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For Injured Plaintiffs
For Plaintiff Attorneys
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Attorney Tax Deferrals
QSF
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  • QSF

Qualified Settlement Funds (QSF)

Understanding Qualified Settlement Funds (QSF)

A Qualified Settlement Fund (QSF) is a financial arrangement established under Section 468B of the Internal Revenue Code, serving as a distinct legal entity designed to manage and distribute settlement funds in various types of legal disputes. These disputes often include mass torts, class actions, environmental claims, and even single-event personal injury cases. The primary function of a QSF is to accumulate and distribute settlement funds to claimants in an orderly, efficient, and tax-advantageous manner, benefiting both defendants and claimants.

Purpose and Structure of QSFs

  • Flexibility for Plaintiff Lawyers: Plaintiff attorneys can control the timing of their tax obligations on fees. Many firms use QSFs in conjunction with attorney fee tax deferral strategies.
  •  Orderly Administration: A QSF provides an organized process for managing and distributing funds, particularly valuable in complex cases involving multiple claimants or large single-event cases. The fund administrator determines allocations and ensures compliance with all legal and regulatory requirements. 
  • Flexibility for Claimants: QSFs allow for the distribution of funds over time, rather than a lump-sum payment, which can aid in financial planning and provide tax advantages.
  • Tax Deduction for Defendants: Defendants can take an immediate tax deduction upon contributing to a QSF, allowing them to resolve their liability without waiting for funds to be disbursed to claimants.


Establishing a QSF

1. Judicial Approval: A QSF must be court-approved, typically by the court overseeing the settlement. This ensures the fund operates under judicial supervision and complies with relevant standards.


2. Defendant's Transfer: Defendants must transfer settlement funds to the QSF. Once transferred, the funds are no longer the defendant's assets, which provides clarity in financial reporting and tax implications.


3. Independent Administration: QSFs require an independent administrator, usually a third-party fiduciary, responsible for managing, investing, processing claims, and disbursing payments to claimants.

Benefits of a QSF

1. Tax Benefits: QSFs allow claimants and plaintiff attorneys to manage taxable income over time, potentially reducing the overall tax burden. For defendants, immediate tax deductions can be financially beneficial. 


2. Efficient Resolution: QSFs streamline the settlement process by centralizing fund management, expediting claims resolution, and ensuring timely payments to claimants or a trust. While funds are held in a QSF, plaintiffs have time to explore settlement planning options without the pressure to make immediate decisions, which is particularly beneficial for plaintiffs receiving government benefits like Medicaid, SSI, or SNAP, as these programs have strict income limits. A QSF extends the financial planning timeline past the lawsuit’s conclusion. 


3. Risk Management: By holding funds in a QSF, defendants minimize the risk of future disputes over distribution, as the responsibility lies with the fund administrator. 

Effective Settlement Management

Qualified Settlement Funds are essential tools for managing complex legal settlements, offering a structured and tax-advantageous mechanism for handling settlement proceeds. QSFs ensure that settlements are managed efficiently, transparently, and in compliance with judicial oversight, facilitating a smoother path to resolution for all parties. By providing both financial and administrative benefits, QSFs support the equitable and organized distribution of settlement funds.


  At AFG Settlement Planning, we work with top industry professionals to establish QSFs properly. We collaborate with QSF administrators, help plaintiff attorneys with tax deferrals on attorney fees, and assist plaintiffs with setting up trusts, estate plans, and investment strategies.

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