individual with disabilities passes away, any remaining funds may be subject to a payback provision, which requires reimbursement to the state for the Medicaid benefits provided during the beneficiary’s lifetime.
The payback provision ensures that Medicaid is reimbursed before any residual funds are distributed to other beneficiaries or heirs. However, the payback may be limited to the extent of Medicaid benefits received, and specific rules and exceptions vary from state to state.
Pooled SNTs (which are managed by nonprofit organizations, combine the resources of many beneficiaries for purposes of administrative cost-effectiveness and investment optimization, and whereby Individuals have their own sub-accounts and usually receive a proportionate share of the entire fund’s earnings) usually retain all residual funds after the beneficiary’s death; thus, the family receives no part of the remaining funds. The non-negotiable retention is one of the many shortcomings of Pooled Special Needs Trusts.
Special Needs Trusts offer several advantages and limited disadvantages that individuals and families should consider when evaluating their financial planning options:
Pros:
Cons:
ABLE accounts (so named because their intent is “Achieving a Better Life Experience” for their beneficiary) are tax-advantaged savings accounts designed to help individuals with disabilities save for qualified disability-related expenses without jeopardizing eligibility for means-tested public benefits. The ABLE Act went into effect in 2014, and since then, numerous states have established ABLE programs to offer these accounts to eligible individuals.
The primary purpose of ABLE accounts is to empower individuals with disabilities to save and invest funds for a wide range of qualified expenses, such as education, housing, transportation, assistive technology, healthcare, and other disability-related costs. These accounts provide flexibility and independence in managing funds while maintaining eligibility for public benefits.
One significant difference between ABLE accounts and Special Needs Trusts is the level of control and management. ABLE accounts are owned and controlled by the individual with disabilities, referred to as the account beneficiary. ABLE accounts allow individuals to make unsupervised decisions regarding contributions, investments, and the disbursement of funds without requiring trustee approval. Of course, this comes with risks as the individual with disabilities has no guidance or support to ensure that their use of the funds does not result in the loss of government benefits or even payback of prior benefits.
The account beneficiary or their authorized representative manages the ABLE account, chooses investment options, and makes withdrawals for qualified expenses. While attractive to some, this level of control introduces significant risks with severe financial consequences. Consider the medical cost and financial risk if a disabled individual loses their Medicaid coverage because of an error in distribution type or documentation.
ABLE accounts’ funding can occur through various sources, such as personal contributions, family contributions, and contributions from friends and supporters. The annual contribution limit for ABLE accounts is tied to the federal gift tax exclusion, which, as of 2022, is $16,000 per year. Albeit unlikely, employed disabled individuals may be eligible to contribute an additional amount up to the federal poverty level for a one-person household ($12,880 in 2022).
It’s important to note that once the ABLE account balance reaches the state’s maximum limit, additional contributions are not allowed until the balance falls below the limit. The maximum limit varies by state and typically ranges from $235,000 to $529,000. However, the account balance can continue to grow through investment earnings.
ABLE accounts allow for the payment of qualified disability-related expenses, which include a broad range of categories such as education, housing, transportation, assistive technology, employment training and support, health and wellness, financial management, legal fees, and other expenses that enhance the individual’s quality of life.
Remember that the most significant risk with ABLE account regulations is to keep 100% accurate records and documentation of expenses paid from the account. This documentation will serve as evidence of the account’s appropriate use in the event of an audit or review.
Like Special Needs Trusts, ABLE accounts are subject to a state Medicaid payback provision upon the beneficiary’s death.
For ABLE accounts, the payback is limited to Medicaid expenses incurred after establishing the account. The state can seek reimbursement for Medicaid benefits provided after the account opening but not for benefits provided before the account’s creation.
ABLE accounts offer distinct advantages and disadvantages that individuals and families should consider when evaluating their financial planning options:
Pros:
Cons:
Understanding the critical differences between Special Needs Trusts and ABLE accounts is crucial for individuals and families seeking to make informed decisions regarding their financial planning. The following sections highlight the primary distinctions between these options, focusing on control and management, funding and contribution limits, qualified expenses and distributions, and payback to the state.
One significant difference between Special Needs Trusts and ABLE accounts is the level of control and management.
