Frequently Asked Questions

A settlement can be a long-awaited answer to several complex questions.

Settlements can also create new questions—both for lawyers and clients. Milestone is a premier settlement planning strategy partner with well over 20 years of experience. That means we’ve asked and answered a variety of questions surrounding an even wider variety of litigation. Milestone answers your questions so you can plan for more as we move forward together.

General

Why should I consider engaging a settlement planner?

The benefits of settlement planning are numerous, and with tailored solutions, a financial plan can provide a claimant with:

  • Tax-free payments distributed over time.
  • Steady income to meet ongoing medical expenses.
  • Funding for future goals, such as a college education or a down payment for a home.
  • Relief from financial burdens.
  • Long-term financial security.

What kind of flexibility do I have in setting up a financial plan for my settlement?

As the plaintiff, you help direct the type of plan that Milestone designs and implements for your financial future. Based on your settlement amount, your current and future medical needs, your goals, and much more, we work with you to customize the best solution(s) for you. It’s important to note that a combination of concepts can be used, such as placing a small amount in a trust and the balance in an investment-backed strategy.

If I choose to structure my money, what happens if I die before the guarantee period is over?

Payments continue each month until the designated time period has ended. Payments are made to your estate or your beneficiary, if you designate one.

Am I better off with an investment advisor who promises a higher overall rate of return?

It is very unlikely. If you gave the cash to an investment adviser, they must guarantee an after-tax return higher than the insurance company. This is due to the taxes and ongoing management fees that need to be paid and deducted from their program. A structured annuity has no annual fees that reduce returns. Also, keep in mind that only life insurance companies can offer life payments.

Can I use my regular attorney for planning my settlement?

The settlement planning process requires a completely different skill set. Your attorney is trained in getting you the best decision they possibly can for your case. Once that goal is achieved, other skills are required to help you move forward. A knowledge base rooted in law (specifically tax law), government benefits and regulations, and financial planning is required to develop a plan to optimize your settlement.

Structured Settlements and Tax-Free Settlement Planning

What is a structured settlement?

A structured settlement is an innovative method of compensating injured parties. It is a voluntary agreement between the injury victim and the defendant or insurer, wherein the victim receives a lump sum of money structured into tax-free payments to be distributed over a period of time. A structured settlement may be agreed to privately, or required by a court order. This is often the case with judgments involving minors.

What is the industry behind structured settlement?

Damages paid as a result of a personal injury lawsuit have historically been issued in a single lump sum. This demands a level of financial decision making that most people are not experienced or prepared to make, and creates a complex responsibility that can encumber an injury victim or family. To protect the injury victim, Congress passed legislation amending the federal tax code. The Periodic Payment Settlement Act of 1982 (Public Law 97-473), formally recognized and encouraged the use of structured settlements in physical injury cases.

Why opt for a structured settlement over a lump sum payment?

What advantages do structured settlements offer over one-time, lump-sum payments? Well, plaintiffs benefit from the financial security that comes with guaranteed, long-term income. Set periodic payments over a designated timeframe free plaintiffs from the pressures traditionally associated with large-scale money management.

Why opt for a structured settlement over a lump sum payment?

What advantages do structured settlements offer over one-time, lump-sum payments? Well, plaintiffs benefit from the financial security that comes with guaranteed, long-term income. Set periodic payments over a designated timeframe free plaintiffs from the pressures traditionally associated with large-scale money management.

Another advantage associated with structured settlements is that the plaintiff’s settlement payments are completely exempt from federal and state income tax. They can be backed by tax-free investment accounts. Speak with your settlement planning consultant to determine which tax free design is best for your client. Additionally, the payments from a structured settlement can be tailored to fit the exact present and future needs of the plaintiff.

Furthermore, structured settlements are a flexible financial planning option that allow for funds to be received when they are needed most. For example, plaintiffs can accept a large initial sum to help cover legal fees and other immediate needs, and then opt to structure the remainder of their settlement monies after that. Payments can also be set to increase or decrease as time passes, or even delayed until after the plaintiff has retired.

Why should I consult with a professional settlement planner?

It is imperative that you consult with a professional before opting for a structured settlement for your client, as professional settlement planners have the comprehensive expertise and background to best serve the needs of your client. Engage with a structured settlement planner as early on as possible in a given case. A settlement planner can take into account any treatment plans required, bankruptcy concerns, any outstanding liens that may be in place, or any government assistance the plaintiff may require. If you want someone who takes all pertinent details into account and ensures the selection of a plan with your best long-term interests in mind, you’re going to want an experienced structured settlement planner in your corner.

Attorney Fee Deferral

How do fee deferrals affect my taxes?

In Richard A. Childs, Et al. v. Commissioner of Internal Revenue, the 11th Circuit U.S. Court of Appeals affirmed that attorneys who elect to structure their fees do not have to pay taxes on those payments until the year the income is received. This allows attorneys to spread out their income with a fee deferral program, rather than getting hit with one large tax bill in one year. The distributions that come out of the attorney fee deferral program are reportable as ordinary income.

What is my timeframe to set my deferral payment schedule?

If your fees are coming directly from the defendants and/or their insurers, a deferral plan must be chosen prior to the settlement being issued. Or, if your fees are placed into a QSF, you have more time and less pressure to decide on your payment options, because typically there is no immediate time frame to distribute the funds.

What type of attorney fees can I defer?

Any contingency attorney fee for physical or non-physical injury tort settlements can be deferred.

Can you structure an attorney fee to pay another beneficiary?

Depending on your contingency fee agreement, deferred fees can be payable to you individually or to your law firm. The beneficiary would be your estate.

Can I elect to defer a fee if my client elects to receive their settlement proceeds in a lump sum?

In most cases, you may create your fees regardless of what your client decides to do.

Can attorneys negotiate a fee structure in class action lawsuits? What about mass tort attorneys?

Lawyers who practice in mass tort litigation and class actions can defer their contingency fees if the court orders a qualified settlement fund into existence. If it’s determined to be the correct route for an attorney or firm to go, deferring fees can be an exceptionally powerful tool for wealth accumulation and long-term financial success.

What if I worked on the case with another attorney? Am I still eligible to defer my contingency fee?

You can structure your fees even if you worked on a case with another attorney. The stream of payments can be split among more than one attorney. And, if more than one attorney decides to structure, each attorney can get their own unique payment schedule.

What does it cost to set up a deferral?

As administrator, our firm charges a low percentage annually on the assets in the program. Monolith Advisers is our Registered Investment Adviser that provides the investment advice.

ABLE Accounts

Where can my client open an ABLE account?

Plaintiff’s can establish an ABLE account in any state. It does not have to be the state they live in. When visiting a state’s plan website to enroll, we would be happy to give you and your client a few pointers before you take on the task yourself. Feel free to give us a call.

Can an ABLE account be used for food?

Food is considered a qualified disability expense (specifically a basic living expense), so an ABLE account can be used for the beneficiary’s food and groceries.

Can an SSI recipient place payments in an ABLE account?

Individuals are eligible to open and pay into an ABLE account if they have SSI because of a disability or blindness beginning before age 26.

What happens to an ABLE account at death?

When a beneficiary with an ABLE account passes away, funds remaining in the account finish paying off all outstanding QDEs and may then reimburse the state for Medicaid benefits the beneficiary received.

Qualified Settlement Funds

Where did qualified settlement funds come from?

Qualified settlement funds were born out of necessity. As structured settlements became popular in the late 1970s and 1980s, insurance companies funding structured settlements became concerned that payments made to an entity rather than the claimant would not be tax deductible—as they would be if they were paid directly to an individual. Defendants and their insurance carriers wanted to make sure that they could deduct payments in the year in which they were paid, rather than when the money was distributed to claimants. Congress enacted Section 468B of the Internal Revenue Code in 1986 to address such concerns.Thereby, the qualified settlement fund grew out of IRC Section 468B. IRC Section 468B was added to the Code by Congress as part of the Tax Reform Act of 1986 and set up these designated settlement funds. A designated settlement fund can be funded by one or more defendants to make settlement payments to claimants. Designated settlement funds were fairly limited in the way they could be used, and in 1993 the IRC passed regulations creating the qualified settlement fund. There are fewer requirements to create a QSF than there are to create a designated settlement fund, and qualified settlement funds can address a broader range of legal claims with increased flexibility.

How can a personal injury attorney establish a firm QSF?

Below are the requirements of a QSF as outlined in 26 CFR 1.468B-1. A fund, account, or trust satisfies the requirements of this paragraph (c) if…

It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority.

It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability…

(i) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended, 42 U.S.C. 9601et seq.; or

(ii) Arising out of a tort, breach of contract, or violation of law; or

(iii) Designated by the Commissioner in a revenue ruling or revenue procedure; and

The qualified settlement fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related persons).

A firm-wide qualified settlement fund is advisable for most personal injury firms. Any personal injury practice can have a “John Doe Firm Settlement Account” into which an attorney can settle an unlimited number of cases. Once funds are settled into the firm QSF, attorneys have 100% income recognition, can choose how much of their fees they wish to accept as an up-front cash disbursement, and decide how much and for how long they wish to defer. Clients are given their own time and space to thoughtfully plan their finances, healthcare, and other necessities.

Can a single claimant QSF be used to set up a structured settlement?

Yes. After establishing a qualified settlement fund, the trustee or professional administrator can design a settlement plan for the plaintiff. Whether a structured settlement, trust account, or different planning solution is best, the plaintiff and trial lawyer have more time to assess all available options.

What are the QSF services that Milestone offers?

As a qualified settlement fund administrator, Milestone can:

  • Provide a QSF petition, order, and escrow agreement for review and approval,
  • File the petition for court approval,
  • Custody assets and provide an accounting of assets on request,
  • Prepare quarterly tax payments and annual tax returns,
  • Issue 1099 forms for attorney disbursements,
  • Perform ongoing settlement fund accounting and reconciliation, and
  • Distribute firm fees and expenses and plaintiff settlement funds.

Is money from the BP qualified settlement fund taxable?

No, any oil spill victim is excluded from gross income tax. 

Is a distribution from a qualified settlement fund taxable?

Plaintiffs pay on any interest or dividend income regarding the taxation of distribution from qualified settlement funds.