The first Saturday in May is approaching, and fans of the Kentucky Derby are already looking at the top contenders for this year. For those who are lucky enough to bet on the winning horse, the payout is big. Last year, the Kentucky Derby purse was $2 million.
Winning would surely be a life changing moment. But it’s important for people who take home money at the races to know that the IRS will take a cut of that lump sum. That realization might feel similar to what plaintiffs experience when they win a lawsuit that’s taxable.
Thankfully, there are a few options for plaintiffs who obtain a settlement so they can lighten the initial tax hit. A person’s gross income does not include damages received in a lawsuit over personal physical injuries or illness (aside from punitive damages). However, cases that do not involve injuries can result in a major financial blow to the plaintiff come the next tax season. These taxable lawsuits commonly involve issues including sexual harassment, discrimination, fraud, and intellectual property. Without proper planning, a plaintiff could pay thousands of dollars to the IRS after receiving his or her settlement.
Those with a taxable settlement can work with a comprehensive settlement planner to establish a non-qualified assignment (NQA). An NQA is a structured plan to make future payments to the plaintiff using portions from non-injury settlement money (more on this planning approach here). An NQA affords the opportunity to plan the receipt of income each year while also spreading the tax burden over time (instead of getting taxed on a lump sum settlement).
Unfortunately for those who win big at the Kentucky Derby, payment strategies are not available. Instead, it’s important to speak with an accountant and set aside the IRS’s cut for tax time.
Litigators and legal professionals who participate in the discovery process will benefit from reading the recently published Federal Rule of Civil Procedure 34 Primer* from The Sedona Conference Working Group 1 (WG1).
The 2015 changes to the Federal Rules of Civil Procedure addressed systemic problems in the handling of discovery requests and responses in the justice system. In particular, Rule 34 was revised to reduce the “… costs and delay in the disposition of civil actions by advancing cooperation among the parties, proportionality in the use of discovery procedural tools, and early and active judicial case management.”
The changes to discovery rules were meant to eliminate certain obstacles that tended to jump in front of efficiently moving through actions and proceedings. These obstacles typically included:
- Overly and unnecessarily broad, non-particularized discovery requests
- Overuse of boilerplate objections that provided insufficient information
- Responses to requests that failed to clarify whether responsive documents were being withheld on the basis of objections
- Responses stating that requested documents would be produced without specifying when
The Sedona Conference WG1 prepared the Rule 34(b)(2) Primer to provide practice pointers on how to comply with the amended rules. For example, the document provides guidance on how to draft Rule 34 requests to successfully combat objections. Also useful are tips and recent case law that apply the amended rule’s language disfavoring boilerplate objections and requiring responding parties to disclose whether they are withholding documents on the basis of their objections. These and other useful points make the primer the perfect go-to for anyone who is part of the discovery process.
The Sedona Conference is a nonprofit research and educational institute dedicated to the advanced study of law and policy, particularly in the areas of antitrust law, complex litigation, and intellectual property rights. The organization drives reasoned, practical, and just advancements of law and policy by stimulating dialogue among leaders of the bench and bar.
Congratulations to Annika Martin of Lieff Cabraser Heimann & Bernstein and Women En Mass, who is on the WG1 Steering Committee and was Co-Editor-in-Chief of the primer. This document is a valuable resource for lawyers and other professionals in the field as they apply the 2015 amendments to the discovery rules to their practice.
*19 Sedona Conf. J. 447 (forthcoming 2018)
At the 2018 Mass Torts Made Perfect conference, I offered a look into one of the newest philanthropic efforts on the block, which advocates for plaintiffs in financial crisis. In case you missed my presentation, “Philanthropy and Civil Justice: Can Families Rely on Social Good to Support Themselves When They Hit Exhaustion During Lawsuits?” here’s the scoop.
The unregulated, for-profit plaintiff funding industry makes $3 billion annually from families who have exhausted their finances during litigation. Their interest rates can be as much as 50% to 100% per year. They justify those exorbitant interest rates because if a plaintiff loses the case, they lose their money. Sometimes, the amount in interest and fees a family ends up owing the funding company becomes larger than the settlement amount after all is said and done. Suddenly, seeking justice means going broke.
