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A qualified settlement fund (QSF) is a fund, account, or trust that holds settlement proceeds. A QSF is a settlement escrow that allows for proper settlement planning and liens negotiation, and can ensure client counseling occurs during and after settlement.

Before the advent of the QSF, defendants were often stuck in situations where they reached a settlement with plaintiffs, but for one of a variety of reasons, could not get payment directly to each plaintiff. These scenarios were particularly true in cases involving environmental toxins and pharmaceutical mass tort litigation. Large, multinational corporate defendants lobbied the US Treasury to issue regulations to expand Internal Revenue Code 468B in order to create 1.468B, which established QSFs, giving the defendants the ability to make a payment to an escrow account and allow for current-year tax deductions. Today, QSFs are useful in a variety of cases ranging from complex litigation to individual personal injury suits.

QSFs also benefit lawyers directly for management of their own cash flow. Plaintiffs frequently need to take more time to decide what to do than their lawyer does; a QSF relieves this timing pressure inherent in settlement. Structured attorney fees can also be created from qualified settlement funds.

Requirements of a Qualified Settlement Fund

Below are the requirements of a QSF as outlined in 26 CFR 1.468B-1.

A fund, account, or trust satisfies the requirements of this paragraph (c) if –

  1. It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority;
  2. It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability –
    • (i) Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (hereinafter referred to as CERCLA), as amended,42 U.S.C. 9601et seq.; or
    • (ii) Arising out of a tort, breach of contract, or violation of law; or
    • (iii) Designated by the Commissioner in a revenue ruling or revenue procedure; and
  3. (3) The fund, account, or trust is a trust under applicable state law, or its assets are otherwise segregated from other assets of the transferor (and related persons).

As a QSF administrator, we offer professional litigation distribution services, settlement planning, structured settlements, lien negotiation and a host of other valuable services for lawyers and their clients. Feel free to call Milestone Consulting with any questions.

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