Qualified Settlement Funds

Qualified Settlement Funds (QSF) were enacted under Section 468B of the Internal Revenue Code to allow the settlement of lawsuits with multiple claimants before there is an agreement on how settlement amounts will be allocated.  

Qualified Settlement Funds can allow a defendant to pay its policy limits or negotiate a settlement for some plaintiffs while other plaintiffs remain in litigation. It gives the defendant a simple and complete release in multi party litigation.

In order to establish a qualified settlement fund, three requirements must be met. These are:

  • The fund can be any fund, account, or trust that is established pursuant to an order of, or approved by, a governmental entity. 
  • It must be a trust under applicable state law or the assets must be otherwise segregated from the other assets of the transferor. 
  • The claim must be an eligible claim, namely damages arising out of tort, breach of contract or violation of laws; damages arising under the Comprehensive Environmental Response Compensation Liability Act; or any claim designated in an IRS revenue ruling or revenue procedure.