Settlement: Strategies & Solutions

What Types of Legal Settlements are Not Taxable?

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

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

Differentiating Taxable Income From Taxable Settlements

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

Understanding Settlement Taxation

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

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

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

The Role of IRC Section 104 – Physical Injury

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

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

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

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

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

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

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

Common Nontaxable Settlements

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

Personal Injury Settlements

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

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

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

Medical Expense Reimbursements

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

Wrongful Death Settlements

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

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

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

Common Types of Taxable Settlements

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

Employment Disputes and Lost Wages

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

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

Punitive Damages

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

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

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

Emotional Distress Without Physical Injury

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

Let’s consider some examples:

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

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

Whistleblower Taxation

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

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

Strategies to Minimize Tax Obligations on Settlements

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

Structured Settlement Annuities

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

Plaintiff Recovery Trusts

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

PRTs offer additional benefits:

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

Proper Allocation in Settlement Agreements

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

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

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

Conclusion

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

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

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Introduction

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

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

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

Is Post-judgment Interest Material?

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

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

Understanding the Taxation of Awards

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

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

Pro Tip: Legal Fees and Deductions.

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

Tax Planning Strategies for Recipients of Post-Judgment Interest

Utilizing Plaintiff Recovery Trusts

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

Structured Settlement Annuities and Tax Benefits

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

Conclusion

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

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

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

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

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

Understanding Private Placement Escrow Accounts

Overview of Private Placement Escrow Accounts

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

Steps in the Escrow Process

1. Opening an Account: Selecting an escrow agent to establish an account is typically the first step, which can take one to two weeks. However, platforms like Eastern Point Trust Companies can take as little as one business day.
2. Securing Financing: The escrow process also involves waiting for the investors’ transmittal of funds, either directly into the escrow or through a broker-dealer, which is critical to proceed with “breaking escrow.”
3. Breaking Escrow: Once the terms of the offering have been satisfied, the offeror may request to “break escrow” and begin receiving funds. The escrow trustee will not allow escrow to be broken, and funds will not be available to the offeror until the private placement terms are fulfilled.

Regulatory Framework and Requirements

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

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

The Role of the Escrow Agent

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

Importance of Escrow

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

Selecting the Right Escrow Agent

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

Advantages of Trust Companies Over Traditional Banks

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

Regulatory Requirements for Private Placement Escrow Accounts

Regulatory Frameworks and Compliance

Broker-Dealer Obligations Under SEC and FINRA Rules

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

Filing Requirements With FINRA

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

Escrow Handling in Contingency Offerings

Rule 15c2-4 Requirements

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

Selection of Private Placement Escrow Agents

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

Choosing the Right Escrow Agent

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

Critical Factors in Choosing an Escrow Agent

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

Conclusion

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

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

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

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

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

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

Background of Letter Ruling 08-7

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

The Massachusetts Department of Revenue ruling outlined the following:

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

Conclusion

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

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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Phone: 855-222-7513

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

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

Background

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

The Individual Plaintiff Tax Trap

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

A Trust-Based Solution

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

Key Benefits of the Plaintiff Recovery Trust

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

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

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

Conclusion

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

See the full article on the taxation of settlement proceeds.

PRESS Contact
www.EasternPointTrust.com

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Phone: 855-222-7513

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Eastern Point Trust Company Unveils Comprehensive Guide on Navigating Post-Settlement Disputes and Complexities with Qualified Settlement Funds

[5/17/2024] — Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes. The guide focuses on utilizing Qualified Settlement Funds (QSFs), also known as 468B trusts, as a streamlined solution for efficient settlement fund management and dispute resolution.

It is not uncommon for secondary disputes to arise following a litigation settlement or court award. These disputes can range from family disagreements over their "fair share" to lawyers disputing fee splits, plaintiffs contesting attorney fees, and third-party lien holders emerging to stake claims against the litigation proceeds. Such complexities often hinder the settlement process and prolong the resolution.

Eastern Point Trust Company's newly released guide provides detailed insights into how QSFs can be employed to manage these disputes effectively. By offering a structured approach to fund management and tax compliance and providing the necessary time for informed decision-making, QSFs present a viable solution to post-settlement challenges.

Sam Kott, Vice President of Eastern Point Trust Company, emphasized the significance of the guide, stating, "This guide explores the advantages of QSFs, specifically their ability to address complex issues such as post-settlement disputes, secondary litigation, and lien resolution. The guide also provides direction on navigating post-settlement challenges and highlights the benefits of QSFs in achieving the best possible outcomes for all parties involved."

The guide delves into the various advantages of utilizing QSFs, including:

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

Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore the guide and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete guide and learn more about the advantages of QSFs, visit here.

PRESS Contact
www.EasternPointTrust.com

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Phone: 855-222-7513

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

FOR IMMEDIATE RELEASE

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

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

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

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

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

CTRO

PRESS Contact
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Phone: 855-222-7513

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

FOR IMMEDIATE RELEASE

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

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

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

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

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

FOR IMMEDIATE RELEASE

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

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

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

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

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

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

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

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

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

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Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation

FOR IMMEDIATE RELEASE

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

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

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

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

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

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

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

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

FOR IMMEDIATE RELEASE

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

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

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

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

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

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

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

PRESS Contact
www.EasternPointTrust.com

[email protected]
Phone: 855-222-7513

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Qualified Settlement Funds (QSFs), a 468B trust, are valuable and crucial in managing litigation settlements efficiently and effectively. "QSF", which stands for "Qualified Settlement Fund", is a fund established as a trust or account established to hold settlement proceeds from litigation. According to the definition under Treasury Regulations, it is an escrow account, trust, or fund established according to an order of or approved by a government authority to resolve or satisfy claims.

This comprehensive infographic guide explains the essential aspects of Qualified Settlement Funds:

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

The guide provides valuable insights, tips, and rules of thumb for legal professionals, claimants, and other stakeholders about how a QSF account benefits the settlement process. A QSF offers many advantages, including immediate tax deduction for defendants, tax deferral for claimants, and efficient management of settlement proceeds. QSFs are commonly used in class action lawsuits, mass tort litigation, and cases with multiple claimants, but can also provide benefits in single claimant cases.

Setting up a QSF involves petitioning a government authority and appointing a QSF Administrator to oversee the fund. The QSF Administrator, often a platform like QSF 360, is responsible for obtaining an EIN, handling tax reporting, overseeing QSF administration, and making distributions to claimants. Online QSF portals streamline the Qualified Settlement Fund administration process.

Partnering with an experienced QSF Administrator is essential. Services like QSF 360 from specialize in QSFs for both large and small cases and can help ensure compliance with IRC § 1.468B-1 and other regulations.

In summary, Qualified Settlement Funds are a powerful tool for managing settlement proceeds. With proper planning and administration, QSFs provide significant tax benefits, enable efficient distribution of litigation proceeds, and help bring litigation closure. Understanding what is QSF and how to leverage QSFs is invaluable for any legal professional involved in today's settlements.