Let’s be clear, litigation finance is necessary to have as an option. Without it, a plaintiff who is in the midst of litigation may be forced to take a low settlement in order to end the lawsuit or they may be forced to drop the lawsuit altogether. However, the current rates in the industry may result in the following, which would also be undesirable:
- Plaintiff accepts an early but low settlement, rather than going to trial or waiting for a better settlement offer, because they’re concerned about the interest that is accruing; or
- Plaintiff becomes reluctant to accept a reasonable settlement offer because of a contractual obligation to repay a supplier a substantial portion of the proceeds of the settlement.
I founded the Bairs Foundation with my wife to offer the civil justice space a fair alternative to the options that exist today. Our mission is to provide plaintiffs with low-cost access to capital, so they can go the distance against deep-pocket defendants, without owing an arm and a leg once their suit has settled. Our solution is pre-settlement advances at 7% simple interest. This funding helps individuals and families cover daily living expenses, such as putting food on the table and paying utility bills, rent, and transportation, without financially ruining them after litigation.
Let’s take a quick look at a breakdown of two possible scenarios in which a plaintiff received an advance of $10,000: one from the Bairs Foundation, and one from a for-profit funding company:
Clearly you can see that the Bairs Foundation is able to provide funding at a rate that does not have hidden fees and does not end up as an insurmountable debt owed.
Since our organization’s founding, we have funded more than 130 families and advanced over $953,000.00 at 7% simple interest.
Help Us Help Others
If you’re interested in helping promote our cause, please spread the word to attorneys, clients in need, and civil justice stakeholders. Monetary contributions go directly to families in need.
We’re also interested in connecting with other nonprofits so we can continue to build a philanthropic civil justice network. We hope our mission is replicated by other organizations to help more people and communities in need.
Please visit www.bairsfoundation.org for more information.
Plaintiffs who are approaching settlement in certain cases may find an unexpected drawback at the conclusion of their lawsuit: the money they receive is taxable. At the following tax season, their settlement will come with a big price tag for the IRS, which means less compensation for them. Fortunately, with some strategic planning, those plaintiffs can lighten the tax burden. But they must act quickly.
In general, the Internal Revenue Code states that a person’s gross income does not include damages received in a lawsuit over personal physical injuries or illness (aside from punitive damages). But IRC § 104(a)(2) notes that, “in cases of non-physical injury, such as discrimination, fraud, etc., amounts excludable for emotional distress are limited to actual ‘out of pocket’ medical costs.” In other words, monetary awards from lawsuits that do not involve bodily injury ARE taxable, which can result in a major financial blow to the plaintiff. These taxable lawsuits may involve issues including (but not limited to):
- Sexual harassment
- Patents and intellectual property
Without proper planning, a plaintiff could pay thousands of dollars to the IRS after receiving his or her settlement.
The Solution for Many Plaintiffs: A Non-qualified Assignment
To avoid the tax hit on a non-personal injury award, many individuals work with a comprehensive settlement planner to establish a non-qualified assignment (NQA). An NQA is a structured plan — also known as an assignment or an obligation — to make future payments to the plaintiff using portions from non-injury settlement money. A plaintiff who establishes an NQA would receive these payments over time instead of receiving a lump sum settlement. He or she would then be responsible for paying taxes on the payments received in a given year, rather than the whole settlement at once.
There are two main benefits of an NQA for a plaintiff:
- An opportunity to spread the tax burden over time rather than all at once
- Control over the timing and amount of income provided from the settlement each year
Milestone Consulting is one of the only companies currently offering an independent, non-qualified solution that allows plaintiffs to evaluate the amount of the settlement they take when their settlement arrives. They are then able to defer portions of the settlement through non-qualified assignments to reduce the overall tax hit and provide pre-tax investment options.
If you’re concerned about getting taxed on your non-personal injury settlement, congratulations — that means your case is ending and you’re looking toward justice and compensation. But now is the time to act quickly to avoid the tax bite. Through the use of planning tools like a non-qualified assignments, you can control the timing of your payments and thus your taxation. We welcome you to call Milestone for more information.
