Checklist · Litigation

Evaluating a Litigation Funding Offer or Structured Settlement Transfer: A Practical Checklist

28 U.S.C. § 1927

Type
Checklist
Jurisdiction
National
Date
2025-11-14
Topic
Litigation

A step-by-step checklist for four tasks. Part I evaluates a consumer legal funding offer before a plaintiff signs. Part II is counsel's protocol when a client takes an advance. Part III evaluates a commercial funding term sheet. Part IV covers privilege protection and disclosure compliance. Part V evaluates a structured settlement transfer from the payee's side and Part VI from the court's. Part VII covers lien resolution and distribution.

Evaluating a Litigation Funding Offer or Structured Settlement Transfer: A Practical Checklist

Litigation > Litigation Finance and Structured Settlements | Published 14 November 2025 - Updated 14 July 2026 | UpLaw - uplaw.us

⚠️ Two numbers decide most of these decisions and neither is the one on the offer sheet: the dollar payoff at the realistic resolution date, and the client's projected net after liens. Compute both before signing anything.

PART I — EVALUATING A CONSUMER ADVANCE

☐ State the need precisely — the amount, the obligation it covers, and the date it is due. ☐ Get the rate in writing, including whether it compounds and at what interval. ☐ Get a payoff table showing the amount owed at six, twelve, eighteen, twenty-four, and thirty-six months. ☐ Ask counsel for a realistic resolution date, not an optimistic one. ☐ Compute the payoff at that date, in dollars. ☐ List every existing lien — health plan, Medicare, Medicaid, provider, workers' compensation, child support. ☐ Compute the projected net: settlement estimate, minus fee, minus liens, minus advance payoff. ☐ ⚠️ If the projected net is less than the advance, the transaction does not work. ☐ List prior advances, from every company, with dates and terms. ☐ Confirm whether the state regulates these transactions — registration, disclosure format, rate caps, rescission window. ☐ Check for a rescission window in the contract or statute and note it. ☐ Confirm the transaction is non-recourse — that nothing is owed if the case loses. ☐ Confirm there is no personal guaranty and no security beyond the case proceeds. ☐ Check for administrative, origination, or annual fees stacked on top of the rate. ☐ Confirm no referral payment is being made to anyone connected to the case. ☐ Exhaust alternatives first: hardship withdrawal, family, landlord payment plan, utility assistance, disability benefits, provider deferral, or partial settlement of an undisputed portion. ☐ Document the alternatives considered.

PART II — COUNSEL'S PROTOCOL WHEN A CLIENT TAKES AN ADVANCE

☐ The decision is the client's. Advise; do not decide. ☐ Explain the cost in dollars at the expected resolution date, out loud and in writing. ☐ Show the projected distribution before the client signs. ☐ Read the acknowledgment counsel is asked to sign, in full. ⚠️ Strike anything obligating the firm beyond honoring an assignment from proceeds. ☐ Confirm the document does not restrict client settlement authority or counsel's professional judgment. ☐ Confirm it does not require disclosure of privileged material without further client consent. ☐ Accept nothing of value from the funding company. ⚠️ Referral payments to counsel are prohibited in regulating states and are a conflict everywhere. ☐ Record the advance in the lien ledger and the case management system the day it is executed. ☐ Instruct the client in writing to call before taking any further advance. ☐ Re-verify all outstanding advances before settlement, including any taken without counsel's knowledge. ☐ Reconcile advances through the trust account at distribution. ☐ Address advances in the settlement statement alongside liens. ☐ See Legal Ethics and Professional Responsibility and The Attorney-Client Relationship.

PART III — EVALUATING A COMMERCIAL FUNDING TERM SHEET

☐ Confirm the transaction is non-recourse and that no obligation survives a loss. ☐ Identify total committed capital and the deployment schedule by tranche and milestone. ☐ Identify the return formula — multiple, percentage, or greater-of — and its escalation schedule. ☐ Model the waterfall at five recovery levels: a loss, a nuisance settlement, the expected case, a strong result, and a maximum verdict. ☐ ⚠️ Check what the client nets at the low end. Formulas that look reasonable at the expected case can consume nearly everything at a modest recovery. ☐ Compare the escalation schedule against a realistic timeline, not the optimistic one used in underwriting. ☐ Negotiate an affirmative no-control covenant reaching settlement, litigation strategy, and choice of counsel. ⚠️ A settlement veto is disqualifying. ☐ Check for indirect control — a funder that may stop deploying at will has a de facto veto. ☐ Fix the litigation budget with a defined variance and an agreed process for exceeding it. ☐ Address adverse cost exposure, insurance requirements, and premium responsibility. ☐ Limit information rights to summaries on a fixed cadence rather than open file access. ☐ Require a confidentiality agreement predating any sharing, with an express common interest recitation. ☐ Address the funder's right to assign its position and the consequences of its insolvency. ☐ Define termination consequences for amounts already deployed. ☐ Reserve a disclosure carve-out permitting compliance with a court order without breaching confidentiality. ☐ Confirm choice of law against the champerty landscape — National Ass'n for the Advancement of Colored People v. Button and In re Primus set outer constitutional limits, but state doctrine varies. ☐ Confirm no fee-sharing characterization problem in the relevant jurisdiction. ☐ Confirm the client understands the waterfall. ⚠️ The client lives with it. ☐ Verify collectability of the defendant before accepting capital. Funding an uncollectable judgment adds a creditor to a bad case.

