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Utilizing QSFs as a Resolution Tool

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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 impede 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 plaintiff’s attorneys and their clients to release a defendant for a cash-only settlement while having them pay into an account that will act as a temporary trust account. This mechanism gives the plaintiffs and their attorneys the time to consider all available options before making distributions.

2. Use of Monies Inside a QSF

Monies held in a QSF can be paid in cash, fund a structured settlement, attorney fee structure annuity or assignment, and settle liens or allocation issues between parties. A QSF can also hold the funds to prevent constructive receipt and preserve pre-settlement options while considering financial options or establishing other entities, such as a special needs trust.

3. Variety of Cases Utilizing QSFs

QSFs are utilized in a wide range of case types with one or multiple plaintiffs and at almost any stage of the litigation process – even after trial.

4. Uncooperative Adversary

Every plaintiff’s attorney has encountered a claim representative or defense attorney who can make things more difficult than they need to be. In such situations, getting the necessary cooperation to achieve a structured settlement, attorney fee structure, or assignment can be highly unlikely. The solution is to replace the claim representative and their attorney with a QSF. The defense gets a full and final release without any further obligations by paying the funds necessary 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 come to an end, but at this time, your clients have to make one of the most important financial decisions of their lives: 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 change your client’s settlement options and financial situation. There are also risks that your client’s needs could change, new facts may arise, or the offer goes away. The solution is to remove the defense from the equation and settle the case with a QSF.

7. The Complexity of Multiple Defendants

Resolving a case against one defendant is difficult enough, so the complexity is compounded when multiple defendants exist. The solution to this problem is establishing a QSF to accept individual transfers (funding) while irrevocably releasing each defendant from further liability.

8. Conflicting Interests of Multiple Claimants

Representing multiple claimants can create conflicts of interest – especially regarding 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

TIP: Platforms like QSF 360 provide an online turnkey solution as quickly as one business day.

10. The Process of Establishing a QSF

The process starts by contacting a professional 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 a great place to start. An experienced, qualified professional will help coordinate all efforts to establish a QSF to resolve your case and involve the appropriate parties while managing the process so you don’t have to.

11. QSF Ready to Accept Assets

Once approved, the QSF trustee assumes the administration 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 transfer occurs, 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 are a testament to your hard work 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 thus fulfilling your duties to act in your client’s best interests.

Disclosure: This content is an overview. It is not a detailed analysis and offers no legal or tax opinion on which you should solely rely. Always seek the advice of competent legal and tax advisors to review your specific facts and circumstances before making any decisions or relying on the content herein.
Any opinions, views, findings, conclusions, or recommendations expressed in the content contained herein are those of the author(s) and do not necessarily reflect the view of the Eastern Point Trust Company, its Affiliates, or their clients. The mere appearance of content does not constitute an endorsement by Eastern Point Trust Company (“EPTC”) or its Affiliates. The author’s opinions are based upon information they consider reliable, but neither EPTC nor its Affiliates, nor the company with which such author(s) are affiliated, warrant completeness, accuracy or disclosure of opposing interpretations.

EPTC and its Affiliates disclaim all liability to any party for any direct, indirect, implied, special, incidental, or other consequential damages arising directly or indirectly from any use of the content herein, which is expressly provided as is, without warranties.
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