468b

A Qualified Settlement Fund (QSF), also referred to as a 468B Trust, is an exceptionally useful settlement tool that allows time to properly resolve mass tort litigation and other cases involving multiple claimants.

A qualified settlement fund is a United States person and is subject to tax on its modified gross income for any taxable year at a rate equal to the maximum rate in effect for that taxable year under section 1(e).

There are only three requirements for establishing a QSF. It must be created by a court order with continuing jurisdiction over the QSF. i The trust is set up to resolve tort or other legal claims prescribed by the Treasury regulations. ii Finally, it must be a trust under applicable state law.

Settlement money and damages collected from a lawsuit are considered income, which means the IRS will generally tax that money, although personal injury settlements are an exception (most notably: car accident settlement and slip and fall settlements are nontaxable).

The tax liability for recipients of lawsuit settlements depends on the type of settlement. In general, damages from a physical injury are not considered taxable income. However, if you've already deducted, say, your medical expenses from your injury, your damages will be taxable.

While the fund holds onto the payout from the defendant, the trustee will likely invest the funds in a secure, interest-bearing account. Because qualified settlement funds are separate tax entities they pay tax on any interest or dividend income.