Plaintiff Recovery Trust: How to Double or Triple a Plaintiff’s After-Tax Net Recovery

HomeSettlement Tax PlanningPlaintiff Recovery Trust: How to Double or Triple a Plaintiff’s After-Tax Net Recovery

Are you an attorney or a plaintiff dealing with a settlement that will be taxable (meaning the plaintiff will have to pay income taxes on the recovery)?

Are you concerned about the hefty tax burdens that can diminish the hard-earned settlement? 

Imagine this scenario:

After countless hours of fighting tirelessly to secure a fair settlement, the moment of victory finally arrives, and a sum is awarded or agreed upon. However, when it’s time to distribute the funds to the plaintiff, a significant portion of the settlement is LOST to taxes. This is a terrible gut punch to plaintiffs.

We all know the famous quote regarding the certainty of death and taxes. However, when plaintiffs find themselves keeping less than 10% of their rightful recovery after paying taxes (and, in some cases, left with nothing at all), the tax burden becomes more than a necessary evil. It becomes an unjust hardship. 

Consider the case of Vanessa Bryant, the widow of Kobe Bryant, who was recently awarded $16 million in one of her trials. Due to what we’re calling the Plaintiff Double Tax Trap (caused by the 2017 Tax Cuts and Jobs Act — more on this soon), her after-tax net recovery was likely only a little over $1.5 million of the $16 million — a fraction of the total settlement (9.7% to be exact). The real winner in her case? Uncle Sam and the IRS.

The Plaintiff Double Tax Trap is a result that could happen in your case — and one we definitely want to avoid. That’s why understanding the tax strategies we outline in this article (and the underlying tax pitfalls that make the strategies necessary) is so important. 

This article will cover the Plaintiff Double Tax Trap in detail. What exactly is the Plaintiff Double Tax Trap? We’ll get into the details soon, but essentially, this tax trap happens when the plaintiff bears the burden of paying a huge tax bill on the entire gross recovery, including having to pay taxes on the amount of legal fees paid to the attorney (with no offsetting deduction for legal fees paid).

The results of the Plaintiff Double Tax Trap can be devastating. Facing overwhelming tax bills (that can even leave the plaintiff owing more in taxes than they got from the settlement) often leaves plaintiffs discouraged, questioning the purpose of the settlement, and, in worst-case scenarios, wondering if it was worth settling their case at all.

However, there is hope. 

In this article, we will cover two powerful tax-saving tools:

  • Structured Settlement Annuities (Part 2)
  • The Plaintiff Recovery Trust (Part 3)

Using both of these tools allows plaintiffs to receive the MAXIMUM financial benefit from their hard-fought settlements. These strategies can double or triple the plaintiff’s after-tax net recovery (see case studies below).

While the tax burden may seem daunting, plaintiffs and attorneys can work together to minimize taxes and maximize the after-tax amount the plaintiff gets to keep by understanding and using these compelling tax reduction strategies. 

Whether you’re an attorney seeking to protect your clients or a plaintiff seeking to avoid handing over most of your settlement to the IRS, these groundbreaking solutions can be a game-changer. 

Please note that the information in this article is for general informational purposes only and is not intended as tax advice. 

But first things first…

Both of the strategies covered in this article will help in cases where the settlement recovery is taxable, and attorney’s fees are not deductible:

  • Financial, tax, and legal malpractice
  • Defamation, libel, slander, or privacy violations
  • Interference with property or contracts
  • Fraud, negligence, or breach of contract; bad faith claims
  • Trespassing, encroachment, or property-related claims
  • Wrongful arrest or imprisonment
  • Intentional infliction of emotional distress
  • Some employment-related claims (those not based on discrimination or retaliation)
  • Any lawsuit that may result in punitive damages or post-judgment interest
  • Certain wrongful death claims against employers (e.g., in Texas, if the employer is grossly negligent, the entire recovery is considered punitive damages)

Bottom Line: In cases where the plaintiff will have to pay taxes on the recovery and attorney fees are not deductible (more on this soon), these two strategies can avoid the inevitably colossal tax bill and double (or even triple) the plaintiff’s after-tax net recovery.

