Qualified Settlement Funds and Year-End Planning for Law Firms

QSF expertAs trial lawyers push through the fourth quarter and close out another successful year, there are opportunities worth considering.

A Qualified Settlement Fund (QSF) can be an excellent tool either to accelerate or defer the receipt of settlement monies. It also separates the business interest between the lawyer and the client. For example, a lawyer may want fees right away, but the client needs to set up a special needs trust, or a client want the funds right away and the lawyer would just as soon wait until January. All of these circumstances can be cured by planning ahead and working with a reliable QSF administrator who understands a plaintiff lawyer’s practice.

More specifically, a QSF is a tax-qualified trust or account that holds settlement proceeds from litigation. It allows for more simplified and organized administration of the settlement.   With a QSF, plaintiffs have the benefit of time to plan, ability to negotiate liens, and deal with many of the complexities that exist with some settlements.

The Process of Setting up a QSF

The law firm of record establishes an escrow or trust agreement with a professional Fund Administrator. The agreement sets the stage for the parties to litigation to understand their respective roles. Typically, defendants want to insure their payment as a transferor is qualified, and that they are fully released for all of the claims brought against them, in addition to any claim that may arise our of the creation of the QSF. Then, when the QSF is established, the defendants pay the agreed-upon amount into the fund and receive a tax deduction upon payment. An independent trustee then can work closely with the plaintiffs to determine what comprehensive settlement plan will works for them. The trustee manages the funds and ongoing claim resolution.

Benefits of Establishing a QSF for Your Case

By having a QSF established for year-end inventory of cases that may resolve, plaintiffs and their attorneys can serve a general release on the defendant as soon as the case settles, regardless of liens, holdbacks, Medicare, Medicaid, and others tangible issues.  All of the settlement issues that arise can be dealt with once the funds are received by the QSF administrator.

More QSF benefits include:

  • Time to plan
  • Control over recognition of income
  • Tax planning at year end for both plaintiff and attorney
  • Ability to spread taxable income over many years
  • Potential for tax deferred growth
  • Ability to earn pre-tax income, or tax exempt earnings

QSF’s are a solution that benefits both attorneys and clients, and they work for all case types including tort, breach of contract etc.*

Getting an Expert Onboard

At Milestone Consulting, our experts are committed to finding the best method to reach client objectives and tackle government compliance. Planning-focused rather than product-oriented, we walk a client through the entire decision-making process to help them make the most informed decisions possible. Together, we develop the best course of action and guide our clients specific to their challenges.

Contact Milestone today for more information about QSFs.

*See 26 U.S. Code § 468B – Special rules for designated settlement funds at https://www.law.cornell.edu/cfr/text/26/1.468B-1

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