Mass Tort Settlement Planning for Plaintiffs & Attorneys
Mass tort litigation is a different animal than single-case lawsuits. This type of litigation requires a great deal more organization, as it involves numerous plaintiffs – sometimes tens of thousands of people. Second, the adversary is often a huge corporation with a higher caliber of defense attorneys, insurance companies, and other resources working to minimize a settlement or avoid one altogether. When plaintiffs prevail in a mass tort, new complexities arise, as each has a different payout, long-term needs, and future financial goals.
Comprehensive settlement planning is necessary to ensure a smooth, well-coordinated conclusion to litigation. As the attorneys bring the case to the finish line, settlement planners ensure that the recovery award is as meaningful as possible and that each individual plaintiff – no matter how many there are – is heard, understood, and has the knowledge to think through future planning and available resources.
There are several layers of assistance that a settlement planning firm can provide in mass tort litigation. Below is a breakdown of these various services.
Qualified settlement fund
Benefits: Sophisticated organization for a law firm or an entire mass tort litigation
A qualified settlement fund (QSF) is a type of account that holds settlement proceeds after the conclusion of litigation. The defendant pays the agreed-upon amount into the account and is generally released from the litigation. There is no constructive receipt as long as the money remains in the QSF, allowing both plaintiffs and attorneys to separately and strategically plan for their income. Plaintiffs can take the time to speak with a professional settlement planner about their options (see below), and attorneys can consider fee structuring options to plan for taxes.
There are three types of qualified settlement funds:
- A firm-wide QSF. This type of QSF is for all/some of a law firm’s inventory.
- A master QSF. Milestone has a national master qualified settlement fund, which trial lawyers may join quickly through a simple joinder agreement.
- An individual QSF. This type of QSF is created for a single settlement.
A QSF is the emerging standard of care for law firms practicing in mass tort litigation. It allows for adequate time for the hundreds or thousands of plaintiffs to seek the settlement planning expertise they need. It also provides the attorneys with their own time to consider structuring their fees for income and tax planning purposes.
Mass tort lawyers are not required to use the global administrator that is appointed through the Master Settlement Agreement. Large companies that often get appointed as global administrator in mass torts tend to come with excessive costs for their services, a lack of transparency, and little personalization when it comes to client needs. For these reasons and others, many mass tort attorneys choose to hire a firm like Milestone as co-administrator to perform important functions of settlement administration.
Settlement planning for plaintiffs
Benefits: Helps ensure a plaintiff’s monetary recovery is as beneficial as possible.
Although there are numerous plaintiffs in mass tort litigation, each individual has unique long-term needs and financial goals. At Milestone, we work one-on-one with plaintiffs to identify ways in which their settlement money could be most beneficial.
Injured plaintiffs often receive means-tested government benefits that have an income limit, and once settlement arrives, they could lose eligibility. Depending on an individual beneficiary’s situation, one of the following options might be helpful in preserving eligibility for benefits after settlement:
- Pooled special needs trust
- Traditional special needs trust
- ABLE account
A special needs trust helps people who receive Medicaid, SSI, and other means-tested benefits receive a settlement without crossing the income threshold that would cause them to lose eligibility for benefits. Funded with a portion of a settlement, a special needs trust pays for “non-countable” items, meaning things that benefits do not cover. A pooled special needs trust is much like a traditional trust, except that it is managed by a nonprofit that pools together funds from several trusts for investment purposes. A pooled trust is typically preferable to plaintiffs who are receiving a smaller settlement, whereas a traditional special needs trust may be a better choice for someone with a larger settlement.
Similarly, an ABLE account is funded by a portion of a settlement and can pay for expenses related to the needs of the beneficiary. A beneficiary can open their own ABLE account. Or, a person with signature authority can establish and administer the account. Anyone can contribute money to the account.
As a separate issue, Medicare beneficiaries who receive a settlement must consider Medicare’s interests. One option is a Medicare set aside, which is an account funded using a portion of settlement proceeds awarded to pay for future medical expenses related to an injury or illness. Those expenses would otherwise be paid for by Medicare, but because Medicare is a “secondary payer,” complying with Medicare means appropriately using a beneficiary’s settlement to help cover those expenses.
Beyond benefits preservation, some plaintiffs receive their settlement money in the form of periodic payments over time rather than as a whole lump sum at once. Called a structured settlement, this arrangement helps plaintiffs plan for the long-term by receiving any combination of large sums and small future payments to meet their immediate and long-term needs. Traditional structured settlement annuities are a viable option for some plaintiffs. A newer option, the investment-backed structure, is a great option for others. At Milestone, our investment-backed structure designs are professionally managed with diversified portfolios.
Settlement planning for trial lawyers
Benefits: Tax planning for an incoming contingency fee
Trial lawyers have the exclusive ability to defer unlimited income from contingency fees. In 1994, Richard A. Childs, et al. V. Commissioner of Internal Revenue, the 11th Circuit U.S. Court of Appeals ruled that any attorneys involved in tort cases under contingency fee agreements may receive their fees in the form of periodic payments instead of in one lump sum. The IRS then followed up with comprehensive tax guidance in Notice 2005-1 and Private Letter Ruling 150850-07.
Commonly called fee deferral or attorney fee structure, this arrangement allows attorneys to receive smaller, incremental payments from their fees over time – helping them remain in a lower tax bracket and spreading the tax responsibility over time. Each attorney’s deferral plan is fully customizable. It is meant to meet attorneys where they are as individuals and where they want to go – considering their tax situation, family’s needs, professional growth, and overall short- and long-term financial goals. A portion of the fee can be taken up front, and the rest can go into an investment account or annuity. Or, the entire fee can be deferred. Read more about Milestone’s feeMaster program here.
Mass tort litigation requires iron-clad organization, which should carry through past settlement. If you are a mass tort attorney, contact Milestone to learn more about how we can partner to benefit your clients, your law firm, and you at settlement time.