Will Qualified Settlement Funds (QSFs) eventually replace structured settlements as the standard business model for resolving complex personal injury claims?
QSFs already represent the standard resolution technique for class action lawsuits - and provide advantages for both defendants and plaintiffs:
- Defendants not only obtain an immediate tax deduction and release, they also can reduce their settlement planning costs and risks.
- Plaintiffs can conduct their settlement planning with a sum certain, using their own advisers, free from the pressures of litigation, with unlimited time to analyze and address tax, investment and government benefit issues.
- QSFs can also be utilized to purchase tax-free structured settlements without any direct involvement by defendants.
The only opponents of QSFs, for becoming the settlement planning standard for all complex personal injury cases, appear to be advocates for the traditional claim management structured settlement business model. These advocates include liability insurers who attempt to direct claim dollars to their affiliate life companies and defense brokers who fear the loss or reduction of their annuity commissions.
Together, with political support from the National Structured Settlement Trade Association (NSSTA), these QSF opponents have spent hundreds of thousands of dollars attempting to limit both the scope of QSFs and the expanded utilization of QSFs. Maintaining that structured settlements are best created when both plaintiffs and defendants actively participate, the QSF opponents argue that broad approval of single-claimant 468B funds would undermine and diminish the use of structured settlements.
To sustain their argument, QSF opponents have organized and promoted a marketing and lobbying strategy that:
- Ignores the IRC section 468B regulations that allow a QSF to be “established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least one claim asserting liability". (emphasis added)
- Expands their own definition of single claimant to encompass multiple single event claims by family members, their attorneys and lien holders including Medicare and Medicaid.
- Promises defendants questionable structured settlement advantages (e.g. cost savings in a low-interest rate environment) without fully informing defendants of their potential costs and risks using traditional structured settlement business practices.
Fortunately for defendants and plaintiffs, utilization of QSFs (including single claimant QSFs) appears to be expanding as more settlement planning stakeholders learn about the advantages of QSFs and the professional QSF community of practice continues to grow.
That conclusion was S2KM's most important take away from the first QSF Symposium sponsored by Evolve Bank and Trust in Memphis, Tennessee on September 27-28, 2012.
Organized to stimulate dialogue among QSF industry leaders and experts and to help shape industry thinking on QSF issues, the first QSF Symposium was restricted the 20 participants and included the following speakers and topics:
- Sylvius von Saucken - "Establishing the QSF: Account, Fund or Trust / Drafting Considerations"
- Kevin Urbatsch - "Petitioning the Court for Approval"
- Andy Cook - "Investment Policy and Fiduciary Investment Options"
- Peter Wayne - "QSFs and Government Benefits Preservation"
- Will Shapiro - "Lien Holdbacks and Claimant Distributions"
- Jeremy Babener - "QSF Taxation: Filing, Payments, Withholding and Reporting"
- Chris Lordan - "Accounting and Reporting Best Practices"
- Patrick Hindert - "How Structured Settlement Transfers Impact QSF Planning"
- Roundtable Discussion - moderated by Pi-Yi Mayo and Bryn Poland.
The first QSF Symposium provided several benefits in addition to the presentations:
- Networking with QSF experts and hearing multiple QSF professional perspectives.
- Detailed discussions focused on a single (QSF-only) settlement planning topic.
- Open dialogue that encouraged entrepreneurial and collaborative "out-of-the box" thinking.
- Meeting Evolve's officers, shareholders and technology providers.
- Learning how a bank views settlement planning, settlement trusts and QSFs.
For additional information about QSFs, see:
- Robert Wood, "Qualified Settlement Funds and Section 468B"
- Hindert, Dehner and Hindert, "Structured Settlements and Periodic Payment Judgments" - Section 3.08B
- Jeremy Babener, "Structured Settlements and Single Claimant Qualified Settlement Funds"
For additional S2KM analysis of the structured settlement and settlement planning markets, see the structured settlement wiki.