The newest issue of Living Safer magazine discusses a sobering topic, which we have all watched unfold over recent months: the watershed #MeToo movement. This topic is one I feel very passionately about. I have always been a vocal supporter and advocate for women and diversity, and I have been disheartened with the rash of discrimination and harassment that has come to light recently.
Sexual harassment and violence will never be totally abolished, but movements like #MeToo help ensure that such acts are punished whenever and wherever they are found… no matter how powerful the abuser may be. We encourage you to take some time to read this piece. It is our hope that it inspires more women and men to speak up and promote the cultural change our country so badly needs.
This Living Safer also covers a number of additional topics to help keep you and your loved ones safe, including:
- The Financial ABCs of Preparing for Retirement
- Sleep Deprived? What Not Getting Enough ZZZs Does to Your Body & Mind
- Concussion Recovery: One Size Does Not Fit All in Children
- Work from Home? How to Stay Focused and Productive
- The Importance of Estate Planning
- How to Talk to Your Daughters About Sexual Harassment
- Teaching Your Son Respect
- The Lowdown on Mailaway DNA/Ancestry Kits
- Working Towards a Safer Fitness
On page 9 of this Living Safer issue, I discuss one of the most misunderstood and underappreciated financial security blankets: life insurance. After years of seeing people uninsured or under-insured, think about life insurance coverage as a big step toward financial maturity. This article covers how much you coverage you should consider and at what age you should get started.
I hope you find this issue of Living Safer insightful and inspiring. As always, feel free to pass it along to others.
“As a trial lawyer I look for companies that have the best combination of ethics and excellence. The Bairs Foundation has both and truly protects my clients who are in the most vulnerable situations.” - Facebook Reviewer
In our 2018 Bairs Foundation co-founders’ letter, we ask, “What constitutes a “just” society and civil justice system?” Trial lawyers dedicate their careers to ensuring Americans have access to justice and the opportunity to stand up to those who hurt or wrong them — regardless of whether the negligent party is an individual person or a major corporation. But what happens when the plaintiff exhausts all of his or her funds during litigation and needs financial help to make ends meet? Settlement might still be months or even years away. It makes sense to assume the funding companies who help them would act justly, knowing these plaintiffs are enduring what is likely the most difficult time in their lives.
Unfortunately, that’s not often the case. We have found that the interest or contractual finances many for-profit funding companies charge plaintiffs range from 28% to 200%. For many plaintiffs, the amount they’ll owe their lenders will exceed the amount they get from their case. That’s not just.
Tragically, little has been done over the years to change the course of the industry. In the spirit of our mission to provide families with access to capital at a fair interest rate, the Bairs Foundation is going a step further. We’re looking to provide leadership to the litigation finance industry and within various trial lawyer organizations nationally. Our foundation is also motivating other nonprofit organizations to replicate what we’re doing, because we know it’s a fair and sustainable model.
Please check out our 2018 letter to read more about our “What is Just” campaign and to find out how you can help our mission to bring more justice to the non-recourse lending industry.
April is Distracted Driving Awareness Month. All month long, organizations, communities, governments, and thought leaders work together as part of a nationwide movement to eliminate preventable deaths from distracted driving. While these efforts have been bringing the traffic safety crisis to the forefront in recent years, there is still much work to be done. The National Highway Traffic Safety Administration has reported that in 2015, 3,477 people were killed and 391,000 were injured in motor vehicle crashes involving distracted drivers.
So, you’re already a safe driver?
Maybe you and your family members have already taken the pledge to drive distraction-free. You might have downloaded an app for your phone or activated the “Do Not Disturb While Driving” feature for iPhone to resist temptation when behind the wheel. If you’re an employer, you may have created a company-wide distracted driving policy for your partners and staff. There are plenty of steps you can take in your own life to help protect yourself and those around you. But there’s an action you can take to amplify those efforts, and it’s simple to get started.
End Distracted Driving (EndDD) is an awareness campaign that has reached hundreds of thousands of people in the U.S. and Canada. Spearheaded by Joel Feldman and Dianne Anderson, EndDD aims to save lives in memory of their daughter Casey, who was killed by a distracted driver. With the help of community leaders, trial lawyers and other professionals, EndDD provides science-based presentations to middle school, high school and college students, and to adults, parents and businesses. More than 375,000 people have seen EndDD presentations, and more talks are being scheduled every day.