Special Needs Trusts are supervised by a trustee, who has the authority to make decisions regarding the disbursement of funds on behalf of the beneficiary. The beneficiary relies on the trustee to perform all recordkeeping and provide guidance according to their best interests.
ABLE accounts provide individuals with disabilities with direct ownership and unsupervised control over their funds. The account beneficiary, or their authorized representative, manages the account and makes decisions regarding contributions, investments, and qualified expense payments. This level of control promotes self-determination and financial independence for individuals with disabilities. With the independence inherent in an ABLE account also comes the responsibility to ascertain that all distributions qualify as a disability-related expense and to document each of these transactions.
One significant difference between Special Needs Trusts and Special Needs Trusts do not have specific funding limits, allowing for the transfer of significant financial resources into the trust. There are no restrictions on the amount that can be placed into a Special Needs Trust.
ABLE accounts, on the other hand, have annual contribution limits tied to the federal gift tax exclusion. As of 2022, the annual contribution limit is $16,000. Additionally, individuals who are employed may be eligible to contribute an additional amount up to the federal poverty level for a one-person household ($12,880 in 2022). The maximum account balance also varies by state but typically ranges from $235,000 to $529,000.
Both Special Needs Trusts and ABLE accounts allow for the payment of qualified disability-related expenses. However, the scope of qualified expenses may differ slightly between the two options.
Special Needs Trusts allow for a wide range of qualified expenses, including medical and dental care, therapy and rehabilitation services, housing and utilities, transportation, education and vocational training, entertainment and recreation, legal and advocacy fees, and other expenses that enhance the beneficiary’s quality of life.
ABLE accounts also cover a broad range of qualified expenses, such as education, housing, transportation, assistive technology, healthcare, and other disability-related costs. However, it’s important to note that ABLE accounts may have specific guidelines and restrictions on qualified expenses, and documentation of all distributions of funds must be maintained to demonstrate compliance.
Both Special Needs Trusts and ABLE accounts may be subject to a payback provision upon the beneficiary’s death. However, the payback requirements differ between the two options.
For Special Needs Trusts, the payback provision may require reimbursement to the state for Medicaid benefits received during the beneficiary’s lifetime. The payback amount is typically limited to the extent of Medicaid benefits provided, and specific rules and exceptions vary from state to state.
For ABLE accounts, the payback provision is more limited. The state can seek reimbursement for Medicaid benefits provided after the establishment of the account, but not for benefits provided before the account’s creation. This limited payback provision allows individuals to benefit from the funds in their ABLE accounts during their lifetime while still preserving some assets for their heirs.
One significant difference between Special Needs Trusts and ABLE accounts is the level of control and management.
Special Needs Trusts are supervised by a trustee, who has the authority to make decisions regarding the disbursement of funds on behalf of the beneficiary. The beneficiary relies on the trustee to perform all recordkeeping and provide guidance according to their best interests.
ABLE accounts provide individuals with disabilities with direct ownership and unsupervised control over their funds. The account beneficiary, or their authorized representative, manages the account and makes decisions regarding contributions, investments, and qualified expense payments. This level of control promotes self-determination and financial independence for individuals with disabilities. With the independence inherent in an ABLE account also comes the responsibility to ascertain that all distributions qualify as a disability-related expense and to document each of these transactions.
When deciding between a Special Needs Trust and an ABLE account, several factors should be considered to ensure the most suitable option. The following considerations can guide individuals and families in making informed decisions that align with their needs and goals.
Eligibility criteria significantly determine whether a Special Needs Trust or an ABLE account is the most appropriate option. Special Needs Trusts are available to individuals of all ages, regardless of the age of onset of the disability. They are beneficial for individuals who may not meet the eligibility requirements for ABLE accounts due to age or other factors.
To qualify for an ABLE account, the individual must have developed a disability before age 26. This age limitation prevents individuals who acquire disabilities later in life from creating an ABLE account.
The amount of financial resources available can influence the decision between a Special Needs Trust and an ABLE account. Special Needs Trusts are well-suited for individuals with significant financial resources, as there are no specific funding limits or restrictions on the amount placed into the SNT.
ABLE accounts, on the other hand, have annual contribution limits tied to the federal gift tax exclusion. While ABLE accounts offer tax-advantaged savings and flexibility in managing funds, the contribution limits may restrict the amount of funds allowed.
