The Privacy Benefits of Qualified Settlement Funds (QSF)

Overview of QSFs

§468B Qualified Settlement Funds (QSFs) are tax-qualified legal entities that are useful to settle single-event, mass torts, and class action lawsuits and allow the consolidation of multiple “related” claims into a single fund. The establishment and operation of QSFs governed by 26 C.F.R. §1.468B-1, et seq.

Ensuring the privacy and security of a Qualified Settlement Fund and its information is crucial. In the case of a pre-funded Qualified Settlement Fund, safeguarding sensitive information to prevent unauthorized or adverse party access protects the defendant’s privacy and the integrity of the funds. The privacy provisions of a QSF and its existence as a separate legal entity can hinder adverse parties from inflating their claims based on knowledge of the QSF’s available assets.

Further, a properly designed and drafted §468B Qualified Settlement Fund can provide valuable “discovery limitations.” Maximizing these advantages requires an experienced and steadfast QSF trustee who will vigorously assert the associated privacy and limitation powers to suppress undesirable litigation discovery.

Privacy in QSFs

In some cases, defendants have apprehension regarding the question of privacy or discoverability of Qualified Settlement Fund details by adverse parties. In particular, when a defendant(s) utilizes a pre-funded QSF to address multiple current and future claims, there can be concerns (albeit largely unfounded) regarding whether a plaintiff may acquire information related to the defendant’s identity or knowledge regarding the existence of a QSF and its level of funding by searching a public source or by discovery through a subpoena.

Unlike other entities whose information is readily available through searchable databases, in the case of QSF, there are no such public sources or databases. Accordingly, no government database searches are even possible. As such, adverse parties have no likely chance of discovering a Qualified Settlement Fund’s existence or the identity of a defendant associated with it.

Even if the existence of a QSF becomes known, with a properly drafted QSF, the trustee has many practical tools to quash discovery inquiries.

Pro Tip: Having a trustee who is a vigorous advocate in defending the privacy of the QSF is a critical element in protecting the QSF.

Pro Tip: Having a trustee who maintains a robust and comprehensive privacy policy that would apply to any third parties making a claim on the QSF or serving a demand for discovery is indispensable in protecting the privacy of a QSF. Non-trustee QSF administrators may have no enforceable privacy policy protections for the QSFs they administer as non-trustees.

Anonymity of Parties

QSFs maintain privacy by ensuring the fund’s existence and claimants’ identities remain sealed and confidential. This confidentiality is crucial in sensitive legal matters, protecting the individuals involved from unwanted exposure. To safeguard the anonymity of the parties and the financial condition of the QSF, the trustee plays a vital defensive role in protecting information from prying adverse parties. The trustee may employ various tactics by challenging all requests, imposing legal barriers, decanting, applying jurisdiction selection requirements, and utilizing the courts to avoid subpoenas or quash.

Decanting and Situs Shifting

As mentioned, in a properly drafted QSF, the trustee will have the necessary power to employ decanting, situs-shifting, and other trustee-power tactics to protect the parties’ privacy and defeat discovery fishing expeditions.

Non-Public Records

QSF transactions and records are not part of public records, and the IRS is prohibited from disclosing tax returns based on a civil subpoena. This integrated approach helps prevent access to private information related to the QSF. Here again, we see that privacy provisions in an adequately designed QSF can protect the privacy of all documents and information associated with QSFs. The Courts are highly reluctant to allow the breach of all Claimant’s privacy solely for a fishing expedition inquiry associated with an unrelated matter.

Conclusion

Qualified Settlement Funds offer strong privacy protections and can be effective shields from discovery demands. The QSF 360 platform provides the QSF industry with innovative and robust privacy and protection from discoverability.

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