A settlement fund is a fund formed when an entity, generally a business, must pay out a settlement to a number of different individuals or entities. This often occurs during a class action suit, when a single company needs to pay out multiple people Forming a settlement fund makes the process of managing the settlement itself much easier both for the corporation and for the individuals who are settling.
Since a settlement fund is money that the business can no longer control, the settlement fund itself will have a separate EIN, file separate taxes, and be managed separately by a third-party. Once the settlement is reached, the settlement will be disbursed under the terms of the agreement. Often, there’s a lump sum which has to be distributed to a number of individuals.
A 468B settlement fund shouldn’t be confused with an investment settlement fund, which is used when funds are settled between brokerage accounts and individuals. This is a separate type of investment account that is associated with brokerage transactions.
The settlement fund will be dissolved once the settlement has been completed.