PART IV — PRIVILEGE AND DISCLOSURE

☐ Execute a non-disclosure agreement before sharing anything with a prospective funder. ☐ Recite the common litigation purpose in the agreement. ☐ Share the minimum necessary, preferring purpose-built summaries over the raw file. ☐ Segregate funder communications so they can be handled as a set. ☐ Log what was shared, with whom, and when. ☐ ⚠️ Write funder memoranda assuming a court may order them produced. ☐ Check the district's standing orders and local rules for a funding disclosure requirement. ☐ Check the assigned judge's individual practices. ☐ Check for a state disclosure statute in the forum. ☐ Distinguish existence from terms in any response — most courts require the first and protect the second. ☐ Rely on the general framework at Rule 26 for the disclosure analysis. ☐ Preserve work product arguments under Hickman v. Taylor, and the related privilege analysis under Upjohn Co. v. United States. ☐ In class and aggregate matters, expect a stronger judicial interest given the approval role under Rule 23. ☐ Confirm settlement communications remain protected under Rule 408. ☐ Remember that certification obligations under Rule 11 and sanctions exposure under 28 U.S.C. § 1927 rest with counsel regardless of funding. ☐ Consider whether funder citizenship affects jurisdiction under 28 U.S.C. § 1332, or whether ancillary disputes implicate 28 U.S.C. § 1367.

PART V — STRUCTURED SETTLEMENT TRANSFER: THE PAYEE'S SIDE

☐ Obtain the disclosure statement and confirm it was delivered the required number of days before execution. ☐ Identify the payments being sold — number, amount, and dates. ☐ Compute the nominal total of the payments being sold. ☐ Identify the amount to be received. ☐ Read the discounted present value and the rate used to compute it. ☐ ⚠️ Read the effective discount rate of the transaction. This is the number the disclosure exists to reveal, and the number the pitch omits. ☐ Determine what portion of the payment stream is being sold and what remains. ☐ Determine whether the remaining payments still meet the need the structure was built for. ☐ Identify the specific use of the funds. "Debt consolidation" is not a use; a named debt with an amount is. ☐ Evaluate a partial transfer meeting the same need for a smaller sacrifice. ☐ Check benefit consequences — a lump sum may disqualify the payee from means-tested programs, implicating 42 U.S.C. § 1396p and 42 U.S.C. § 1396k. See Medicaid and Long-Term Care. ☐ Check whether a special needs trust is implicated. See Special Needs Planning. ☐ Check tax consequences — the periodic payments' exclusion under 26 U.S.C. § 104 does not carry over to earnings on the lump sum, which are governed by 26 U.S.C. § 61. ☐ Confirm the transfer requires court approval, backed by the excise tax at 26 U.S.C. § 5891. ☐ Obtain independent professional advice. ⚠️ Do not waive it. ☐ Identify prior transfers, their dates, amounts, and what became of the proceeds. ☐ Confirm venue is proper and connected to the payee's residence. ☐ Confirm notice to the annuity issuer and the structured settlement obligor. ☐ Consider alternatives: a secured loan, a hardship program, a smaller transfer, or waiting.

PART VI — STRUCTURED SETTLEMENT TRANSFER: THE COURT'S SIDE

⚠️ These petitions arrive unopposed. The court supplies the adversarial function or nobody does.

☐ Read the effective discount rate first. ☐ Confirm the disclosure was timely and complete, including present value and discount rate. ☐ Confirm notice to the annuity issuer, the obligor, and interested parties. ☐ Confirm venue is proper and not the product of forum shopping. ☐ Determine whether independent professional advice was received or waived, and question a waiver directly. ☐ Ask what the funds are for, with specificity, and test the answer. ☐ ⚠️ Ask about prior transfers: when, to whom, how much, and what happened to the money. Repeat transfers are the strongest signal the protective scheme is failing. ☐ Inquire into dependents' welfare and support, which the statute requires be considered. ☐ Determine what payments remain and whether the structure still serves its purpose. ☐ Consider approving a partial transfer where the full transfer is not in the payee's interest. ☐ Consider benefit eligibility consequences. ☐ Confirm the transfer does not contravene the settlement's terms or applicable law. ☐ Make findings on the record sufficient to support a qualified order under 26 U.S.C. § 5891. ☐ Confirm the qualified assignment structure under 26 U.S.C. § 130 is not disturbed.

