What Is A Qualified Settlement Fund?

A qualified settlement fund – a 468b fund, or QSF – is a powerful tool that encourages and simplifies lawsuit settlements. Though commonly used in class action suits, QSFs are extremely flexible and can help to settle a variety of cases.

A 468b qualified settlement fund is a trust authorized by Treasury Regulation 1.468B-1(c). Under the regulation, each QSF must:

  1. Be created by a court, and be subject to continuing court supervision;
  2. Resolve claims related to the subject of the lawsuit; and
  3. Qualify as a trust under state law.

A qualified settlement fund allows defendants to conclude litigation and receive immediate tax benefits, and plaintiffs to receive immediate, responsible, and flexible control of their funds.

When the QSF is created, the defendants pay their share of the agreement into the fund. Under the regulation, they take a tax deduction on the day of payment, are fully released from the litigation, and cannot participate in the trust administration.

An independent, qualified trustee, often an accountant or a lawyer, is appointed to handle the trust. The trustee manages the funds, handles ongoing claim resolution, and works with the plaintiffs to determine the trust’s payout structure.

The trustee also assures strict compliance with 468b and other regulations: without constant and careful oversight, the benefits of the qualified settlement fund may not be fully realized or even disallowed.

QSF asset allocation is flexible and may be structured to meet each plaintiff’s unique needs. Final lawsuit settlements can include cash, annuities, trusts, and other forms of structured settlement.

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               Lordan CPA | Eden Prairie, Minnesota | chris@murraycamp.com | 952 698 2044