Some case types, like most employment claims (if based on discrimination or retaliation), whistleblower cases, and personal injury cases do not need all of the strategies outlined in this article. (Specifically, these cases do not need the Plaintiff Recovery Trust.) 

If you are a plaintiff and you are involved in (1) an employment claim based on discrimination or retaliation, (2) a whistleblower case, or (3) a personal injury case, we have other resources specifically for you.

If you are an attorney and you are handling one of the case types mentioned above, we’ve created several tailored video trainings specifically for lawyers who handle cases in these specific practice areas:

However…if you are a plaintiff or an attorney and a verdict is possible in your case that may result in punitive damages or post-judgment interestKEEP READING this article.

Any legal recovery with punitive damages or post-judgment interest, even in an employment discrimination or retaliation case, a whistleblower case, or a personal injury case, needs the Plaintiff Recovery Trust that we discuss in this article. 

If these tax planning strategies are so beneficial, why are they not common knowledge? 

Here are some reasons: 

  • Most financial advisors and CPAs have never heard of the Plaintiff Double Tax Trap and, therefore, are unaware of the solutions covered in this article.
  • The Plaintiff Double Tax Trap is a relatively new problem caused by the 2017 Tax Cuts and Jobs Act.
  • Most financial advisors and CPAs work with dentists, doctors, business owners, real estate agents, W-2 employees, etc. Very few specialize in working exclusively with plaintiffs who receive legal settlements.
  • This strategy is completely unique to plaintiffs in cases where the plaintiff must pay taxes on the settlement. (Thus, these strategies ONLY apply to this small subset of people.)

Because these solutions are still relatively unknown to most financial advisors and CPAs, plaintiffs often end up overpaying taxes on their legal recovery to the tune of tens or hundreds of thousands of dollars (or more). 

By learning about the Plaintiff Recovery Trust and structured settlement annuities, you can avoid losing a chunk of your settlement money to Uncle Sam.

To understand the Plaintiff Double Tax Trap, we first must understand when settlements or legal recoveries are taxable to the plaintiff. 

As a general rule, the only time a recovery is not taxable to a plaintiff is when the settlement is for a personal physical injury and when there are no punitive damages or post-judgment interest.

The most common types of cases where plaintiffs must pay taxes include:

  • Defamation, libel, and privacy violations
  • Emotional distress without a physical injury
  • Cases where there are punitive damages, penalties, & interest (including physical injury cases)
  • Fraud, negligence, and breach of contract
  • Interference with property/contracts 
  • Professional (financial, tax, legal) malpractice
  • Employment cases not based on discrimination or retaliation

Plaintiffs have always been taxed on the entire gross recovery in taxable damages cases, including on the attorney’s fee portion of the recovery.

This is key to understanding the Plaintiff Double Tax Trap.

Before the Tax Cuts and Jobs Act of 2017 was passed, plaintiffs could avoid paying tax on the attorney fee portion of the settlement by deducting the attorney’s fees on their tax return. 

However, now, because of the Tax Cut and Jobs Act, individual plaintiffs cannot claim a deduction for attorney’s fees. This means plaintiffs pay taxes on 100% of the gross recovery, including 100% of the attorney’s fees.

Note: The major exceptions where plaintiffs can deduct legal fees on their tax returns are employment cases (if based on discrimination or retaliation) and whistleblower claims. In most of these types of cases, plaintiffs can deduct their attorney’s fees.

The implementation of the Tax Cut and Jobs Act of 2017 introduced a significant challenge for plaintiffs in taxable cases. Under this legislation, plaintiffs are still required to pay taxes on the entire gross recovery, which includes their attorney’s fees. Unfortunately, they cannot deduct those attorney fees on their tax returns, creating the “Plaintiff Double Tax Trap.” 

Let’s look at an example of how the Plaintiff Double Tax Trap hurts plaintiffs after the Tax Cut and Jobs Act: 

  • Assume there is a $10 gross settlement.
  • $6 goes to the plaintiff, and $4 goes to the attorney for legal fees
  • The plaintiff pays tax on the entire $10, even though the plaintiff only receives $6. Why? Because after the Tax Cuts and Jobs Act, the plaintiff cannot deduct the $4 of attorney legal fees?
  • In addition, the attorney also pays taxes on the $4 of attorney’s fees. 

