Qualified Settlement Funds

NFP Structured Settlements has helped numerous parties achieve their goals through the use of qualified settlement funds and has developed an efficient process for handling such cases. Plaintiff attorneys favor these funding agreements because they have greater control of the settlement funds while determining appropriate distribution amounts to their clients. Obtaining the money early eliminates risk of insolvency of the defendant or its insurer, and allows time for an agreement on allocation and negotiation of lien claims.

Moreover, plaintiffs have more flexibility in making appropriate choices for distribution of the settlement in cash, in structured settlements that can provide a secure income stream, or in special needs trusts to preserve Medicaid and Supplemental Security Income. Injured parties can also benefit from interest accumulation in the qualified settlement trust (QSF) if distributions are not timely.

Background

The designated settlement fund (DSF) concept was created in 1986 under Section 468B of the IRC to enable defendants to deduct amounts paid to settle multi-plaintiff lawsuits before it was agreed how these amounts would be allocated. In these cases, the defendants and plaintiffs had agreed how much the defendant or their insurers would pay to settle the cases collectively, but not individually. The defendant benefits by accelerating its deduction to the date that the settlement amount is paid to the designated settlement fund rather than when each plaintiff is paid.

In 1993, the Treasury issued regulations for the qualified settlement fund in 26 CFR 1.468B-1. When a qualified settlement fund is established, it assumes the tort liability from the original party before the settlement is made, at which time the original party is dismissed with prejudice.

The qualified settlement fund then stands in the shoes of the original party with the plaintiff. The fund may enter into a settlement agreement with the plaintiff(s) and can enter into a qualified assignment, pursuant to Rev. Proc. 93-34.

A qualified or designated settlement fund should be considered in tort, class action, or environmental (CERCLA) lawsuits involving one or more claims, and when the defendant(s) or insurance carrier(s) is (are) willing to comply in exchange for a complete general release from the plaintiffs.

Under these circumstances, the court can order that the defendant pay the agreed settlement amount into a qualified or designated fund within the meaning of the 468B-1 of the Treasury regulations. This can be a simple checking account or a more complex trust agreement using a bank trust department. The settlement proceeds remain in the QSF or DSF subject to the continuing jurisdiction of the court. After the dispute is resolved, the court approves the allocation and orders the payment of settlement proceeds, and the fund may be closed.

NFP Structured Settlements works with partners who provide the services required to establish and maintain a qualified settlement fund.

Learn more about these additional financial services: