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As a litigator, one of the most critical aspects of your responsibilities is ensuring that your clients receive the maximum and most flexible settlement benefits possible. One powerful tool that can help you achieve this goal is Qualified Settlement Funds (QSFs). This paper explains QSFs, their advantages, the legal framework governing them, and how they can maximize settlement benefits. We shall also discuss common misconceptions about QSFs and how to choose a QSF administrator.

Understanding QSF and Its Benefits for Litigators

What Is a Qualified Settlement Fund (QSF)?

A Qualified Settlement Fund (QSF) is a tax arrangement created under IRC §1.148B-1 et seq. that allows litigants to set aside settlement funds in a trust. This arrangement enables the parties involved to resolve legal disputes without distributing the settlement funds immediately. Instead, the QSF’s funds are held, tax-deferred, within the QSF until disbursed to the intended recipients.

A QSF Is Not an IOLTA

A welcome benefit of a QSF is that you, as the attorney, never receive client funds. As such, a QSF is not an IOLTA and is not reportable to your state Bar. The QSF administrator manages the funds, eliminating the burden and risks that would ordinarily be associated with funds in your firm’s IOLTA.

Advantages of Using a QSF for Settlement Funds

There are several additional advantages to using a QSF for settlement funds. First and foremost, a QSF allows the parties involved to settle a case without immediately disbursing the settlement funds to the plaintiffs. This flexibility and tax defer treatment can be particularly beneficial in cases where there are multiple plaintiffs or uncertainty about the final amount of the settlement due to liens or other issues. Also, by using a QSF, the parties involved can avoid negotiating separate settlement agreements and instead focus on resolving the underlying legal dispute.‍

Another advantage of using a QSF is that it can help to simplify the settlement process. Instead of having to negotiate separate agreements with each plaintiff, the parties involved can negotiate a single settlement agreement outlining the method of allocation and distribution from the QSF. This advantage helps to streamline the settlement process and reduce the administrative burden on all parties involved.

468B: The Legal Framework of a Qualified Settlement Fund

The legal framework governing QSFs is in IRC §1.468B-1 et seq. of the Internal Revenue Code. This section provides the requirements for a QSF to be established, qualified and maintained. These requirements include:

• The QSF must be established pursuant to the approval of a governmental authority
• (Note: there is no requirement that a court approve a QSF see §1.468B-1(c)(1))
• The QSF must be established for the primary purpose of resolving one or more claims or disputes
• The QSF must be subject to the supervision of a governmental authority that approved the QSF
• The QSF must have a TIN (tax identification number) and file annual tax returns

Additionally, a QSF can be invested (usually in a FDIC insured money market account). However, any interest income generated by the QSF (less allowable deductible expenses) is subject to income tax.

How QSF Works in Settlement Negotiations

Maximizing Settlement Benefits Through a QSF

Another of the key benefits of using a QSF is that it allows litigators to offer settlement flexibility to their clients. When utilizing a QSF, litigators empower the plaintiff with the flexibility to choose their payment options (i.e., lump sum, third-party assignment, structured settlement annuity, or any combination thereof) and payment timing.¹
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A QSF also allows the plaintiff to choose their financial advisor(s) and removes the limitations associated with a defense-provided annuity.
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QSFs also provide similar benefits for you as the lawyer by providing you and your firm the flexibility to choose fee payment options (i.e., lump sum, third-party assignment, fee structure, or any combination thereof) and payment timing.

Common Misconceptions About QSF

Despite the many advantages of using a QSF, some common misconceptions exist about this legal arrangement. One of the most common misconceptions is that a QSF is only available in cases with multiple plaintiffs. In reality, a QSF can be beneficial, even with a single plaintiff.
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Another common misconception is that a QSF is too complex and expensive to set up. While it is true that a QSF requires some upfront costs (as low as $500), these costs are typically offset by the long-term benefits that a QSF can provide. Additionally, some QSF administrators specialize in setting up and managing QSFs, which can help simplify the process for litigators. For example, online platforms like QSF 360 offered by Eastern Point Trust Company are low-cost and allow you to create a QSF and receive the necessary governmental approval in as little as one business day.

Choosing the Right QSF Administrator

One of the most important decisions litigators must make when setting up a QSF is choosing the right QSF administrator. The QSF administrator is responsible for managing the funds in the QSF and ensuring that all legal and tax requirements are fulfilled. When choosing a QSF administrator, litigators should consider the administrator’s experience, whether they are licensed fiduciaries, speed of distributions, and fees.

Experience

The QSF administrator should have the necessary trust accounting systems, experience in managing QSFs, and be familiar with the legal and tax requirements governing these arrangements. Additionally, the administrator should have experience working with litigators and be able to provide references from other clients.

License

The QSF administrator’s licensing is also essential. Litigators should research the administrator’s status as a licensed fiduciary (preferably a Trust Company). The administrator should also be able to provide information about the FDIC insurance that applies to the account. Some platforms, such as QSF 360, provide up to $240 million in FDIC coverage; however, these amounts are expandable with the correct structure.

Administration Fees

Finally, litigators should consider the fees that the QSF administrator charges. While choosing an administrator with the experience, systems, and licenses needed to manage the QSF effectively is essential, litigators should also ensure that the fees are reasonable and transparent.