Join the Cause
The presentations are informative, engaging, and inspiring. However, there are still many schools and communities that the campaign has not yet reached. If you’re comfortable talking in front of a group, consider becoming a volunteer speaker. By filling out a quick form with EndDD here, you’ll receive all the materials and instructions you need to deliver a great presentation. When it’s time to connect with schools nearby, I shared a few simple steps to get them to say “yes” to presentations. Check out the post here.
Not a public speaker? Consider hosting a distracted driving presentation at a local school or elsewhere in your community. EndDD will connect you with a volunteer speaker who will bring the presentation to your town.
In partnership with local lawyer associations, EndDD.org has also created custom presentations for targeted areas. If you have ideas about how to make your presentation even more effective in your area, call the organization at (855) 363-3478 or email info@EndDD.org.
This organization is making a huge impact on our country, and it’s only gaining momentum. Consider helping the cause during Distracted Driving Awareness Month by bringing a presentation to your area.
ABOUT JOHN BAIR
John Bair is an experienced settlement planner and financial consultant with a passion for ending distracted driving. As a frequent EndDD.org volunteer, he has spoken to audiences around the country. To assist others in raising awareness, John has written numerous guides and articles about giving successful EndDD.org presentations in schools, business, and community settings. He is a proud board member of the Casey Feldman Memorial Foundation. For more information, visit http://www.enddd.org/.
Alex* fell from a balcony and suffered a traumatic brain injury. As a result of his injury, he began to deal with severe anxiety and depression. He received a settlement, and the Milestone team stepped in to identify the best plan for him moving forward. The team established a trust that pays for all his medical needs with a Medicare set-aside, so he can still get government benefits. They arranged for the trust to provide a monthly prepaid debit card to help him manage his money. The trust also pays for one of the best rehabilitation facilities in the country.
Alex is getting the most from his settlement, and his parents have the peace of mind that he has the right financial, emotional, psychological, and physical care now and in the future.
Protecting Benefits with a Trust and a Medicare Set-aside
As in Alex’s example above, a trust can allow a person to put aside some of his or her settlement to pay for certain items without compromising eligibility for government benefits. This settlement planning tool can be highly effective for an injured plaintiff.
Some trust options include (but are not limited to):
A trust can help with spending management while satisfying the issue of suddenly having too much income after settlement to qualify for benefits. However, Medicare beneficiaries could face an additional problem with eligibility.
According to the Medicare Secondary Payer rule, certain insurance coverage is responsible first for paying for medical expenses related to an injury or illness for which a person has received a settlement. If that payment does not cover the full cost of services, Medicare may become the “secondary payer” responsible for the balance of payment. If a person receives a settlement and fails to adequately consider Medicare as a secondary payer, he or she could face denial of coverage for future medical expenses.
For many people in this predicament, a Medicare set-aside (MSA) is a good solution. An MSA is an amount of money that’s put aside to fund future care without relying solely on Medicare. Simply put, an MSA is a voluntary arrangement that indicates to the Centers for Medicare Services that a beneficiary is not trying to extract undue funds from the Medicare system.
Together, these settlement planning tools helped secure Alex’s financial future after his accident. We are proud to help each of our clients come up with customized planning solutions that fit their individual needs. If you or a family member is approaching settlement in an injury case, feel free to call Milestone Consulting with any questions about future planning.
*For confidentiality purposes, we removed our client’s real name from this narrative.
March is Women’s History Month. All month long, we will be interviewing each of the talented, intelligent, and hardworking women of Milestone Consulting.
Today, we’re featuring our Marketing Director, Rachel Mathews. Here’s what she had to say.
What is your position at Milestone? How long have you been there?
I split my time as both the Marketing Director at Milestone, and the Executive Director of the Bairs Foundation. I enjoy the hybrid role because no two days are the same, and it keeps things interesting and me busy! I just hit my one-year mark at the start of March.
Tell us something particularly unique about your background.
