What is a Qualified Settlement Fund?
A Qualified Settlement Fund (QSF) is a powerful tool that can benefit plaintiffs, attorneys, and defendants in a settlement agreement. In simple terms, a QSF is a type of account that can hold settlement funds paid by a defendant or insurer. The funds remain in the account until the claimants are ready to receive their settlement proceeds, giving them time to plan and make informed decisions about how to use the funds. QSFs are particularly useful for multi-claimant settlements, such as mass tort and class action suits, where there are many claimants with varying needs and circumstances. With a QSF, the settlement funds can be placed in a single account, which can then be divided among the claimants according to their allocations and individual timeframes.
One of the key benefits of a QSF is that it allows the claimants and their attorneys to delay the constructive receipt of the settlement funds. Constructive receipt occurs when the claimant or their attorney has been given the right to receive the settlement funds The funds are credited to the claimant/attorney, and at that point may be subject to income tax. Delaying constructive receipt gives the claimants and attorneys time to plan how to use the funds, including whether to structure the settlement payments.
Structured settlements are a popular option for many plaintiffs because they provide a steady stream of income over time, rather than a lump sum payment. This can help ensure that the settlement funds are used wisely and last for the long term. However, structured settlements must be set up before the funds are constructively received, making a QSF essential for those who want to take advantage of this option.
In addition to providing flexibility for the claimants and their attorneys, QSFs can also benefit defendants and insurers. By placing the settlement funds into a QSF, the defendant or insurer is released of any future liability and can take an immediate tax deduction.
Overall, a Qualified Settlement Fund is an excellent tool for managing settlement funds in multi-claimant cases. It provides flexibility and protection for all parties involved and can help ensure that the settlement funds are used wisely and in a way that benefits the claimants over the long term. If you are involved in a multi-claimant settlement, work with Sage Settlement Consulting to navigate the process of setting up a QSF and making the most of your settlement funds.