Chris Dreyer:
You've worked hard for your client and scored them a massive win. Many attorneys might feel that their work is finished, but if your client isn't fully aware of the tax implications of that settlement, it could be in for a rude awakening.
Rachel Sampsell:
They might not see it until tax time the next year when their plaintiffs get this enormous bill. And that you hope the plaintiff then doesn't shift and say, "You should have told me about this," kind of thing.
Chris Dreyer:
Protecting the win means making sure your clients don't end up handing thousands or even millions meaninglessly back to the IRS.
Rachel Sampsell:
I've identified this solution for you, and it looks like if you use this trust on your $10 million settlement, you might walk away with two million more instead of writing that $2 million check to the IRS.
Chris Dreyer:
If you're passionate about delivering justice for the people who hire you, what we cover today is going to put real money back in their pockets and make you look like a hero.
This is Personal Injury Mastermind. I'm Chris Dreyer, founder and CEO of Rankings.io, a legal marketing agency for elite law firms specializing in personal injury. We help firms sign more auto and mass tort cases. Today, we're joined by Rachel Sampsell from Eastern Point Trust Company. She is a trust officer exposing a massive blind spot in how firms handle post-settlement coordination. We're breaking down why timing dictates client wealth preservation, the 2017 double taxation trap on non-physical injury cases, and how paralegals can flag tax landmines early. Let's get into it.
Rachel, welcome to the show.
Rachel Sampsell:
Hi, Chris, I'm happy to be here, thanks for having me.
Chris Dreyer:
A lot of times we're talking about the beginning, we're talking about the marketing, but we're going to flip this episode, we're going to start with the end of the case. And a lot of our listeners are familiar with the qualified settlement funds, the QSFs, they handle disbursements. But you believe that many attorneys don't recognize there's massive blind spots in how firms handle post-settlement. So let's dig into that. Just so everybody's on the same page, let's quickly define what a qualified settlement fund is.
Rachel Sampsell:
Sure. And actually, I really love the way that you set that up, because you mentioned jumping to the end. And I think one thing that I'm going to want for people to walk away with is realizing that settlement planning really shouldn't be at the end. It's the ending stages, but the real key takeaway here is that we need to start thinking about this truly at the beginning because so many things in those blind spots you mentioned have to do with timing. So this is actually not an end game consideration, this is something that should be on the minds of attorneys when they are just getting the phone call and just attempting to navigate the landscape of what their case might look like.
Chris Dreyer:
Absolutely. Thank you for the clarification. And I agree. So what is a qualified settlement fund for the audience, and for myself?
Rachel Sampsell:
Sure. So without too many IRS regulations to bore everyone and have them turn it off, I mean, at the heart of it, a qualified settlement fund is an IRS tax construct. It was historically referred to as a 468B trust, that's taken directly from the IRS regulation. But what it is, it's really just a vehicle to receive funds, rather than having it received into an IOLTA account, for a number of reasons. But that is what it is at its core. The way that we provide them, it is a trust. It's a trust that's established and we serve as trustee, the funds are received and it just gives time. It gives time for the attorneys to bring the right people to the table for their plaintiffs. It gives time for the attorneys to plan for their own fees and what they might want to do with it. And it also gives time for the right experts to come in and help the plaintiffs in terms of tax decisions or simply even on their non-taxable proceeds, just financial, smart financial decisions.
Chris Dreyer:
So based on this, and again, our audience, I'm not an attorney, and so is this for seven figure plus? Where does this come into play, is this just any settlement? Does it hit a certain threshold to qualify or where the recommendations go?
Rachel Sampsell:
Yeah, no, that's a good question. It's actually one that I receive a lot when I'm talking to new firms. And full disclosure, I'm not an attorney either, I'm a trust officer, but I've just immersed myself in all of this. So when somebody asks when is this beneficial? Because historically qualified settlement funds 10, 20 years ago were $10,000 to set up, took months. And so it was typically avoided, it wasn't a consideration. So a lot of what I've done is worked to debunk and reeducate on what qualified settlement funds look like now in terms of application because it's a one-day setup, very minimal cost.
But at any rate, that being said, I think it's approachable for any case. When people ask me, I say, if only to benefit from the increased FDIC insurance, stick anything $250,000 or more in there. A lot of firms, after they utilize a qualified settlement fund with us once and just see how easy it is, how streamlined it is, the fact that we do a lot of what their firm used to do in terms of we reduce their overhead and the administrative burden because we're running searches on the claimants and we're sending out the distributions, they just make it part of their practice. So they're settling cases, the cases will flow into a qualified settlement fund. Whether they're going to defer fees or the claimants are going to structure or not, maybe it's in there for a couple of days, then all of the money flows out. It's just part of their practice now.