Conclusion

Why QSF Is the Best Option for Litigators and Settlemend Funds

In conclusion, Qualified Settlement Funds (QSFs) are a powerful tool that can help litigators to maximize settlement benefits for their clients and themselves. By using a QSF, litigators can provide your clients (and your firm) with the flexibility that includes a structured, third-party assignment, or a lump-sum payment. Additionally, a QSF can help to simplify the settlement process and reduce the administrative burden on all parties involved.
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Despite some common misconceptions, QSFs are not complex or expensive to set up. With the help of a qualified QSF administrator, litigators can establish and manage a QSF that meets all legal and tax requirements in as little as one business day. In summary, when choosing a QSF administrator, litigators should consider the administrator’s experience, systems, licensing, fiduciary, escrow, and ministerial services and fees.
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If you are a litigator interested in using a QSF, do your research and speak with a qualified QSF administrator (preferably a Trust Company.) Using a QSF can help ensure your clients, and your firm, receive the flexibility to maximize settlement benefits, fee and financial planning options.

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As someone who may receive a pending settlement or judgment in a lawsuit, you may wonder how to manage best and maximize your funds. One option that has gained popularity recently is using a Qualified Settlement Fund (QSF) under IRC Section 1.468B-1. In this article, we shall explore what a QSF is, its advantages, how to set one up, and common misconceptions about them.

Introduction to Qualified Settlement Funds (QSFs)

What Is a QSF? Understanding the Basics

A QSF is a type of trust that is created to hold settlement funds in a legal dispute. They are often used in cases where there are multiple plaintiffs or where the distribution of funds may otherwise be delayed due to ongoing litigation. Essentially, a QSF is a temporary holding account for settlement funds until they can be properly distributed to the intended parties.

IRC Section 1.468B-1: Rules and Regulations

IRC Section 1.468B-1 outlines the rules and regulations governing QSFs. This section of the tax code provides a safe harbor for using QSFs in legal settlements, and it outlines the requirements for establishing and maintaining a QSF and the tax treatment of funds held in a QSF.

Advantages of a QSF

The Efficiency

‍One of the most significant advantages of using a QSF is that it allows for a more efficient and organized distribution of settlement funds. Rather than waiting for all parties to agree on a distribution plan, funds can be placed in a QSF and distributed as soon as possible. This advantage can be beneficial in cases with multiple plaintiffs or where some parties may be difficult to locate.

How to Maximize Your Settlement Benefits With a QSF

Another advantage of using a QSF is the tax benefits it can provide. Funds held in a QSF are not subject to income tax until distributed to the intended parties (settlement proceeds for personal injury are never taxable). Additionally, funds held in a QSF can be invested, potentially increasing the overall value of the settlement, and are usually held in FDIC-insured bank deposits. Some QSF administrators have custodial platforms that provide up to $240 million in FDIC coverage. These advantages allow for more flexibility in financial planning and reducing the tax consequences of a settlement payment.

Common Misconceptions About QSFs

Choosing the Right QSF Administrator

One common misconception about QSFs is that they are challenging to set up and manage. While it is true that specific requirements must be met, such as having a qualified administrator, the process is not overly complicated. However, choosing the right QSF administrator is essential to ensure that the funds are properly managed and distributed. Platforms like QSF 360 offered by Eastern Point Trust Company are low-cost and allow you to create a QSF in as little as one business day.

QSF vs. Other Settlement Options

Another misconception is that QSFs can only be used in certain types of legal disputes. While QSFs are more commonly used in cases with multiple plaintiffs or complex distribution issues, they can be a valuable tool in any settlement, including those with only one plaintiff. Compared to other options, such as a defense-provided structured settlement or a lump-sum payment, a QSF offers more flexibility, better financial outcomes and tax benefits.

Conclusion

In conclusion, a Qualified Settlement Fund under IRC Section 1.468B-1 is a valuable tool for managing and maximizing settlement funds. By understanding the basics of what a QSF is, its advantages, and the misconceptions surrounding it, you can make an informed decision about whether it is the right option for your situation. To ensure your QSF is appropriately managed, choose a qualified administrator who can guide you through the process and help you make the most of your settlement.

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Eastern Point Trust provides services across the U.S. and internationally.

FOR IMMEDIATE RELEASE

[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.

Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”

Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”

Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners

About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.

With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.

About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust

PRESS Contact
www.EasternPointTrust.com

info@easternpointtrust.com
Phone: 855-222-7513

Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation

FOR IMMEDIATE RELEASE

[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.

Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.

Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”

About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.

Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.

About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.

PRESS Contact
www.EasternPointTrust.com

info@easternpointtrust.com
Phone: 855-222-7513

Take a minute of your time and learn why creating a Qualified Settlement Fund with Eastern Point Trust Company allows you to leverage on of the most effective settlement tools with one of the industry's most reputable licensed trustee. Utilizing technology EPTC has revolutionized the QSF offering to ensure it is the highest quality product and service delivered at industry leading low cost price points and the quickest establishment and distribution timing in the industry. Find out more today by contact 855-222-7513 or visiting our website www.easternpointtrust.com.

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