The attorney fee portion of the case is effectively taxed twice (i.e., the plaintiff pays taxes on the $4 of legal fees, and the attorney also pays taxes on their $4 of legal fees). This is why we call it the “Plaintiff Double Tax Trap” — the legal fees are taxed twice.

So, in this scenario, not only does the plaintiff have to pay taxes on their portion of the settlement, but they are also required to pay taxes on the attorney’s fees. The plaintiff’s income is reported as the full settlement amount ($10), even though they only receive the net amount after attorney’s fees ($6).

What does the Plaintiff Double Tax Trap mean for the plaintiff? 

Let’s look at a few hypothetical examples to illustrate the impact of the Plaintiff Double Tax Trap:

  • $10M Gross Settlement
    • Attorney Fees: $4M
    • Amount to Plaintiff: $6M
  • Plaintiff’s Tax Rate: 40% 
  • Plaintiff’s Net Recovery:
    • $10M * 40% Tax Rate: Plaintiff owes $4M in taxes
    • $6M (amount available after legal fees) MINUS the $4M tax bill = $2M after-tax net recovery to the plaintiff
    • The plaintiff, after taxes, nets only 20% of the gross settlement
Plaintiff Recovery Trust pie chart illustrating 10-40-40 breakdown of the impact of the plaintiff double tax trap

In this example, we considered a combined federal and state tax rate of 40% for the plaintiff. However, it is important to point out that in numerous states, the combined federal, state, and local tax rates can reach as high as 50.3%. 

These tax rates significantly impact the plaintiff’s net recovery. 

Let’s look at Example Two. The only difference in this example is that rather than a 40% income tax rate, the plaintiff’s combined federal, state, and local tax rate is 50%.

  • $10M Gross Settlement
    • Attorney Fees: $4M
    • Amount to Plaintiff: $6M
  • Plaintiff’s Tax Rate: 50%
  • Plaintiff’s Net Recovery:
    • $10M * 50% Tax Rate: Plaintiff owes $5M in taxes
    • $6M (amount available after legal fees) MINUS the $5M tax bill = $1M after-tax net recovery to the plaintiff
    • The plaintiff, after taxes, nets only 10% of the gross settlement
Plaintiff Recovery Trust pie chart illustrating 10-40-50 breakdown of the impact of the plaintiff double tax trap

In Example 2, 40% of the $10 million gross recovery is paid as legal fees, and an additional 50% of the gross settlement is needed to pay taxes on the gross recovery. 

Therefore, only 10% of the original amount remains as the plaintiff’s net recovery

This example shows that the higher the tax rate, the lower the plaintiff’s after-tax net recovery.

Let’s examine one more example to highlight the impact of case costs on the plaintiff’s net recovery. (Case costs are expenses incurred by the attorney in working up a case, filing the lawsuit, hiring experts, performing depositions, etc.)

  • $10M Gross Settlement
    • Attorney Fees & Costs: $4M (contingent fee) + $1M (case costs)
    • Amount to Plaintiff: $5M
  • Plaintiff’s Tax Rate: 40%
  • Plaintiff’s Net Recovery:
    • $10M * 40% Tax Rate: Plaintiff owes $4M in taxes
    • $5M (amount available after legal fees and costs) MINUS the $4M tax bill = $1M after-tax net recovery to the plaintiff
    • The plaintiff, after taxes, nets only 10% of the gross settlement
Plaintiff Recovery Trust pie chart illustrating 40-10-40 breakdown of the impact of the plaintiff double tax trap

Using the same $10 million gross settlement, a 40% contingent legal fee, an additional 10% in costs, and a 40% combined plaintiff tax rate, the plaintiff must pay 40% or $4 million in taxes on the entire gross settlement. After deducting legal fees and costs, only 10% of the gross settlement remains as the net recovery for the plaintiff. 

This Example 3 scenario emphasizes the impact of case costs on the after-tax net recovery. In particular, Example 3 highlights how the plaintiff is unable to deduct the combined amount of legal fees and costs, resulting in a substantial reduction in their net recovery. 

It’s crucial to note that if the plaintiff’s tax rate were 50% in Example 3, as it was in Example 2, the after-tax net recovery would diminish to zero. The entire settlement would be paid to legal fees, costs, and taxes, leaving nothing left for the plaintiff.

So, are there actually cases where the after-tax net recoveries to the plaintiffs are between 0% and 20%?

Let’s take a detailed look at a case many may be familiar with. As we hinted at earlier, the Kobe Bryant lawsuit filed by his widow, Vanessa, ended with the IRS being the big winner.

Forbes headline of Kobe Bryant case
  • $16M of the $31M was awarded to Vanessa Bryant
    • Vanessa’s Gross Settlement: $16M
    • Estimated Attorney Fees & Costs: $6.4M (40%)
    • Estimated Plaintiff’s Tax Rate: $8.05M (50.3%)
      • (37% Federal and 13.3% State & Local)
    • Estimated Amount to Vanessa: $1.55M After-Tax Net Recovery (9.7% of the $16M

In the $31 million settlement, $16 million was awarded to Vanessa Bryant. Attorney’s fees and costs likely accounted for 40% of the settlement. Her combined tax rate was 50.3% (37% federal rate and a 13.3% California state tax rate). 

As a result, out of the $16 million allocated to her, Vanessa’s after-tax net recovery likely amounted to approximately $1.5 million, representing only 9.7% of the gross settlement.

These types of results are not uncommon — and losing the lion’s share of a settlement to taxes is a huge disappointment for plaintiffs. 

Plaintiffs often think they’re getting a huge recovery and end up with less than one-tenth of the total settlement. Nationwide, we have seen the following:

  • Plaintiffs are choosing not to settle their cases specifically because of the looming tax burden. 
  • Plaintiffs having concerns about the tax implications of settlement or finding themselves unable to bear the financial responsibility of paying taxes on the portion of the settlement designated for legal fees. 
  • Shockingly, there have been some cases where the plaintiff owes more money than they will net after taxes.

Here’s a quick way to estimate the amount of the Plaintiff Double Tax Trap.

Forbes headline of Kobe Bryant case

The attorney contingent fee, plus any additional case costs, multiplied by the plaintiff’s marginal tax rate, equals the Plaintiff Double Tax Trap amount. 

The Plaintiff Double Tax is the amount the plaintiff should not have to pay, but will pay without the solutions we’re going to discuss in Part Two. 

Plaintiffs have always been taxed on the legal fees in a case. The Supreme Court of the United States made it clear that plaintiffs are taxed on the attorney portion of a recovery (in the 2005 Commissioner v. Banks case). 

Most plaintiffs find out about the Plaintiff Double Tax Trap when their CPA works on their tax return and informs them that they cannot deduct legal fees due to the Tax Cuts and Jobs Act’s removal of the miscellaneous itemized deduction.

Until recently, there was no solution to avoid the Plaintiff Double Tax.

Some well-meaning attorneys and plaintiffs have tried to avoid the Plaintiff Double Tax Trap by doing one of the following:

  1. Call the attorney-plaintiff relationship a “business partnership.”
  2. Transfer a portion of the claim to the lawyer.
  3. Have the defendant write two checks (one to the attorney and one to the plaintiff).

However, none of these options work. 

In each of these scenarios, the alternatives that plaintiffs and attorneys have attempted to employ in order to avoid the double tax trap fail.

  1. Calling the attorney-plaintiff relationship a “business partnership” so the plaintiff can deduct legal fees as a business expense has been rejected by the U.S. Supreme Court, which recognizes the attorney/client relationship as a principal-agent relationship.
  2. Transferring a portion of the claim to the lawyer does not exempt the plaintiff from including it as income. If this strategy was effective, the plaintiff then would not receive that portion of the recovery and, therefore, have no need to deduct the legal fees. Unfortunately, this was nullified by the Banks case in 2005. The court wrote that a plaintiff’s income includes the portion of the recovery paid to the attorney as a contingent fee.
  3. The two-check approach, while it may seem like a creative workaround, ultimately does not alter the fundamental taxation of the recovery. The two-check approach is by far the most common failed approach mentioned when speaking with attorneys settling taxable damages cases. Attorneys will ask the defendant to send two checks, one check to the attorney for their fees and costs, and another check directly to the plaintiff for their portion. However, as the Supreme Court clearly states in the Banks case, the plaintiff’s income includes the portion paid to the attorney, regardless of how the checks are written. Simply having the defendant write two checks doesn’t change the underlying taxation of the settlement, and it doesn’t solve the Plaintiff Double Tax Trap problem.