My career trajectory has been anything but linear. I’ve always had an interest in social justice, so after college I spent a year as an AmeriCorps member, working at a small non-profit. I’ve also always been interested in the legal industry, so I followed that with several years of working as a paralegal, toying with the idea of going to law school. A few years ago I moved to San Francisco – where it’s hard not to get into the tech scene – so I then transitioned to working at a very early stage start up. After 4 years in tech, I moved back to Buffalo and into my role(s) here at Milestone. You could say that I am always guided by my passions and interests, so while it may seem circuitous, I feel like every job has somehow sensibly led to the next one.
From your perspective, what are some of the main struggles women still face in the workforce, and how are professionals and businesses working to overcome them?
Changing the workplace doesn’t just happen overnight. Our modern-day notion of work and the workplace was formed around what works best for men, and it will take a lot of effort and intention to adapt processes and infrastructures to include what works best for women. Seemingly-masculine characteristics get associated with success: being outspoken, bold, competitive, hungry, and willing to put work above all else. These traits may not come as naturally to women, which can result in them seeming timid, not as confident, and sadly, not as intelligent. Women, especially mothers, may need flexibility and a better emphasis on work-life balance. Professionals and businesses are working and can continue to work to overcome these struggles by striving to understand that what works for one person may not work for another; what one person responds to another may not. They can strive to be patient and flexible, and adapt this notion of what the workplace should look like.
ABOUT MILESTONE CONSULTING
Milestone Consulting, LLC is a broad-based settlement planning and management firm. Milestone’s approach is comprehensive and future-focused. The team has guided thousands of clients by taking the time to understand the complexities of each case. They assess the best outcome and find the path that enables each client to manage their many needs. Read more about Milestone Consulting at http://milestoneseventh.com/.
Someone with special needs may have unique expenses to think about, such as treatments, therapies, equipment, at-home care, and more — all of which are on top of their basic daily necessities. Last week, we talked about needs-based government programs that help cover some of these costs. Those programs provide assistance to people with special needs, and the steps to apply are clear. But once those monthly benefits are in place, it’s important to think about financial security years from now.
Unfortunately, little information is readily available on long-term planning for people with special needs. But millions of families should know what’s available to them and the actions they need to take.
While government programs can pay for necessities like medical equipment, prescription medication, and transportation, having too much money in a beneficiary’s name can impact his or her eligibility for these monthly benefits. To receive Supplemental Security Income (SSI), for example, a person can have a limit of only $2,000 in “countable resources,” and a couple has a limit of $3,000. Countable resources refer to cash, savings, land, life insurance, and other assets. If the value of your resources exceeds the limit (which can happen suddenly upon settlement), you have too much income to be eligible for benefits.
The Special Needs Trust Solution
A special needs trust can help with that issue. This type of trust is meant to supplement financial help from government programs. Funds from a special needs trust can be used for “non-countable” services, expenses, or equipment. These items include (but are not limited to):
- A home
- Home furnishings and personal belongings
- A vehicle
- Occupational goals, such as the pursuit of a college degree or vocational training
- Essentials for self-support
- Life insurance policies
- Burial expenses
Establishing a trust provides peace of mind that a person with special needs will have funds well into the future to cover these important costs.
How Much Does a Special Needs Trust Cost?
Starting at your local bank or a big national institution may seem like the safest bet, but it is actually the most expensive route. Trustee fees and expense ratios at these institutions can run as high as three percent. On the other hand, a professional independent trustee will usually offer fees of about 0.5 to 0.6 percent. More on that topic here.
A special needs trust is just one way individuals can maintain eligibility for government benefits when their income exceeds the limit. If you’re planning for your or your child’s future, be sure to get the right information from day one. Consider speaking with an experienced financial planner, who will streamline the financial arrangements and get you on the right track. Financial advisors can develop a long-term strategy and then manage the funds throughout a person’s life.
About John Bair
John Bair has guided thousands of plaintiffs through the settlement process as co-founder of Milestone Consulting, LLC, a broad-based settlement planning and management firm. Milestone’s approach is comprehensive and future-focused. John’s team has guided thousands of clients by taking the time to understand the complexities of each case. They assess the best outcome and find the path that enables each client to manage their many needs. Read more about Milestone Consulting at http://milestoneseventh.com/.