How qualified settlement funds work in mass tort settlements

For mass tort attorneys, settlement teams and firm administrators · Reviewed November 5, 2026

What makes a fund a QSF

Under Treas. Reg. 1.468B-1(c), a fund, account or trust is a qualified settlement fund if it meets all three requirements:

Government approvalIt is established by order of, or approved by, a court or other government authority, and remains subject to that authority's continuing jurisdiction.
Liability claimsIt is established to resolve or satisfy one or more contested or uncontested claims arising from an event that has given rise to at least one claim asserting liability, such as a tort.
Separate assetsIt is a trust under state law, or its assets are otherwise segregated from the transferor's other assets.

Why settlements use one

For the defendant, a transfer to a QSF generally counts as economic performance of the liability when it is made, so the defendant can resolve its side before claimants are paid.
For plaintiffs, it buys time: allocations, lien resolution and individual releases can be worked out while the money sits in the fund.
The QSF itself is a taxpayer. It is taxed on its modified gross income, such as interest earned, and transfers made to it to resolve the claims are excluded from that income.

Who does what

Court	Approves the fund, and in an MDL enters the common benefit or holdback order.
QSF administrator	Holds the money, files the fund's tax returns and makes distributions.
Claims administrator or special master	Applies the settlement program's criteria to set each claimant's award.
Lien resolution administrator	Identifies and resolves Medicare, Medicaid, health plan and provider liens, claimant by claimant.
Plaintiff firm	Advises each client, approves statements, and accounts for every dollar that reaches the firm's trust account.

Common benefit holdbacks

MDL courts commonly order that a percentage of each recovery be held back to pay the attorneys who did work for the benefit of all plaintiffs. The percentage and how it is shared are set by the court: the DePuy Pinnacle hip MDL's preliminary order held back 10 percent of the gross value of each settlement for common benefit fees and costs, and the Avandia MDL's order set a 7 percent contribution, 4 percent from attorneys' fees and 3 percent from the clients' share. Preliminary holdbacks can change when the court sets the final assessment.

What it means for the firm's trust account

Money in the QSF is not in the firm's IOLTA. It becomes client money in the firm's trust account when the fund distributes it there.
Each claimant needs a ledger that shows the award, the fee under that client's agreement, the common benefit assessment, case-specific costs, liens and holdbacks, and the net paid.
Lien holdbacks stay on the claimant's ledger until the lien resolution administrator reports a final figure; any difference goes back to the claimant and is recorded against the same ledger.
Reconcile the trust account with claimant-level detail, not just tranche totals, so a question about one client can be answered from the record.

Where software fits

suss. keeps one ledger per claimant, applies each award with the terms the firm sets for the fee, the court's common benefit order, costs, liens and holdbacks, and turns a tranche into statements attorneys approve in batches. Distributions from the fund are matched to the claimants they belong to, and the trust account is reconciled every day. This guide is general information, not tax advice; the QSF's own tax treatment is for the administrator and its advisers.

Common questions

What are the requirements for a qualified settlement fund?

Under Treas. Reg. 1.468B-1(c) the fund must be established by order of or approved by a court or other government authority and stay subject to its continuing jurisdiction, be established to resolve or satisfy liability claims arising from an event, and be a trust under state law or have its assets otherwise segregated.

Is money in a QSF held in the law firm's trust account?

No. The QSF is a separate fund run by an administrator. Money becomes client money in the firm's trust account when the fund distributes it to the firm.

What is a common benefit holdback?

A percentage of each plaintiff's recovery that an MDL court orders withheld to compensate the attorneys who did common work for all plaintiffs. The court sets the percentage and how it is shared between fees and the client's recovery, and may change it in a final assessment.

See these checks run on your own trust account.

suss. reconciles bank, book and every client ledger daily, flags the exceptions in this guide, and keeps the record your bar asks for.

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Sources and rules cited (6)

General information, not legal or tax advice. Rules vary by state and change; confirm the current rule for your jurisdiction.