Statutory Guidelines [Appendix A(5) Tres. Regs 1.46B and 1.46B-1 to B-5] regarding designated settlement funds and qualified settlement funds.
Colorado Designated Settlement Funds (DSS) refer to a specific type of trust established to hold and manage settlement funds that arise from legal disputes involving personal injury, medical malpractice, wrongful death, or other similar claims. The regulations governing these funds are outlined in the Treasury Regulations 1.468 and 1.468B.1 through 1.468B.5. Here is a detailed description of these regulations and their various types: 1. Treasury Regulations 1.468: Under Treasury Regulation 1.468, the Internal Revenue Service (IRS) establishes guidelines for the creation and management of designated settlement funds. These regulations specify the tax treatment and compliance requirements for funds set up to resolve claims in structured settlements. 2. Treasury Regulation 1.468B.1: Treasury Regulation 1.468B.1 provides comprehensive guidance on the establishment and administration of qualified settlement funds (MSFS). MSFS are a specific type of DSS designed to facilitate the resolution of claims involving multiple plaintiffs or defendants. They allow for the aggregation of settlement funds before their final distribution, providing flexibility in the timing and allocation of payments. 3. Treasury Regulation 1.468B.2 through 1.468B.5: These regulations delve into various aspects of SF administration, including the qualification requirements, fund operations, tax implications, and reporting obligations. They cover topics such as fund establishment procedures, contributions and investments, governing documents, notice requirements, and reporting to the IRS. 4. Types of Designated Settlement Funds: Within the Colorado DSF framework, there are different types of funds tailored to meet specific needs. These may include Single-Claimant Funds, Multiple-Claimant Funds, Qualified Settlement Funds, and Non-Qualified Settlement Funds. a. Single-Claimant Funds: Single-Claimant Funds are established to hold settlement funds related to a single claimant, typically arising from personal injury or wrongful death cases. These funds are subject to the regulations outlined in Treasury Regulation 1.468 and are designed to meet the tax planning and structured settlement needs of individual claimants. b. Multiple-Claimant Funds: Multiple-Claimant Funds are set up to manage settlement funds from claims involving multiple individuals against one or more defendants. These funds are commonly established in class-action lawsuits or mass tort litigation where many claimants are involved. Treasury Regulation 1.468B.1 applies for such funds, providing guidance on their administration and distribution. c. Qualified Settlement Funds (MSFS): MSFS, governed by Treasury Regulation 1.468B.1 and subsequent regulations, offer a centralized mechanism for resolving claims in complex cases involving multiple plaintiffs or defendants. By establishing an SF, the conflicting parties can settle their respective liabilities and transfer the funds to the trust, enabling smoother payment administration and potential tax advantages. d. Non-Qualified Settlement Funds: Non-Qualified Settlement Funds are similar to MSFS, but they do not meet the stringent requirements of Treasury Regulation 1.468B.1. Consequently, while their establishment and purpose may remain similar, they may have different tax implications and restrictions. In conclusion, Colorado Designated Settlement Funds operate under the guidelines set forth by Treasury Regulations 1.468 and 1.468B.1 through 1.468B.5. These regulations cover a broad range of topics related to the establishment, operation, and tax treatment of designated settlement funds, including variations such as Single-Claimant Funds, Multiple-Claimant Funds, Qualified Settlement Funds, and Non-Qualified Settlement Funds.
