Negotiating a settlement rarely ends one phase of settlement but should begin another. After this pivotal moment lies a complex landscape of financial, tax, and public benefit considerations that can dramatically affect plaintiffs’ interests. Sometimes those considerations are ignored.
It’s here that plaintiff lawyers equipped to address these issues truly stand out. Often they do so by working with and referring clients to holistic “settlement planners.” Of most importance is the ability to recognize what can’t wait until after signing the settlement agreement. –Waiting on those issues means forever losing valuable savings. This article notes many of them, including strategies and arrangements often used. And the power of Qualified Settlement Funds (QSFs), which can provide the time needed to resolve issues that can’t be resolved quickly.
It's imperative to emphasize a critical skill that distinguishes exceptional plaintiff lawyers: settlement issue spotting. This capability is not merely an academic exercise but a fundamental aspect of legal practice that affects every stage of client representation, especially after negotiations have concluded.
Plaintiff lawyers often stand as the sole advocate for their clients’ interests. This position carries with it a profound responsibility to identify not just the evident issues, but also the hidden risks and opportunities that may influence the outcome of a case or settlement. In fact, Comment [2] to ABA Model Rule of Professional Conduct 1.1 holds that “the most fundamental legal skill consists of determining what kind of legal problems a situation may involve.”
And spotting issues goes beyond recognizing legal challenges. It involves identifying where opportunities and risks can come from. This multifaceted approach ensures that lawyers are not merely reacting to problems as they emerge but proactively helping their clients manage their interests. An on-point publication by ALI-ABA identified the “duty to ensure that [a lawyer’s] client is informed about the options of structured settlements, trusts and the effect of the judgment or settlement on the client’s public benefits eligibility.”
While this can be seen as a duty, it’s also an opportunity for trial lawyers to distinguish themselves in a competitive marketplace. Clients seek assurance that their lawyer will safeguard their interests comprehensively, including on those concerns that they haven't contemplated. And while learning to analyze these issues could be very time-consuming, finding experts to advise on them is not. Associations like the Society of Settlement Planners, the American Association of Settlement Consultants, and the National Structured Settlements Trade Association have many expert members.
It becomes crucial to consider how plaintiff lawyers can apply strategies to maximize the value they deliver to their clients. Considering the complexities surrounding settlements, categorizing these strategies into tax, finance, and public benefits allows for a structured approach to enhancing client outcomes.
Tax implications of a settlement are often overlooked yet can significantly affect the net amount plaintiffs receive. Strategies to minimize tax liabilities require a comprehensive understanding of current tax laws and their application to settlement funds. Many of these are discussed in a Bloomberg Tax article I co-wrote.
Lawyers must navigate these complexities to, among other things, structure settlements in a way that ensures the most favorable tax treatment for their clients. This might involve using arrangements that offer tax advantages, such as the Plaintiff Recovery Trust, Qualified Settlement Funds, or structured settlements. These are all steps and issues on which settlement planners regularly assist. “Trial lawyers don’t need to be experts in tax to dramatically reduce their clients’ tax bill,” notes Joe Di Gangi, former President of the Society of Settlement Planners and expert settlement planner.
Financial strategies, particularly structured settlements, have evolved significantly, offering plaintiffs a more flexible and beneficial way to receive their settlement funds. An article I wrote for Forbes highlights the benefits and uses of structured settlements, noting their capacity to provide a steady income over time, which can be particularly advantageous for plaintiffs dealing with long-term injuries or financial planning needs.
Structured settlements now offer more options than ever, increasing their utility by incorporating features like inflation protection and investment opportunities. This adaptability ensures that the financial needs of plaintiffs are met not just at the point of settlement but well into the future.
For plaintiff lawyers, understanding and leveraging the nuances of structured settlements can serve as a powerful negotiation tool. By demonstrating the ability to structure a settlement that maximizes financial security for plaintiffs, lawyers can position themselves as adept at securing not just a favorable settlement but also a sustainable financial future for their clients.
For many plaintiffs, particularly those with significant medical needs, preserving eligibility for public benefits such as Medicaid or Supplemental Security Income is paramount. Any settlement received might disqualify them from these essential services. Here, the use of a Special Needs Trust can make all the difference.
And for those who don’t receive enough at settlement, tools like the Plaintiff Fund are invaluable. The Plaintiff Fund allows plaintiffs to raise money for their medical care in parallel to their case, ensuring they don’t lose access to critical public assistance programs post-settlement.
Using a Qualified Settlement Fund (QSF) can significantly enhance the value delivered to plaintiffs. A QSF facilitates a more streamlined approach to settlement allocations and management, providing ample time for plaintiffs to make informed decisions regarding their financial future.
Rachel McCrocklin, Chief Trust Officer at Eastern Point Trust Company, emphasizes the strategic advantages of using a QSF. "By introducing a QSF early in the settlement process, we effectively meet the needs of the defense by allowing them to swiftly conclude their involvement. This grants plaintiffs the breathing room necessary to explore and decide on the best financial, tax, and public benefit strategies without pressure," McCrocklin explains. This approach underscores the dual benefit of satisfying the immediate requirements of the defense while prioritizing the long-term welfare of the plaintiffs. Eastern Point, an expert QSF trustee, reports that the use of QSFs have tripled since 2020.
A pivotal aspect of employing a QSF is its role as the tax reporting entity. McCrocklin highlights the significance of this function, stating, "The QSF becomes the tax reporting party, which is a substantial advantage for plaintiffs. Our expertise allows us to navigate the complexities of tax reporting accurately, ensuring that only the appropriate amounts are reported as taxable income. This nuanced understanding protects plaintiffs from unnecessary tax liabilities, which might not be fully considered if the defense handled such reporting."
By utilizing a QSF, plaintiff lawyers bring on board a partner well-versed in the intricacies of financial structuring, tax considerations, and the preservation of public benefits.
For plaintiff firms, the decision to incorporate a QSF into their settlement strategy is not just about enhancing operational efficiency; it's about elevating the client experience. By delegating the administrative and financial complexities to a QSF trustee familiar with the outlined strategies, plaintiff lawyers can assure potential clients that ancillary concerns will be properly managed. This assurance is a powerful tool in business development, demonstrating a law firm's commitment to holistic client support.
Often, the strategic use of a QSF shifts representation toward a more thoughtful, client-centered approach to settlements, where decisions are made with the plaintiffs' long-term benefits in mind. Through careful planning and collaboration with experienced QSF administrators, plaintiff lawyers can significantly enhance the value they deliver, setting a new standard for excellence.