Attempting any of these failed workarounds means that the attorney and plaintiff are both playing the IRS audit lottery. 

There have been situations where the plaintiff has been audited, and in the course of that audit, the IRS then audits the law firm, investigating the payment arrangements. If the plaintiff becomes subject to an IRS audit, they may face penalties and interest, potentially unraveling a host of complications for the associated firm. 

Here’s the good news: In Part 2 and Part 3 of this article, we outline solutions that (1) reduce the plaintiff’s tax bill and (2) solve the Plaintiff Double Tax Trap problem.

As settlement planners, we understand the immense burden that plaintiffs face regarding taxes on their recovery. 

One of the primary tools we use to address a high tax bill in taxable cases is a structured settlement annuity

Using a structured settlement annuity allows for the distribution of the recovery over multiple tax years, providing some relief from high tax rates. 

Instead of paying a 40%+ tax rate in the settlement year, the plaintiff’s marginal tax rate is often much lower because we spread out the payments over several tax years. By reducing the marginal tax rate of the plaintiff — the plaintiff pays less in total taxes on the recovery and benefits from the investment growth of the annuity.

Here is a quick example showing why spreading out a plaintiff’s taxable recovery with a structured settlement annuity is so valuable:

This example shows the power of using an annuity (the after-tax net recovery is more than double!) — and annuities have proven to be an invaluable tool in tax planning for plaintiffs. 

While structured settlement annuities are a vital and important tax planning tool, they do not solve the Plaintiff Double Tax Trap. 

That’s where the Plaintiff Recovery Trust comes to the rescue. The Plaintiff Recovery Trust, as outlined in Part 3 below, eliminates the Plaintiff Double Tax Trap — allowing plaintiffs to ONLY pay taxes on their portion of the legal settlement and not on their legal fees.

When the Plaintiff Recovery Trust is combined with a structured settlement annuity, we can help plaintiffs achieve the highest possible after-tax net recovery in taxable cases.

In Part 3, we will provide an overview of how the Plaintiff Recovery Trust avoids the Plaintiff Double Tax Trap we discussed in the previous sections.

With the Plaintiff Recovery Trust, the plaintiff is able to completely avoid the Plaintiff Double Tax Trap (and can still take advantage of annuities to further reduce their tax bill). 

As settlement planners, we have experienced firsthand the frustrations encountered by plaintiffs and attorneys alike in their quest to minimize tax burdens in taxable damages cases since the Tax Cuts and Jobs Act was passed. 

While annuities are a helpful tool, plaintiffs still had to pay taxes on their attorney’s fees in many cases.

Seeking a solution, the nationally renowned, settlement-focused Eastern Point Trust Company took on the challenge.

Recognizing the need for a conservative legal approach, Eastern Point’s team of experienced attorneys and CPAs collaborated with the highly respected law firm Faegre Drinker (one of the largest law firms in the U.S.).

Leveraging their collective expertise in estate planning and settlement taxation, these leading professionals developed an innovative new strategy to solve the Plaintiff Double Tax Trap called the Plaintiff Recovery Trust.

By combining principles of estate planning and settlement planning, Eastern Point Trust and Faegre Drinker successfully created a first-of-its-kind tool to help plaintiffs minimize taxes and maximize recoveries.

The Plaintiff Recovery Trust marks a new frontier in settlement strategies for the post-Tax Cuts and Jobs Act era. Backed by the pedigree and expertise of its creators, this transformative planning tool empowers plaintiffs like never before.

To avoid the Plaintiff Double Tax Trap, the plaintiff cannot directly “own” or receive the legal recovery. Instead, a specialized irrevocable trust is created in the plaintiff’s name and for their benefit: the Plaintiff Recovery Trust.

The plaintiff then assigns their legal claim to this Plaintiff Recovery Trust, which assumes ownership of the litigation, and the plaintiff becomes a beneficiary of the Plaintiff Recovery Trust. The lawsuit continues with the Trust stepping into the plaintiff’s shoes.

When a settlement is reached, funds are transferred to the Recovery Trust. It pays administrative fees, legal fees, and costs, and then distributes the net proceeds to the plaintiff. Because the plaintiff doesn’t pay any fees or costs, there’s no need for a deduction on the plaintiff’s tax return.

Thus, the Plaintiff Recovery Trust’s unique structure allows the plaintiff to sidestep the Plaintiff Double Tax Trap entirely. 

Here is how funds flow through the Plaintiff Recovery Trust to eliminate double taxation:

Step 1: The defendant pays the total gross legal recovery directly to the Plaintiff Recovery Trust.

Step 2: The Plaintiff Recovery Trust then distributes funds from the settlement. These distributions include the following:

  • The Plaintiff Recovery Trust pays attorney fees to the law firm
  • The Plaintiff Recovery Trust pays the net recovery amount to the plaintiff
Flowchart illustrating how funds flow through the PRT

Because the plaintiff assigned their litigation interest to the Plaintiff Recovery Trust, their only entitlement now is as a beneficiary.

As a result, the plaintiff only pays taxes on what they receive from the Plaintiff Recovery Trust in that capacity. The amount the plaintiff receives does not include attorney fees.

This streamlined process allows the plaintiff to completely avoid paying taxes on the attorney fee portion of the settlement. Thus, the Plaintiff Recovery Trust bypasses the Plaintiff Double Tax Trap — and plaintiffs only have to pay taxes on the net recovery they receive from the Trust.

Let’s look at a few scenarios to see firsthand how dramatically the Plaintiff Recovery Trust can increase what plaintiffs get to keep after paying taxes.

Scenario 1 – No Planning

  • Gross Settlement: $5,000,000
  • Legal Fees / Costs: 40%
  • Client Tax Rate: 45%
  • Result: Client nets only $750,000 (15% of the gross settlement)
Plaintiff Recovery Trust Case Study chart illustrating numbers with no planning

Without any planning, high taxes consume most of the settlement, leaving the client with just $750,000 (15% of the gross settlement).

Scenario 2 – Annuity Only

  • Gross Settlement: $5,000,000
  • Legal Fees / Costs: 40%
  • Client Tax Rate: 25% (lowered via 10-year annuity)
  • Result: Client nets $1,294.988 (25.9% of the gross settlement)
Plaintiff Recovery Trust Case Study chart illustrating numbers using an annuity

By spreading payments over ten years with an annuity (which lowers the client’s tax rate from 45% to 25%), the client’s after-tax net recovery jumps to $1,294,988 (25.9% of the gross recovery).

Scenario 3 – Plaintiff Recovery Trust Only

  • Gross Settlement: $5,000,000
  • Legal Fees / Costs: 40%
  • Client Tax Rate: 45%
  • Result: Client nets $1,567,500 (31.4% of the gross settlement)
Plaintiff Recovery Trust Case Study chart illustrating numbers using an annuity

Using the Plaintiff Recovery Trust more than doubles the client’s after-tax net recovery shoots up from $750,000 to $1,567,500

Scenario 4 – Plaintiff Recovery Trust and Annuity

  • Gross settlement: $5,000,000
  • Fees/costs: 40%
  • Tax rate: 25% (lowered via 10-year annuity)
  • Result: Client nets $2,913,853 (58.3% of the gross settlement)
Plaintiff Recovery Trust Case Study chart illustrating numbers using prt and annuity

By using both the Plaintiff Recovery Trust and a structured settlement annuity, the plaintiff’s after-tax net recovery skyrockets to $2,913,853 — nearly four times the amount the plaintiff would receive without doing any planning!

Plaintiff Recovery Trust Chart comparing after-tax recoveries to the client

The power of the Plaintiff Recovery Trust is obvious from examining each of the four scenarios. 

On its own, the Plaintiff Recovery Trust can often double or triple the plaintiff’s after-tax net recovery. 

Using both the Plaintiff Recovery Trust and a structured settlement annuity can often triple or quadruple the client’s after-tax net recovery.

