468B Qualified Settlement Funds

Congress added IRC Section 468B to the Internal Revenue Code in 1986 as part of the Tax Reform Act of 1986 to allow defendants and their insurers to obtain immediate tax deductions in tort claims rather than waiting for “economic performance” to occur. IRC Section 468B and related Treasury regulations define two similar types of funding vehicles, “designated settlement fund” (DSF) and “qualified settlement fund” (QSF) to accomplish this objective.

The advantages of QSTs or 468B Trusts to personal injury claimants include avoiding the constructive receipt of the court judgment or settlement and allowing time to negotiate the resolution of medical liens and other expenses against the settlement.

After the fund has been established the fund administrator and the plaintiff work together to settle important details. They discuss whether a trust should be set up to preserve government benefits such as Medicaid and outstanding liens can be identified and resolved.

Proceeds that have been deposited into a 468B, can be paid in cash to the plaintiffs, paid into a Special Needs Trust, or used to buy a structured annuity allowing the same tax advantages to the claimant as a structured settlement purchased by a defendant insurance carrier.

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THE USE OF IRC §1468B QUALIFIED SETTLEMENT FUNDS, IRC §130 QUALIFIED ASSIGNMENTS AND SPECIAL NEEDS TRUSTS IN SINGLE-PLAINTIFF PHYSICAL INJURY SETTLEMENTS