Are You and Your Clients Using This New Settlement Tool?
October 21, 2015Settling a Minor’s Case? Know Your Client’s Options
February 22, 2016
A Qualified Settlement Fund (sometimes referred to as a 468B Trust or a “QSF”) is a tool for resolving mass tort settlements and other types of cases involving multiple claimants. There are a number of reasons why both plaintiffs and defendants favor using QSFs to handle multi-claimant settlements, including the time and tax benefits they offer. Here are the top five reasons why your firm should consider using a QSF for your next multi-claimant or mass tort settlement:
REASON #1: It Allows Time to Determine Allocations
Mass torts can involve tens of thousands of claimants, making it difficult to quickly determine individual claimant awards. It can take a considerable amount of time to allocate damages to claimants based on the severity of their injuries. By placing the funds in a QSF, there is more time to determine allocations and to address any concerns that claimants may have while avoiding constructive receipt of the funds.
REASON #2: It Allows Time to Educate Claimants on Settlement Options
Depending on a number of factors, including the individual award amount, medical and financial needs, and status of government benefits, many claimants may need guidance on their different options for settlement. Rather than accepting a lump sum, claimants may want to consider a structured settlement annuity, which needs to be decided prior to the funds being distributed. Others may be concerned about losing eligibility for government benefits, and as such, may want to explore their options for a special needs trust. By holding the funds in a QSF, claimants have time to receive appropriate counseling on their options and are better equipped to make educated financial decisions.
REASON #3: It Allows Time to Resolve Lien, Bankruptcy, and Probate Matters
One of the biggest hindrances to a smooth settlement is the unresolved issues that arise. Claimants may have medical liens that need to be finalized before the distribution of the settlement award. If liens are not properly resolved, claimants could potentially face a disruption in benefits, stiff financial penalties, or even the seizure of their settlement award. It is always good practice to get the full lien itemization and to petition unrelated charges to the insurance carrier or agency, thus helping the client lower the lien amount. There are often unrelated charges in the lien report—if those get paid out of the settlement, it can expose the attorney to liability.
Bankruptcy and probate issues can also hold up a settlement. Depending on state laws, settlement proceeds could be considered an asset of the bankruptcy estate. Bankruptcy exemptions should be properly vetted to determine how the settlement award should be handled. If a claimant is receiving a settlement award for a loved one’s estate, they may have to go through the estate administration process and may need the assistance of local counsel in order to settle the estate.
REASON #4: It Provides Tax Advantages for Both Sides
By placing the settlement funds in a QSF, the defendant is released from liability and can take the current year’s tax deduction. This can be particularly attractive for defendants in cases involving a large volume of claimants, for which it could take years to fully resolve all issues and allocations. On the plaintiff’s side, the proceeds are not considered as income until they are received (any growth on the funds held within the QSF are taxable to the QSF). Plaintiffs’ attorneys have time to decide whether they want to take advantage of attorney fee deferrals and claimants have time to decide whether they want to place their award in a 100% income tax-free structured settlement.
REASON #5: It Protects Against Future Insolvency of the Defendant
In addition to timing and tax advantages, a QSF also provides an added layer of protection against defendants who may become insolvent. By having the defendant place the funds in a QSF as early as possible, the plaintiffs’ side can avoid the possibility of a defendant who gets wiped out financially—and ends up unable to pay. In addition, the sooner the QSF is funded, the more interest that can be generated, which is typically reallocated to claimants.
Contact the Experts
The Settlement Alliance-WEST has partnered with The Settlement Alliance, an experienced Qualified Settlement Fund Administrator. The Settlement Alliance is currently administering 100+ Qualified Settlement Funds for tens of thousands of claimants, totaling over $3 billion in settlement proceeds. For more information on QSFs, contact us today at 800-354-2258 or info@tracikaas.com.
