Qualified Settlement Funds
Let us help you! Contact us at 855-879-3436

Qualified Settlement Funds

A Qualified Settlement Fund (QSF) is a legal tool that can facilitate the efficient resolution of outstanding tort claims. The legal authority for QSFs can be found in Treasury Regulation Section 1.468B-1, which sets forth the following three requirements:
  • It is established pursuant to a court order;
  • It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from a tort, breach of contract, or violation of law; and
  • 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 parties). 
Advocacy Trust's Role as Custodian of QSF Proceeds
Advocacy Trust (AT) regularly works with 3rd party administrators and special masters to custody the assets held within a QSF.

As a Tennessee state-chartered trust institution, AT provides custodial services tailored to the needs of a QSF Administrator. These services generally fall into two buckets, administrative and investment support services. AT provides 3rd party administrators and special masters with a detailed breakdown of principal and income for accounting purposes and support with distributions. In addition, AT provides support with the investment of QSF assets. Most QSF documents identify that the safety and security of the QSF funds are paramount. These requirements, however, limit the type of instruments that the 3rd party administrator can direct AT, or any financial institution, to invest in on behalf of the QSF. Therefore, we view our role as a partner to ensure we offer access to the best possible investment vehicles while also ensuring the protection and confidentiality of the funds deposited into the QSF.

Fee
Please email qsf@advocacytrust.com for more information about our fees and services. 

Why a QSF?
QSFs are useful tools that ensure proper client counseling can occur before, during, and even after settlement. QSFs uniquely introduce a degree of breathing space to the settlement process that is made valuable by:
  • Allocating the settlement proceeds among the claimants;
  • Verifying and negotiating private and governmental liens and/or subrogation claims;
  • Facilitate placement of a structured settlement annuity without requiring the signature / participation of the defense;
  • Evaluating the need to preserve governmental entitlement benefits (e.g. the need for the establishment of a special needs trust);
  • Evaluating the need for, and benefits derived from, establishing a Special Needs Trust;
  • Evaluating the need for and/or the allocation of settlement proceeds to be placed in a Medicare Set Aside; and
  • Enabling a host of other decisions to be made without the pressure associated with the litigation itself.
So how can a QSF be established?
The claimant or defendant moves for the entry of an order by the court to:
  • Establish a QSF; and
  • Completely release any liability of the defendant and its liability insurer once the insurer pays the agreed-upon settlement amount into the QSF.
The motion is to stipulate that the claimants and the Fund Administrator will agree to the terms of the Fund Administrator’s allocation of the amount placed in the QSF through the execution of fund agreements and releases. The motion is to further specify that no settlement proceeds are to be set apart for any individual claimant or otherwise made available so that he or she may draw upon or otherwise control said settlement proceeds.

It is important that the claimant or defendant also move for the entry of an order by the court:
  • Appoint a QSF fund administrator; and
  • Establish terms of the QSF.
What the Settlement Agreement Must Say
The importance of the language contained in a settlement agreement cannot be overstated. A QSF allows for the time necessary to resolve all liens as well the time necessary to choose the appropriate income stream to both meet a claimant’s needs and protect their government benefits. A QSF, however, can be rendered useless if the language in a settlement agreement can be construed as bestowing an economic benefit on or constructive receipt to the claimant. Such a construction would eliminate the ability to capitalize on the tax benefits of a structured settlement and jeopardize a claimant’s government benefits.

In order to ensure that the client avoids such pitfalls, it is important that the settlement agreement recite the following:
This Release is given in exchange for a $100,000 payment by the Releasees into the ___Jon Doe___ Qualified Settlement Fund. The receipt for which will be acknowledged, and the funds distributed according to the terms and conditions of the Order establishing the ___Doe___ Qualified Settlement Fund and appointing the fund administrator issued by the Court of Alpha County (State of Beta).

Releasees further agree to enter into Fund Agreements with the Fund Administrator, in which they accept the Fund Administrator’s allocation of their derivative, separate or other claims.
Further, and equally as important, is that the Defense or their insurer make their settlement payment made payable to:
“___Alpha Beta___ as Fund Administrator of the ___Doe___ Qualified Settlement Fund.”
Making the check made payable to the settlement administrator as administrator of the QSF eliminates a potential argument from the IRS that the receipt of funds by the Fund Administrator was constructive receipt by or an economic benefit to the claimant. By confirming that both the settlement agreement and the settlement payment language mirror the above, counsel is protecting the client.
Read more
Share by: