Qualified Settlement Funds
As litigation continues to grow increasingly complex, so too has collecting and distributing settlements once the litigation has ended. A straightforward and efficient tool for attorneys and plaintiffs alike is the qualified settlement fund (QSF).download pdf
How Does This Work?
A qualified settlement fund is a tax-qualified trust or account that holds settlement proceeds from litigation. It allows for more simplified and organized administration of the settlement. A QSF gives an attorney sufficient time for proper client counseling before, during, and after settlement by extending the amount of time available to plan past the release of the defendants from the litigation. This method enables attorneys to thoughtfully address the myriad of decisions involved in the disbursement of funds.
The most important element of a QSF is that it can remove the defendants and their insurers from decisions that must be made post settlement. Another important fact is that the QSF allows for the defendants to pay cash into the fund in exchange for a general release. Here’s the critical part for lawyers: they can take their fees immediately. Doing so can improve cash flow of fees by 30 to 180 days, depending on court approval or other challenging issues.
What Are The Benefits?
There are other benefits to the QSF, and not just the time of payment and fee. You are also hiring a professional administrator to manage the funds and ongoing claim resolution, to source lien negotiators, and to assist in the evaluation and necessity (or lack thereof) for Medicare set-asides. And, if you have a lengthy court approval process due to a wrongful death or multiple plaintiff litigation, the consolidation of the cases in a single jurisdiction can be invaluable.
Other benefits include:
- Control over recognition of income
- Tax planning at year end for both plaintiff and attorney
- Ability to spread taxable income over many years
- Potential for tax deferred growth
- Ability to earn pre-tax income, or tax-exempt earnings
Lawyers who dedicate their career to mass tort litigation know all too well how complex the settlement process can be. After months or even years of litigation, any process that can help streamline and improve the disbursement of funds should be strongly considered. Using Milestone as a Qualified Settlement Fund administrator is a great solution for all parties involved.