Chris Dreyer:
Let me ask some follow-ups to this. Again, forgive me, so I was just at a retreat, and one of the firms there, a large firm was talking about a high percentage. I'm not going to say what percentage. They're kind of chasing the money. And we were talking, one of the tactics was talking about liens and disbursement teams and all this. So you're basically, correct me if I'm wrong, but basically your team takes over on that side of the coin to basically help facilitate the cash flow in?
Rachel Sampsell:
Right. So there's a couple of different ways that a qualified settlement fund administrator can assist. So some cases are pretty straightforward. Maybe you've got, it could be several million dollars, but you're only looking at one claimant. Or maybe it's a few claimants that are related because it was an auto accident with a family and there's several there that are receiving a settlement. In those instances, the administration side of it's relatively straightforward. We will handle lien res, we will negotiate with outstanding creditors, things like that. And all while the funds are in the QSF, while allowing them access to their money. And the attorney can be as involved or as removed from it as possible.
And what we see a lot of times is the attorney wants to take the fees and walk away and leave it in the hands of the experts that he's introduced his plaintiffs to. And that is totally fine. What they've done is they've offloaded that burden and that responsibility. And I mean, honestly, the tail liability with running a lot of those UCC bankruptcy lien searches on the clients and doing lien res for them. So all of that, the attorneys can walk away from and then we would handle that. We can handle that, as I mentioned, on a single claimant, up to thousands of claimants. And there's quite a bit more there obviously that goes into that. Maybe on the front end, you're identifying claimants, like who's even involved when you're thinking mass tort scale, identifying who those people are, reaching out to them, setting up portals for them, communicating with those clients. Again, all of those things.
Attorneys should be really, really great. And I know you've said on your podcast before, your niche, should stand in your lane after you've created it kind of thing. If you're great at negotiating and getting them the largest figure possible, that's where your gold is. And then let everybody else, the experts in the other areas, really focus on where they shine.
Chris Dreyer:
Scaling a successful PI firm requires focus. You can't be the expert in the courtroom and things like lien resolutions. By handing off disbursements and QSF administration to a dedicated trustee, you free your team to focus on what actually matters, getting maximum value for the client.
What are the most common misconception even the sophisticated attorneys still have about QSFs and post-settlement coordination?
Rachel Sampsell:
There's some misconceptions relative to timing. They think that this is something that they should have been thinking about, well, and they should be thinking about it, but they say, "Oh, horse is already out of the barn, we're a couple days out from settlement." Or "We've already executed the settlement agreement, now we can't utilize a QSF." That's not true.
And as I mentioned, we can set up a QSF same day in some instances, but within one business day is the commitment that we have. And the settlement, the way that we draft our qualified settlement funds, is so that the settlement agreement controls. So there's no particular language that we require to be placed into the QSF to utilize it. So the settlement could be finalized, they just need to ensure that they get those payment instructions over to the defense so the funds flow to the correct place. As long as they're not received into the IOLTA, that's really the only issue. So as long as those funds haven't hit that IOLTA bank account yet, a QSF is still in the running and should be considered.
Chris Dreyer:
Got it, got it. So let's get into the weeds about attorney fee taxation. So plaintiffs are often effectively taxed on the money paid directly to their attorneys as contingency fees. How exactly does the hidden tax impact the plaintiff's net recovery outcomes?
Rachel Sampsell:
Yes. Okay. So I'm excited that you brought this up, because this is really all I've been talking about for the past two years, running around to all these conferences and podcasts and webinars. And it's interesting because I'm on probably the most popular PI podcast talking about the plaintiff recovery trust, which is only relevant to taxable cases. So we talked about qualified settlement funds. You can layer that on any case that you encounter. As I mentioned, you're settling for more than $250,000, stick your money in a QSF. It will be beneficial.
The plaintiff recovery trust or that double tax issue that we're talking about is only relevant in taxable cases. So if PI attorneys are looking at 104A2, so physical injury cases, this is not going to apply. That does not apply to the plaintiffs in that instance. They do not have to pay taxes on the attorney fee portion.
In any other case though, anything else that's taxable, and that's why I think it's so important, and that's like the elephant in the room, like we're talking about taxable cases on a PI podcast, but it's important because, again, back to the niche thing, I have attorneys that I work with that have carved out their niche and they've gone from just traditional PI to "I'm the landlord tenant guy" or "I'm the sexual assault person." And if it's not a physical injury, if it's emotional distress, if it's punitive, even if it is a PI case with all physical injury, and it's been going on for so long that the post-judgment interest is significant, that's taxable.
So something will come across a PI attorney's desk, whether they've chosen to specialize in it or not, where they should know about this, just that the problem exists.
