By using this site, you agree to our Privacy Policy and our Terms of Use.
An assorted collection of letter press stamps

Qualified Settlement Funds (QSFs): Dispelling Common Myths – A Listicle

Qualified Settlement Funds Legal Burst - QSFs - Dispelling Common Myths – A Listicle

Qualified Settlement Funds (QSFs) myths can deter parties from utilizing these effective settlement solutions. This listicle aims to dispel common misconceptions and provide accurate information about QSFs. By understanding the true nature and benefits of QSFs, plaintiffs, defendants, and attorneys can make informed decisions during the settlement process.

Myth 1: QSFs Offer Limited Tax Advantages

Reality: QSFs provide significant tax benefits for both defendants and plaintiffs.

Explanation:

Defendants: Upon contributing to a QSF, defendants are eligible for an immediate tax deduction, even if there is no disbursement of funds. This upfront deduction can substantially reduce the defendant’s taxable income in the fiscal year of the contribution, providing a notable financial advantage.

Plaintiffs: Plaintiffs benefit from deferring taxation on their settlement amounts until distribution. This deferral can offer substantial financial planning advantages, allowing plaintiffs to potentially lower their tax obligations by receiving funds in years when they may be in a lower tax bracket.

Myth 2: QSFs Are Exclusively for Mass Tort and Class Action Settlements

Reality: QSFs are versatile and applicable to various legal disputes.

Explanation:

QSFs are designed to resolve and satisfy claims across various sizes and types of cases, including torts, breach of contract, and environmental liability cases. The broad application of QSFs makes them suitable for single-claimant cases and scenarios with large numbers of plaintiffs, such as product-liability cases, drug cases, and sexual abuse cases.

Myth 3: QSF Administration Is Overwhelmingly Complex

Reality: QSF administration is straightforward and has defined roles and responsibilities.

Explanation:

The perceived complexity of QSF administration can deter parties from considering this efficient settlement solution. However, understanding the structured roles and responsibilities can demystify the process:

QSF Administrator: A licensed fiduciary ensures the smooth operation of the QSF, including asset custody, oversight, documentation preparation, and disbursement management.

Compliance and Expertise: Administrators bring a wealth of knowledge and experience, ensuring adherence to regulations and guidelines, managing tax-related requirements, and handling the fund’s EIN application and annual tax returns.

Myth 4: Only Plaintiffs Benefit From QSFs

Reality: QSFs offer multiple advantages to all parties involved in litigation.

Explanation:

Both plaintiffs and defendants benefit from QSFs:

For Plaintiffs: Deferred taxation, financial planning flexibility, and the ability to resolve disputes among multiple plaintiffs and their attorneys are vital benefits. Plaintiffs can also secure settlement proceeds in a QSF, providing a safe space to work out a comprehensive settlement plan without the pressure of immediate distribution.

For Defendants: Defendants can immediately claim tax deductions for their contributions to a QSF, simplifying the settlement process and providing financial and legal closure 1. By contributing to a QSF, defendants can remove themselves from the ongoing settlement administration process, often receiving a permanent release upon their contribution.

Myth 5: Must a Court and Judge Order a QSF

Reality: § 1.468B-1 does not require a court to Order a QSF.

Explanation:

IRC § 1.468B(c)(1) stipulates that a QSF:

“It is established pursuant to an order of, or is approved by, the United States, any state (including the District of Columbia), territory, possession, or political subdivision thereof, or any agency or instrumentality (including a court of law) of any of the foregoing and is subject to the continuing jurisdiction of that governmental authority.”

Conclusion

Qualified Settlement Funds (also known as (i) QSF trusts, (ii) qualified settlement accounts, (iii) qualified settlement trusts, (iv) QSF accounts, or even (v) 468B trusts) are powerful tools for managing settlement proceeds in various legal disputes.

QSFs offer significant tax advantages, are versatile in their application, simplify the administration process, benefit all parties involved, and effectively handle complex cases with multiple plaintiffs and future claims. Understanding the capabilities and benefits of QSFs empowers attorneys, settlement planners, and others to make informed decisions, ensuring a more efficient and equitable settlement process.

To learn more, click here: Qualified Settlement Funds.

Rachel McCrocklin
Rachel McCrocklin
Author

Rachel McCrocklin

Ms. Rachel McCrocklin, MBA is a settlement industry and trust professional specializing in creating, operating, and administering 468B Qualified Settlement Funds (QSFs). Additionally, she provides insights on advanced settlement optimization solutions such as the Plaintiff Recovery Trust (PRT) while working with litigants, plaintiff counsel, and defendants to implement tax-efficient solutions and maximize settlement outcomes for all stakeholders.

Ms. McCrocklin oversees Eastern Point's QSF and PRT client services operations and communications while participating in developing new and innovative advantaged tax structures.

She is a prolific author of articles, including for the American Bar Association; she regularly presents at the Federal Bar Association, Practicing Law Institute, and settlement industry events and is frequently cited in financial industry publications such as USAToday, Finance Digest.

Other Publications

Article Archive

Contact Us

Get support from one of our experienced trust experts by submitting this form.
Phone
(855) 222-7513
Join the Newsletter
Sign Up
By submitting this form, you agree to be contacted by Eastern Point Trust company, as well as agree to our Terms of Use, and our Privacy Policy.
Your submission has been received.
A member of our team will be in touch with you soon.
Something went wrong while submitting the form. Please see our Contact Us page for more options to connect with us.
Your submission has been received.
A member of our team will be in touch with you soon.
Something went wrong while submitting the form.
Please see our Contact Us page for more options to connect with us.
Soporte Dedicado para Nuestros Clientes de Habla Hispana
(Dedicated Support for Our Spanish-Speaking Clients)

Eastern Point Trust Company se complace en ofrecer a los clientes de habla hispana un número gratuito exclusivo, así como acceso a un equipo de servicios al cliente compuesto por personal hispanohablante nativo profesional y de alto nivel.
 
Para obtener más información, comuníquese con el equipo al (855) 412-5100, esperamos trabajar con usted.