Considering long-term financial planning and future needs is essential when choosing between a Special Needs Trust and an ABLE account. Special Needs Trusts provide comprehensive planning options, allowing individuals to transfer substantial assets into the trust for the benefit of the individual with disabilities. This long-term planning approach ensures that funds are available to support the individual’s needs throughout their lifetime.
While offering flexibility and independence, ABLE accounts may be more appropriate for small amounts, which are better suited to short-to-medium-term planning.
The desired level of flexibility and control can also guide the decision between a Special Needs Trust and an ABLE account. Special Needs Trusts provide a structured approach with a trustee responsible for managing and disbursing funds on behalf of the beneficiary. This arrangement ensures oversight and compliance with the trust’s requirements.
ABLE accounts, on the other hand, grant individuals with disabilities direct ownership and control over their funds. This arrangement creates risks for the loss of government benefits.
Navigating the complexities of financial planning for individuals with disabilities requires professional guidance. Engaging a provider with expertise in disability planning is crucial for establishing Special Needs Trusts and ABLE accounts. These professionals can provide valuable insights, ensure compliance with regulations, and tailor the planning approach to individual needs and circumstances.
Consulting with a trust company specializing in disability planning can also be beneficial, as they guide on strategies, tax implications, and the coordination of benefits to maximize financial resources and long-term security.
In some cases, individuals and families may find that a combination of a Special Needs Trust and an ABLE account offers the most comprehensive approach to financial planning. By leveraging the benefits of both options, individuals can maximize financial resources and maintain eligibility for means-tested public benefits.
Combining a Special Needs Trust with an ABLE account can provide individuals with disabilities with a robust financial planning strategy. Special Needs Trusts can accommodate significant financial resources, allowing for long-term planning and the transfer of substantial assets. ABLE accounts, on the other hand, offer flexibility and independence in managing funds for short-to-medium-term disability-related expenses.
By utilizing both options, individuals can benefit from the long-term security and comprehensive planning of a Special Needs Trust while enjoying the accessibility and control provided by an ABLE account. This combination approach allows for the preservation of assets and the ability to save and spend funds as needed.
When utilizing both a Special Needs Trust and an ABLE account, it’s essential to coordinate benefits and minimize overlaps. Careful consideration should be given to the types of expenses covered by each option and the most appropriate source of funds for each expense payment.
Effectively coordinating benefits can help individuals avoid duplication of funds and ensure each option obtains its fullest potential. This coordination may involve working closely with the trustee of the Special Needs Trust and maintaining clear documentation of expenses paid from the ABLE account.
Navigating the financial planning landscape for individuals with disabilities requires a comprehensive understanding of available options. Special Needs Trusts and ABLE accounts offer valuable tools for managing funds, preserving eligibility for public benefits, and enhancing the quality of life for individuals with disabilities.
Financial planning for individuals with disabilities is a complex and evolving field. It is always advisable to consult with a professional specializing in disability planning and with expertise in this area to ensure that the chosen approach meets specific needs and complies with applicable laws and regulations.
Can an individual have both a Special Needs Trust and an ABLE account? Yes, individuals can have both a Special Needs Trust and an ABLE account. Each option offers unique benefits and advantages, and utilizing both can provide a comprehensive and flexible financial planning strategy.
Are there limits to the amount of funds that can be placed into a Special Needs Trust? Special Needs Trusts do not have funding limits or restrictions on the amount that can be placed into the trust.
Can ABLE account funds be used for any type of expense? ABLE account funds must be used for qualified disability-related expenses. While the list of qualified expenses is broad, individuals must ensure that their expenses meet the criteria to avoid potential penalties or disqualification of public benefits.
Is there a payback requirement for ABLE accounts? ABLE accounts are subject to a payback provision upon the beneficiary’s death. The payback typically includes 100% of the Medicaid benefits received after establishing the ABLE account, allowing individuals to benefit from the funds during their lifetime.
How can I determine which option is most suitable for my circumstances? Choosing between a Special Needs Trust and an ABLE account requires careful consideration of individual needs, financial resources, long-term planning goals, flexibility and control preferences, and professional guidance. Consulting with an attorney and a financial advisor specializing in disability planning is crucial for making an informed decision.
For more detailed information on Special Needs Trusts, the applicable fees, and how they can impact government benefits, visit www.easternpointtrust.com. We can provide solutions tailored to your situation and fully transparent information about trust administration.
Finally, remember that special needs trust administration is a complex process that requires attention to detail, a strong understanding of financial and legal concepts, and a commitment to acting in the best interests of the trust’s beneficiaries. By educating yourself about the process and seeking professional advice when needed, you can help ensure that your SNT serves its intended purpose and provides for your loved ones in the most effective manner possible.
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For additional information and resources on Special Needs Trusts, ABLE accounts, and financial planning for individuals with disabilities, please refer to the following:
Ensure Medicaid notification requirements are met with our easy-to-use template. Protect government benefits & gain quick approval. Learn more about trust administration
In order to maintain Medicaid or other government benefits, such as SSI, state Medicaid agencies require notification that assets are being transferred and a Special Needs Trust is being created. State Medicaid agencies also require notification of any amendment to said Special Needs Trust. When filing the required notice, it is wise to make the state Medicaid agency’s job easy by tailoring the transmission letter to address the critical elements of the qualification.
The following sample letter provides an easy-to-use template to assist in satisfying state Medicaid notification requirements and facilitating a quick and easy approval.
Re: [Trust Name]
Sirs and Madams:
This correspondence serves as a fulfillment of the ongoing notification requirements related to the attached [Trust Name] (hereinafter referred to as “Trust”), established to satisfy the requirements of the Social Security Act for protecting the Beneficiary’s government benefits received pursuant to 42 USC §1396p(d)(4)(A).
Summary of Information:
Beneficiary Name: [Beneficiary Name]
Beneficiary DOB: [Beneficiary DOB]
The Trust Assets are Not an Available Resource:
The Trust meets the requirements of a first-party Special Needs Trust located at 42 USC §1382b(e)(5) and implementing Social Security Administration policies set forth in the Program Operations Manual System (hereinafter referred to as “POMS”) at SI 01120.203.B treating assets as exempt if held in trusts that comply with 42 USC §1396p(d)(4)(A). The POMS set forth its procedure for developing Medicaid trust exceptions to resource counting at POMS SI 01120.203(D)(1). The Trust fully satisfies the eight-step procedure as follows:
1. The Trust is established with the assets of an individual under age 65 at the time of establishment and funding, as the Beneficiary was born on [Date]. POMS SI 01120.203B.1.b.
2. The Trust is established with the assets of a person with a disability as defined by 42 USC §1382c(a)(3) as the Beneficiary is disabled [Describe Disability]. POMS SI 01120.203B.1.d.
3. The Trust is established for the sole benefit of the person with a disability, and the Beneficiary is the Trust’s sole Beneficiary as set forth in the Trust document.
4. The Trust is established by [Name].
5. The Trust provides specific language to reimburse all State Medicaid agencies up to an amount equal to the total medical assistance paid on behalf of the Beneficiary under any State’s Medicaid plan as set forth in this Trust document.
6. The Trust is not a countable resource under POMS SI 01120.200D.1.a and b because:
The notification process is a necessary part of creating a Special Needs Trust. Providing a simple and concise communication to the state Medicaid agency can help ensure that trusts are approved.
For more detailed information on Special Needs Trusts, the applicable fees, and how they can impact government benefits, visit www.easternpointtrust.com. We can provide solutions tailored to your situation and fully transparent information about trust administration.
Finally, remember that special needs trust administration is a complex process that requires attention to detail, a strong understanding of financial and legal concepts, and a commitment to acting in the best interests of the trust’s beneficiaries. By educating yourself about the process and seeking professional advice when needed, you can help ensure that your SNT serves its intended purpose and provides for your loved ones in the most effective manner possible.
Seek brands that maintain a formal, professional tone and utilize technical, regulatory, and financial terms throughout the communication. The style conveys authority, expertise, and dependability, aiming to resonate intellectually with its audience. The brand persona reflects a knowledgeable industry leader committed to educating and guiding its clients through complex financial matters.
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.
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.