Chris Dreyer:
Yeah, I could think of a ton of, property damage, employment, so a ton, and very, very common, at least with the clients that I work with. So yeah, I couldn't agree more. You're adamant, you mentioned this earlier, you corrected me, but you were nice about it, that the timing matters so much in the settlement coordination. So why is preserving the flexibility before the funds are distributed so critical?
Rachel Sampsell:
Yes. So yeah, because I double backed on myself. The qualified settlement fund is really generous, you know what I mean, in terms of timing. As I mentioned, as long as those funds weren't received, you can slide in a QSF.
The solution for the plaintiff attorney fee double tax, which is a mouthful, that one is super time specific. So that has to be introduced before the settlement agreement is executed and finalized. It has to be. Because the plaintiff recovery trust, which is the solution to the problem that I haven't really defined fully for you yet, but that solution is only effective if it is introduced into the settlement agreement and the claim is assigned to that trust. So that's the pivotal piece. And there's a lot of tax nuance and stuff.
And what I stress anytime we're talking to anybody, settlement planners, paralegals, attorneys, podcast hosts, it's you're not supposed to be a tax expert. I'm not calling you to do that. It's an issue spotting thing so that you can be a value add. Like, "Oh," the antenna goes up. There might be a taxable component here. Let's just bring in belts and suspenders. Let's bring in the expert to review this and say, could they benefit, could my plaintiff benefit from this? And if yes, it's a huge win for them. If not, then no harm, no foul.
Chris Dreyer:
Hiding in all the chaos after a settlement is a potentially massive financial landmine. But because this trap doesn't directly impact the firm's revenue, it often flies completely under the radar for most attorneys. That is until their client gets hit with a devastating unexpected bill the following year. Rachel breaks down exactly where the problem arises. And why it's putting huge dents for settlements in non-physical injury cases.
I'm all about focus on your expertise, don't try to shore up your weakness. That's because it can be a strength of someone else. And I think a lot of time, the moment you win a case as a PI attorney, this whole new operational nightmare begins, you've got liens, disbursements, client expectations, and this massive tax landmine.
You've talked about the intense operational pressures that plaintiff firms face during settlement funnelization. So what does the bottleneck actually look like inside a firm when a complex tax settlement hits?
Rachel Sampsell:
Unknown issue, I'm calling it this silent killer because so many attorneys that I talk to are unaware that this is even occurring. Because to be fully honest, it doesn't impact what the attorney makes and what the attorney walks away with. And that's not to say that they're not concerned about what's going on with their plaintiff. But just that they might not see it until tax time the next year when their plaintiffs get this enormous bill. And that you hope the plaintiff then doesn't shift and say, "You should have told me about this," kind of thing. And so that's what we want to avoid.
It's not been around forever. It was something that was introduced in 2017 with the Tax Cuts and Jobs Act. What it did is it changed what you could claim as an above the line deduction. So it essentially reclassified attorney's fees in those taxable settlements. And it was a topic of conversation, we were seeing that it was impacting plaintiffs and actually at that point started to say, can we develop a solution for this? One doesn't exist. And when it became more serious is the Big Beautiful Bill and it made it permanent.
So that's when we were like, "Okay, this is here to stay. This is something that's going to continue to impact plaintiffs. Now we need to educate people about it." So if you think about it, I mean, it's really not been around very long. So attorneys weren't learning this in law school. And then again, if you're not a tax attorney, you're not called to know the nuance of these things. I think it just became such a headliner for me because when I run the numbers, you know this, litigation, I mean, it's increasing exponentially what people are walking away with. And I'll caveat that by saying, what they are awarded. And I want to preserve that because that might not be what they walk away with. So you're looking at something that could be millions of dollars in impact to a plaintiff if they don't know about this and they don't leverage a solution.
Chris Dreyer:
So you led me right to it. Solutions-wise, talk to me about Eastern Point Trust Company, what is it that you guys do? I know we've been discussing it, but give me the overview.
Rachel Sampsell:
Sure. Yeah. So a step back from the plaintiff recovery trust, Eastern Point Trust Company is a what I call pure player fiduciary. We don't sell insurance products, we don't compete with any of the insurance products in the industry. We are just a trustee, we are a corporate trustee and we are a fiduciary. So for over three decades, we've been administering trusts. Strong focus since I have been there in the past decade on qualified settlement funds. And for the last few years now, as I mentioned, since we helped to co-develop this product, there were some other brilliant tax minds that were involved. There's a gentleman, Larry Eisenberg, with Forward Giving Inc who helped just birth this idea and really play around and figure out can this be something that we could utilize? And it certainly is. It's gone from concept to saving plaintiffs over, we've increased $65 million, have been put back into plaintiffs' pockets that would have otherwise been a check written to the IRS.
