What a qualified settlement fund can do for defendants

Posted on June 3, 2019

Last week, we discussed the benefits of a qualified settlement fund for attorneys, particularly those who represent people in personal injury cases. We noted that they’re also useful for mass tort lawyers and those who work on cases involving issues like sexual harassment, employment discrimination, wrongful death, and others. But it’s not just attorneys who find advantages to establishing this type of account. Their clients (the plaintiffs in those cases) and even the defendants can benefit, too. Here’s how a qualified settlement fund helps defendants in particular as a lawsuit concludes.

The Brass Tacks of Qualified Settlement Funds for Defendants

What it is:

A qualified settlement fund is a settlement escrow account created in accordance with state law to hold settlement proceeds past the conclusion of a case.

How it works:

First, defendants need to confirm that their payment is qualified and therefore deductible and that they are fully released of all of the claims brought against them and any that may arise out of the creation of the qualified settlement fund. Then, when the qualified settlement fund is established, the defendant can pay cash to the account in exchange for a general release from the litigation. Defendants pay the agreed-upon amount into the fund, and their involvement ends there. The plaintiff and attorney can then continue the planning process with an independent trustee or administrator.

Why it’s helpful:

The initial purpose of establishing the qualified settlement fund option was to give defendants their deduction sooner. Therefore, defense counsel generally welcome payment to this type of account, as the law mandates that the order establishing the fund extinguishes their client’s liability. As long as the qualified settlement fund is established pursuant to a court order in the appropriate jurisdiction and the case is the right claim type, the defendant receives the release for payment for cash.

Interested in learning more about qualified settlement funds? Give us a call.