BP OIL SPILL/
DEEPWATER HORIZON
INDONESIA JETCRASH FLIGHT 152
AIR PHILIPPINES FLIGHT 531
VW GROUP OF AMERICA INC SETTLEMENT (DIESEL CASE)
3M
AMAZON
GENERAL MOTORS
MATCH
INTUIT MULTI-STATE SETTLEMENT
BERNARD MADOFF
PURDUE PHARMA
POLARIS INDUSTRIES
Eastern Point Trust Company offers a variety of escrow services, ministerial services, trust administration services, self-help support software, attorney support software, and document management systems; some of which offer companion self-service and automated software solutions. Fiduciary, escrow, ministerial, and trustee services are only offered and performed by Eastern Point Trust Company in such jurisdictions in which Eastern Point Trust Company is licensed to provide such services and then pursuant solely to the terms of the associated governing documents. Eastern Point Trust Company may act in a ministerial non-fiduciary capacity as escrow agent when applicable. As required by federal law related to "domestic trusts," fiduciary, escrow, and ministerial services related to "substantial decisions" shall be required to be independently performed by one or more co-trustees or affiliated or non-affiliated parties who are "United States persons." Fees charged are solely for ministerial services, trustee services, or licensing fees to access the self-help system, and fees are not drafting or document preparation fees. The content herein is provided as-is, and is limited to information and descriptions of the features and benefits of Eastern Point Trust Company's services, products, and requirements when applicable. This website is for informational purposes only and is not an offer to sell, an offer to buy, or a solicitation for any security. The content herein is not an offer to provide legal, fiduciary, escrow, ministerial, or trust services. The information herein is not intended to be legal or investment advice and should not be construed as legal or investment advice. Eastern Point Trust Company and its affiliated parties are not law firms, are not a lawyer referral service, and do not act as your attorney or investment advisor. Eastern Point Trust Company is not a substitute for the advice of an attorney or an investment advisor. As such, Eastern Point Trust Company does not provide any advice, explanation, opinion, or recommendation about possible legal rights, express any legal guidance on the matters contained herein, nor provide investment advice or management. As appropriate, seek the advice of an attorney if you have questions concerning legal questions, remedies, defenses, or options; seek the advice of a licensed investment advisor related to trust holding(s) or investments. Eastern Point Trust Company and its affiliated companies are not broker-dealers and only forward your instructions to executing custodians/broker-dealers. Your accessing and utilizing this website constitutes your agreement to the Terms and Conditions (a.k.a. Terms of Use) shown herein. Please review the Terms and Conditions (a.k.a. Terms of Use) carefully, as they contain important information and disclosures and are legally binding. The terms of the applicable agreement, and the Terms and Conditions (a.k.a. Terms of Use) on the website shall supersede and have precedent over any information provided for herein. You are solely responsible for protecting the privacy and security of your electronic communications (sent or received). Additionally, it is your duty to secure your systems, networks, devices, browsers, and communications systems and devices with anti-virus and malware protection and anti-breach security software. Any loss resulting from a breach of your systems, networks, devices, browsers, or communications systems and devices is solely your liability.
Educational Disclosure: This website may contain articles, listicles, infographics, or other informational or educational content or links to such content; said content is provided solely as educational materials. Said content is not and shall not be construed as legal, investment, or tax advice on which you should rely. Always seek the advice of competent legal, investment, or tax advisors (as needed) to review your specific facts and circumstances.
Any opinions, views, findings, conclusions, or recommendations expressed in the content contained herein are those of the author(s) and do not necessarily reflect the views of the Eastern Point Trust Company, its Affiliates, Third Parties, or clients. The mere appearance of content herein does not constitute an endorsement by Eastern Point Trust Company (“EPTC”), its Affiliates, Third Parties, or clients. The underlying author’s opinions are based upon information they consider reliable, but neither EPTC nor its Affiliates nor its Third Parties nor the company with which such author(s) are affiliated warrant completeness, accuracy, or disclosure of opposing interpretations.
EPTC and its Affiliates disclaim all liability to any party for any direct, indirect, implied, special, incidental, or other consequential damages arising directly or indirectly from any use or reliance on the content herein, which is expressly provided as is, without warranties. Finally, these educational materials are provided as-is. All warranties, express or implied, including but not limited to warranties of merchantability or fitness for a particular purpose, are expressly disclaimed.