Three requirements must be met before a Qualified Settlement Fund can be used in a settlement:
- The Qualified Settlement Fund must be any fund, bank account or trust that is determined to meet the criteria set forth by the court. If using a trust, the trust must fall under applicable state law.
- Assets to fund the trust must be separate of other assets held by the transferor.
- The claim must be eligible for a QSF (i.e. torts, damages, class action).
Rate of Return
Defendants, usually insurance companies, are allowed to either pay their policy limits to plaintiffs or negotiate a future settlement, leaving them in litigation.
The person administering the QSF must make sure the account is funded for the amount previously agreed upon by all parties involved. Once the account is funded, the liability of paying for the claims is transferred from the defendant to the Qualified Settlement Fund, in what is known as a novation. A novation places the obligation of the original defendant to make periodic payments to the designated new party (the QSF).
Qualified Settlement Funds are usually established to meet short-term needs, as they are of short duration. Once the settlement funds are paid out from the QSF, the trust closes and the administrator will file a final tax return. Qualified assignment established by the QSF declares the settlement reward for the plaintiff as qualified; therefore making the disbursement tax-free once it is paid out to the plaintiff in accordance with the Internal Revenue Code.
To learn more about Qualified Settlement Funds and ask if they are appropriate for your case please contact one of Our Team at Vega Settlement Group today.
Securities America Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of Securities America.
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