Chris Dreyer:
That's incredible. And I read you've managed over $25 billion in recoveries, is that correct?
Rachel Sampsell:
Yeah, and assets under administration. So in funds that I've passed through, the majority of those are qualified settlement funds, but I'm on a plight to get everybody utilizing plaintiff recovery trusts for cases that they'll apply for.
Chris Dreyer:
So most people over complicate this, but it's just doing the right thing for the client all the way through to the finish line, right? It's like that's where the client service, client first comes into play. If you litigate your butt off and you just hand them a check, and it gets decimated by taxes, you're really not getting them maximum value and doing right by them.
So if a firm owner is listening this right now, what's the single most important conversation they need to be having with their clients before a settlement is finalized?
Rachel Sampsell:
Yes. Okay. So what I would say, and we can splice this up, let's say this is a plaintiff side firm having a conversation. They're going to say, "There may be tax implications here that could impact your net recovery. Let's bring in a team of experts or an expert to just look this over for you and ensure that you don't get any surprises down the line." I think they can make it that simple.
Chris Dreyer:
That's easy for me, that's the handoff.
Rachel Sampsell:
Yeah, literally. Yes.
Chris Dreyer:
So ultimately your mission is to help attorneys recognize these issues early enough to protect the people they fought so hard to win for. What's the one thing a firm owner needs to implement tomorrow to make sure they are truly protecting their plaintiffs after the case is won?
Rachel Sampsell:
I love paralegals a lot. And I think that what they can do is take this bit of information, I mean, even if they pass it on to their paralegal and say, "Hey, if we ever encounter cases with taxable settlements or that aren't pure 104 cases, there's something here we need to know more about." And then employ their paralegals to figure that out. And what I would say is your paralegals are issue spotters, those are the people talking to these clients.
And you're not going to know necessarily what might increase a value, and we're not talking about dollars. So let's say the attorney fought hard and got a $5 million settlement, let's say $5 million, that is not necessarily five million in value to the client. And there are things that can increase their value without renegotiating how much money they're getting, and there's things that can decrease it. So that would be like being passive, not issue spotting, not noticing, not maybe just listening. Maybe these people are on government benefits, and if you receive the funds into your IOLTA account, and that's constructive receipt, now they don't have government benefits anymore. That could be millions of dollars over the course of their life in value that was just reduced. Now they have a negative, potentially negative net impact because now they don't have the eligibility for government benefits anymore. And that's just using a QSF or a special needs trust.
This plaintiff recovery trust in this taxable situation, again, you can increase their recovery by saying, "I got you five million." Now, I mean, in California, sometimes people are walking away with nine cents on the dollar because taxes are insane. But you can say, "And also I've identified this solution for you, and it looks like if you use this trust on your $10 million settlement, you might walk away with two million more instead of writing that $2 million check to the IRS." So the figures are pretty strong as well in terms of speaking for themselves.
So I think, again, just knowing that it exists and saying, "Let me do just one more step to make an introduction and then let them do the lifting on that end."
Chris Dreyer:
Rachel, this has been incredible. For those listening that truly are thinking client first, protecting the win, and they want to learn more about this, they want to connect with you and learn more about Eastern Point Trust Company, what's the best way to get in touch?
Rachel Sampsell:
Yeah. So you can navigate to our website, it's easternpointtrust.com. On our teams page, my bio is there. The link to schedule a 15-minute consult with me is there. I'm very happy to do that. Reaching out to me that way is great. And maybe you can put it in the show notes. So yeah, I would say reach out if anything about this was intriguing to you. I've also poured over probably 80 articles and videos educating on qualified settlement funds and PRTs that are free in our resources section on our website, so that could be helpful too.
Chris Dreyer:
Love it. Rachel, thank you for coming on the show.
Rachel Sampsell:
Thank you so much, Chris.
Chris Dreyer:
Securing a massive settlement for your client is an incredible feeling. It's exactly what you fight for, but the job doesn't end just because the ink is dry. If you aren't tracking the hidden tax landmines that detonate after your win, your clients could get blindsided by a massive unnecessary bill from the IRS. True leaders protect the win just as fiercely as they fought for it. By setting up the right financial safety nets early, you do more than just protect your client's payout, you deliver an elite experience all the way to the finish line.
That's it for today's episode. Personal Injury Mastermind is powered by Rankings.io, a legal marketing agency for elite law firms specializing in personal injury law. Every month we earn your business, no lock-in contracts, we handle everything from SEO to paid ads to your website so you don't have to think about it.
If you want to be the firm injured people call first for auto and mass tort cases, book a complimentary growth audit at rankings.io. I'm Chris Dreyer, thanks for listening to Personal Injury Mastermind. See you next time.
