The "Qualified Settlement Fund" or QSF, came into being in 1993 when the United States Treasury issued regulations under 26 CFR 1.468B-1. It is sometimes referred to as a 468B Settlement Fund or 468B Settlement Trust. When a Qualified Settlement Fund (QSF) is established, pursuant to Court Order, it assumes the tort liability from the original defendant party (or parties) before the settlement is made, at which time the original defendant party (or parties) is (are) dismissed with prejudice. The Qualified Settlement Fund (QSF) then stands in the shoes of the original defendant party (or parties) with the Plaintiff. The Qualified Settlement Fund (QSF) may enter into a Settlement Agreement with the plaintiff(s) and can enter into a Qualified Assignment, pursuant to Rev. Proc. 93-34".
The Qualified Settlement Fund's origins stems back to the Designated Settlement Fund concept introduced in 1986, which enabled 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 (or insurer) benefits by being able to accelerate its tax deduction to the date that the settlement amount paid is to the Designated Settlement Fund (DSF), rather than when each plaintiff is paid.
A qualified settlement fund may be favored by plaintiff attorneys under appropriate circumstances because they may feel a greater control of the settlement funds, while determining appropriate distribution amounts to their clients. In some cases, resolving a case via a QSF eliminates risk of insolvency of the defendant or its insurer, allows time for an agreement on allocation and negotiation of lien claims and can be useful to administer mass tort cases where there are multiple disparate defendants contributing to the settlement. With New York state wrongful death cases, a QSF may be an option to help overcome a potential legal malpractice trap created by legislative oversight in a 2005 amendment to EPTL 5-4.6. On the right case plaintiffs may have more flexibility in making appropriate choices for distribution of the settlement in cash, in structured settlements that can provide a secure income stream, and/or a Settlement Preservation Trust, and/or in a Special Needs Trust to preserve Medicaid and Supplemental Security Income (SSI), and can benefit from interest accumulation of funds, in the Qualified Settlement Fund (QSF), if the distributions are not immediate.
A Qualified Settlement Fund (QSF) should be considered in tort, class action, or environmental (CERCLA) lawsuits involving one or more claims and 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 (or insurer) pay the agreed settlement amount into a Qualified Settlement Fund "within the meaning of 468B-1 of the Treasury Regulations". This can be a simple checking account or a more complex trust agreement using a bank trust department. An experienced trustee or administrator is important as certain formalities must be followed. The settlement proceeds remain in the Qualified Settlement Fund 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.
Plaintiff attorneys should be cautious about a using a Qualified Settlement Fund when their settlement planner is promoting it on the basis of " full market access" to structured annuity companies. Exactly the opposite is NOW true when your case involves a single claimant. In such circumstances the limitations to your client on a large case might mean that the client is not able to meet an annuity diversification objective. This could reflect poorly on the plaintiff attorney. Who needs THAT?
To learn more about qualified settlement funds. click below to access the blog posts John Darer has written on the subject of "the qualified settlement fund" on the Structured Settlements 4Real blog