Utilizing QSFs as a Resolution Tool
Recognizing when and how to use Qualified Settlement Funds (QSFs) can significantly enhance the resolution process in your practice. Making critical financial decisions under the pressures of litigation can lead to delays and missed opportunities. A stubborn defendant can also hinder crafting a settlement in your client’s best interest.
1. What is a Qualified Settlement Fund?
Often referred to as a QSF, §468B et seq. allows plaintiffs’ attorneys and their clients to release a defendant for a cash-only settlement while having them pay into an account that will serve as a temporary trust account. This mechanism allows the plaintiffs and their attorneys to consider all available options before making distributions.
2. Use of Monies Inside a QSF
Funds held in a QSF can be paid in cash and used to fund a structured settlement, establish an attorney fee structure annuity or assignment, and resolve liens or allocation issues between parties. A QSF can also hold the funds to prevent constructive receipt and preserve pre-settlement options while evaluating financial strategies or setting up other entities, such as a special needs trust.
Pro Tip: Platforms using an Escrow QSF may not satisfy all the operational requirements of § 1.468 B-1 et seq and thus risk disqualification.
3. Variety of Cases Utilizing QSFs
QSFs are used in various cases involving one or more plaintiffs and at nearly any stage of the litigation process, even post-trial.
4. Uncooperative Adversary
Every plaintiff’s attorney has encountered a claims representative or defense attorney who can make things more difficult than necessary. In such situations, obtaining the necessary cooperation to achieve a structured settlement, attorney fee structure, or assignment can be highly unlikely. The solution is to replace the claims representative and their attorney with a QSF. The defense receives a full and final release without any further obligations by paying the necessary funds to resolve the case into a QSF.
5. Clients Needing More Time
After negotiating an excellent result for your clients, the pressures of litigation finally end. However, at this time, your clients must make one of their most important financial decisions: how to receive their settlement and what to do with it. The solution to this predicament is creating a holding pattern called a “safe harbor tax limbo” using a QSF.
6. The Lien That’s Holding Everything Up
A sizable lien can drastically impact your client’s settlement options and financial situation. Additionally, there are risks that your client’s needs might change, new facts could emerge, or the offer might disappear. The solution is eliminating the defense from the equation and settling the case with a QSF.
7. The Complexity of Multiple Defendants
Resolving a case against one defendant is challenging enough; the complexity increases when multiple defendants are involved. The solution to this issue is establishing a QSF that accepts transfers (funding) from each defendant separately while irrevocably releasing each defendant from further liability.
8. Conflicting Interests of Multiple Claimants
Representing multiple claimants can create conflicts of interest, especially concerning the division of settlement proceeds. The solution is to pay the funds into a QSF, release the defense, and allow designated professionals to be “in the middle.”
9. How to Establish a QSF
For such a helpful tool, the requirements to establish a QSF are surprisingly few:
- A “governmental authority” must approve the QSF
- Its purpose must be to resolve or satisfy claims as allowable under §1.468B-1
- It must qualify as a trust under state law
Pro Tip: Platforms like QSF 360 provide an online turnkey solution in as little as one business day.
10. The Process of Establishing a QSF
The process begins with contacting a professional who is well-versed in establishing QSFs and their administration. A comprehensive settlement planner experienced in your area of law, or directly utilizing QSF 360 yourself, is an excellent place to start. An experienced, qualified professional will help coordinate all efforts to establish a QSF to resolve your case, involve the appropriate parties, and manage the process so you don’t have to.
11. QSF Ready to Accept Assets
Once approved, the QSF trustee assumes the administrative duties. The QSF is now ready to accept assets from a transferor (defendant or defense carrier) and provide the transferor with a complete release of liability. Once the funds are transferred, the transferor can claim a tax deduction equivalent to the traditional claim satisfaction.
12. Conclusion on Utilizing QSFs
The ultimate recoveries you obtain for your clients testify to your hard work in representing them, and a QSF can help ensure that your clients have every opportunity to create solid settlement plans to maximize those recoveries. Recognizing when and how to utilize Qualified Settlement Funds (§1.468B-1 et seq.) adds a valuable resolution tool to your practice, reducing liability exposure while protecting your client’s financial best interests and acting in your client’s best interests.
