468b Qualified Settlement Fund
Having Milestone serve as your qualified settlement fund administrator is the best way to leverage this settlement and tax planning solution. We’ll give you peace of mind that the distribution phase of settlement is done correctly and efficiently.
What is a Qualified Settlement Fund?
A qualified settlement fund, or QSF, is a 468b trust that holds settlement proceeds past the conclusion of a lawsuit. It affords law firms, attorneys, and their clients extra time to plan financially. Defendants pay the agreed-upon settlement amount into the trust and are released from the lawsuit and post-settlement decisions. Then, plaintiffs can work with a settlement expert to achieve financial security and comply with government benefits programs. Meanwhile, trial lawyers can strategize around their fees using attorney fee deferral while the funds remain in the QSF.
Contact Milestone to learn more about our services as your qualified settlement fund administrator.
Benefits of Qualified Settlement Funds
Attorneys can take their fees almost immediately upon the defendant’s payment to the QSF. Or, they can create a schedule of future payments and enjoy the benefits of fee deferral.
Extra time to plan after settlement allows a plaintiff to explore options for long-term planning and maintaining eligibility for means tested benefits. With a QSF, there is no pressure to make these decisions in a rush.
Milestone as Your Qualified Settlement Fund Administrator
Qualified settlement funds are advantageous during the settlement process. However, finding a dependable and capable qualified settlement fund administrator is pivotal. Milestone optimizes settlement by:
- Establishing a QSF for your law firm.
- Managing the fund.
- Removing the administrative burden of settlement from your firm by handling plaintiff distributions, attorney fee splits, and other tasks.
- Connecting plaintiffs with our trauma-informed settlement planning team as needed.
The Benefits of
See how Milestone provides trial lawyers and their clients with more time to consider all available settlement planning options such as ways to retain government benefits.
A qualified settlement fund allows your firm to:
- Plan when/how much money is coming into the firm throughout the year.
- Gain time to decide whether to your fees.
- Afford your clients extra time to financially plan post-settlement.
- Alleviate defendant participation at settlement time.
- Relieve the pressure to resolve lien negotiations.
- Reduce litigation expenses and reallocate human capital.
Frequently Asked Questions
Where did qualified settlement funds originate?
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.
Which practice areas benefit from a QSF?
A QSF is most beneficial when these types of cases settle:
- Personal injury
- Product liability
- Patent and intellectual property
- Sexual harassment
- Sexual abuse
- Medical malpractice
- Wrongful death
How do law firms establish qualified settlement funds?
A 468b trust must:
- Be established pursuant to a court order and is subject to continuing jurisdiction of the court (26 CFR § 1.468B(c)).
- Resolve one or more contested claims arising out of a tort, breach of contract, or violation of law.
- A trust under applicable state law.
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.
Is a distribution from a qualified settlement fund taxable?
Plaintiffs pay on any interest or dividend income regarding the taxation of distribution from qualified settlement funds.
Which part of the Internal Revenue Code discusses qualified settlement funds?
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.
How do plaintiffs benefit from a qualified settlement fund?
Here are the main benefits of qualified settlement funds to plaintiffs.
Extended Plaintiff Advocacy
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.
Time To Plan
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.
How do attorneys benefit from a QSF?
A QSF releases the defendants from the litigation as soon as they pay cash to the QSF. Attorneys then have the time they need to thoughtfully address each decision involved at this stage of a case.
The benefits of a QSF for an attorney include:
- More time to plan for contingency fees using attorney fee deferral.
- Affording clients extra time to implement settlement planning strategies and comply with government benefits income thresholds.
- A more organized settlement distribution.
Even as they take the time to counsel clients on their settlement and future, attorneys can take their fees sooner — as soon as the defendant makes the payment to the QSF. In addition, having this fund affords an attorney the time to speak with an expert about wealth management options and the possibility of deferring his or her fee.
Moreover, QSFs come with a helpful expert. When establishing the fund, attorneys hire a professional administrator. This expert knows all aspects of the QSF, including full accounting of the fund, attorney fees and tax deferral options, plaintiff payout options, and more. The administrator can also source lien negotiators and assist in the evaluation of whether a medicare set-aside is necessary — so the attorney doesn’t have to.
After months or even years of litigation, a tool to help streamline and improve the disbursement of settlement funds can make a huge difference in efficiency during settlement. Finding the proper administrator is critical. Be sure to work with one who understands the many facets of the settlement process to be the partner you need.