Single-Claimant Qualified Settlement Funds

On another page I mention that one of the primary duties of a qualified settlement fund administrator is to manage legal compliance. Compliance covers a wide range of jobs, from routine tax accounting to resolving areas of legal uncertainty.

One area of uncertainly regarding QSFs is whether a single-claimant QSF complies with the governing regulations and Section 1.468B of the Internal Revenue Code. Is a single- claimant fund legally compliant with the QSF regulations?

A QSF is described by Regulation Section 1.468B-1 (c) (2) as a vehicle “established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or a related series of events) that has occurred and that has given rise to at least one claim asserting liability…”

Though slightly indirect, the regulation seems to allow for the formation of a QSF with only one claimant. Evidence in Private Letter Rulings supports the idea that the single-claimant QSF is legally durable.

For an excellent discussion of QSFs generally and the single-claimant issue specifically, I recommend this well-researched and persuasive paper, written by Jeremy Babener of Lane, Powell in Portland, Oregon.

Babener does an excellent job of outlining the concerns of both plaintiffs and defense when facing the crucial decision of how, where and when to establish a QSF, and whether to establish a Fund at all. It’s the rare combination of thorough background combined with a practical guide for today’s decisions.

While every situation is unique, don’t let an uninformed statement by a party to the settlement derail your plan because you have only one plaintiff. A careful review of the entire situation is still required. A QSF’s value is in its unique confluence of law, finance, and the Internal Revenue Code. Full compliance with each of these varied requirements is vital. Don’t let an over-cautious approach to settling eliminate the plentiful, valuable benefits of a properly formed QSF. Contact us today – our expertise stands ready for you.

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               Lordan CPA | Eden Prairie, Minnesota | | 952 698 2044

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