The higher the income tax rate of the plaintiff, the greater the savings the Plaintiff Recovery Trust provides.

The chart below shows the savings the Plaintiff Recovery Trust provides based on the client’s tax rate. (This doesn’t include the additional savings offered by a structured settlement annuity.)

Plaintiff Recovery Trust Chart illustrating increase in net recoveries by tax rate

So, in states like California with a combined federal and state income tax of 50.3%, just using the Plaintiff Recovery Trust can nearly triple what a plaintiff gets to keep after paying taxes!

As outlined in this article, the Plaintiff Recovery Trust is the first and only planning strategy available that provides a solution to the Plaintiff Double Tax Trap created by the Tax Cuts and Jobs Act of 2017.

Below are some of the most frequently asked questions about the Plaintiff Recovery Trust.

There is no fee to create a Plaintiff Recovery Trust. If there is never a recovery, there is never a fee.

If there is a legal recovery in the case, Eastern Point Trust Company’s fee is 3% of the taxable damages in a case. 

This fee covers all administrative costs of setting up, administering, and terminating the Plaintiff Recovery Trust.

This article’s examples and case studies include the Plaintiff Recovery Trust fees.

Yes, it has been used successfully in many cases. Faegre Drinker, who advised on the Plaintiff Recovery Trust’s creation, can be hired to provide a formal written tax opinion if desired.

The Plaintiff Recovery Trust should be established as early in litigation as possible. At a minimum, the Plaintiff Recovery Trust should be set up ten days before any settlement is executed. 

Eastern Point Trust Company’s team will provide all the needed documentation to create the Plaintiff Recovery Trust.

No. The Plaintiff Recovery Trust distributes funds to attorneys and plaintiffs simultaneously, then terminates quickly after settlement.

No, we’ve never had objections. Defendants still get a full and complete release when funds are paid to the Plaintiff Recovery Trust.

If legal fees are deductible, that’s great news — and you would not need to use the Plaintiff Recovery Trust to avoid the Plaintiff Double Tax Trap.

However, you may still want to use the Plaintiff Recovery Trust for audit protection. If you show a large settlement as income, and then list a large deduction on your tax return (for legal fees paid), this may raise red flags to the IRS and increase your audit risk.

In addition, even if you do not need a Plaintiff Recovery Trust to avoid paying taxes on legal fees, a structured settlement annuity may provide significnat tax savings by spreading out the receipt of the settlement over several tax years. 

At Amicus Settlement Planners, we’re happy to help plaintiffs determine if their case will be taxable income and if legal fees can be deducted.

We’ve covered the immense value of the Plaintiff Recovery Trust in this article.

If you (or your client) are receiving a settlement and you want to explore if the Plaintiff Recovery Trust may help minimize taxes in your case, here are the simple steps to get started:

  1. Schedule a call to discuss your case by clicking here.
  2. On our call, we’ll discuss if using the Plaintiff Recovery Trust makes sense in your case. If so, we’ll coordinate setting up the trust with Eastern Point Trust Company.
  3. We’ll create a plan to make sure the tax bill on the settlement is as low as possible.

Everyone who books a call with us also receives two valuable planning tools:

  • Plaintiff Recovery Trust Tax Savings Calculator
    • This calculator tool estimates how much the Plaintiff Recovery Trust can save on taxes.
  • Personalized Tax Savings Analysis
    • Our firm will prepare a personalized forecast of how much you could save in taxes by using the Plaintiff Recovery Trust and a structured settlement annuity.
    • Even if you decide you don’t want to move forward and implement the tax savings strategies we outline in our analysis, our report is yours to keep.

To get started, simply click here to schedule a 15-minute call. Our team looks forward to helping you minimize taxes and maximize your after-tax net settlement with the Plaintiff Recovery Trust and a structured settlement annuity. 

Don’t wait to reach out because both the Plaintiff Recovery Trust and a structured settlement annuity must be set up before your case settles — so don’t wait. Make sure to book a call today.

We look forward to speaking with you soon!


If you would like to download a brochure about the Plaintiff Recovery Trust provided by Eastern Point Trust Company, please click the button below.

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