A qualified settlement fund is a trust that holds settlement funds before distribution to claimants and law firms. Milestone is a qualified settlement fund administrator that brings tailored services to law firms.
A qualified settlement fund, also called a QSF or a 468b trust, is a critical part of the post-settlement process for many case types. As QSF administrator, Milestone aims to serve as a dependable and agile partner to law firms, working to ensure that each distribution process happens as efficiently as possible.
Contact Milestone to learn more about our services as a qualified settlement fund administrator.
As structured settlements became popular in the late 1970s and 1980s, 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 and set up “designated settlement funds.” 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, which can address a broader range of legal claims with increased flexibility.
A QSF is most beneficial when settling these types of cases:
A 468b trust must:
To set up a QSF, the law firm of record will establish an escrow or trust agreement with an administrator. The agreement sets the stage for the litigating parties to understand their respective roles.
Typically, defendants will need a representation that their payment as a transferor is qualified and therefore deductible, and that they are fully released of all the claims brought against them. Then, once the QSF is established, the defendants pay the agreed-upon amount into the trust, and their involvement ends there. Thereafter, the administrator manages the funds and ongoing claim resolution. Milestone routinely establishes and administers qualified settlement funds in all 50 states.
26 CFR § 1.468B-1 Qualified settlement funds.
(a) In general. A qualified settlement fund is a fund, account, or trust that satisfies the requirements of paragraph (c) of this section.
(b) Coordination with other entity classifications. If a fund, account, or trust that is a qualified settlement fund could be classified as a trust within the meaning of § 301.7701-4 of this chapter, it is classified as a qualified settlement fund for all purposes of the Internal Revenue Code (Code). If a fund, account, or trust, organized as a trust under applicable state law, is a qualified settlement fund, and could be classified as either an association (within the meaning of § 301.7701-2 of this chapter) or a partnership (within the meaning of § 301.7701-3 of this chapter), it is classified as a qualified settlement fund for all purposes of the Code. Read the full statute.
Here are the main benefits of qualified settlement funds to plaintiffs.
By placing settlement proceeds within a QSF, a plaintiff may enjoy additional advocacy of their best interests. Plaintiffs hereby gain a professional administrator who manages the funds and any ongoing claim resolution issues. While the money remains in a QSF, the plaintiff can work closely with a settlement planner and his or her attorney to discuss financial planning options best suited for the plaintiff and their family moving forward. Trial attorneys can enjoy the relief and accomplishment of placing their client in the best hands possible once their job of legally advocating for a client culminates.
The most well-known benefit of a QSF for plaintiffs is time to plan. Many negotiations and complexities accompany decision-making when deciding what to do with settlement proceeds. Plaintiffs can take more time to consult with their attorneys and settlement planners to discuss future planning. This may include liens negotiations, the possibility of a trust or investment account, Medicare set-asides, structured settlements, and other possibilities.
Plaintiffs are able to utilize a QSF as a financial planning tool. With settlement proceeds in a QSF, a plaintiff may decide to establish a settlement structure with their funds, so he or she can spread their settlement income over multiple months/years instead of receiving one lump sum. With regard to many personal injury cases, settlement monies received by plaintiffs are tax-exempt.
To explore options for your case or a client’s case, consider having a discussion with a qualified settlement fund administrator at Milestone to gain a better understanding of the benefits for your specific circumstances.
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