PART VII — LIENS AND DISTRIBUTION

☐ Build a lien ledger at intake and maintain it, not at settlement. ☐ Identify Medicare conditional payments and resolve them — 42 U.S.C. § 1395y. ☐ Identify Medicaid assignment and recovery claims — 42 U.S.C. § 1396k, 42 U.S.C. § 1396p. ☐ Identify employer plan reimbursement claims, enforced through 29 U.S.C. § 1132. ☐ Identify workers' compensation liens. See Workers' Compensation Claims. ☐ Identify provider and hospital liens under state statutes. ☐ Identify child support arrears attaching to proceeds. ☐ Identify federal debt offset exposure — 31 C.F.R. Part 285, priority at 31 U.S.C. § 3713. ☐ Check for any bankruptcy filing, which makes the claim property of the estate under 11 U.S.C. § 541. ☐ Check for false claims exposure where federal program payments are involved — 31 U.S.C. § 3729. ☐ List every consumer advance with its current payoff. ☐ Negotiate reductions on every reducible claim before distribution. ☐ ⚠️ Allocate the settlement carefully, because characterization affects which claims attach and in what amount. See Settlement, Releases, and Liens. ☐ Prepare the distribution statement showing gross, fee, costs, each lien, each advance, and net. ☐ Review it with the client before disbursing. ☐ Obtain written client approval of the distribution. ☐ Confirm every lien holder's release before final disbursement. ☐ See Negotiating a Settlement and Resolving Liens Before Distribution and The Money Is Not Yours Yet.

PART VIII — RED FLAGS

In a consumer advance offer:

☐ No written payoff table. ⚠️ Walk away. ☐ Rate quoted only as a monthly percentage, with no dollar figure at any horizon. ☐ Administrative, origination, or annual fees stacked on top of the stated rate. ☐ Any personal guaranty, or security beyond the case proceeds. ☐ Pressure to sign the same day. ☐ The company contacted the plaintiff directly without counsel's knowledge. ☐ Anyone connected to the case is receiving a referral payment. ☐ The plaintiff already has advances outstanding and no one has recalculated the distribution. ☐ The document purports to give the funder any say in settlement.

In a commercial funding term sheet:

☐ No affirmative no-control covenant. ☐ A settlement approval or veto right, however phrased. ☐ An unfettered right to cease deployment, which is a veto by another name. ☐ Open access to the litigation file rather than defined summaries. ☐ A waterfall that leaves the client with little or nothing at a modest recovery. ☐ A choice of law clause pointing at a jurisdiction chosen without regard to champerty doctrine. ☐ No confidentiality agreement predating diligence sharing. ☐ An unrestricted assignment right with no consent requirement. ☐ Silence on adverse costs in a fee-shifting forum.

In a structured settlement transfer:

☐ The effective discount rate is absent, buried, or expressed only as a present value. ☐ The payee has transferred payments before, particularly more than once. ☐ Independent professional advice was waived, especially where the waiver is a form recital. ☐ The stated use of funds is vague. ☐ Venue has no connection to the payee. ☐ The entire remaining stream is being sold. ☐ The payee has dependents whose support depends on the payments. ☐ The payee appears to have diminished capacity, or is being accompanied by someone directing the answers.

PART IX — INTAKE QUESTIONS

For a plaintiff considering an advance:

☐ How much do you need, for what, and by when? ☐ Have you taken any advances already? From whom, when, and how much? ☐ Do you know what you would owe at eighteen months? ☐ What have you tried instead?

For a firm or company considering commercial funding:

☐ Can the case be prosecuted without outside capital? ☐ What is the realistic resolution timeline, honestly stated? ☐ Is the defendant collectable? ☐ How sensitive is the outcome to additional expert investment? ☐ Is there adverse cost exposure? ☐ Does the client understand the waterfall at a low recovery?

For a payee considering a transfer:

☐ What is the effective discount rate? ☐ What portion of the stream are you selling? ☐ What is the money for, specifically? ☐ Have you sold payments before, and what happened to that money? ☐ Would a smaller transfer meet the need? ☐ What happens to your benefits?

Quick reference

☐ Consumer advance → compute the dollar payoff and the projected net first ☐ Multiple advances outstanding → recalculate the entire distribution before any new one ☐ Commercial term sheet → model the waterfall at a loss and at a nuisance settlement ☐ Sharing with a funder → confidentiality agreement first, minimum necessary, log it ☐ Funded case in federal court → check standing orders for a disclosure requirement ☐ Transfer petition → read the discount rate, ask about prior transfers

PART X — WORKED CALCULATIONS

The consumer advance, computed properly.

☐ Advance offered: $2,000 ☐ Rate as quoted: 3% per month, compounding ☐ Realistic resolution: 18 months (ask counsel, not the funder) ☐ Payoff at 18 months: approximately $3,400 ☐ Payoff at 30 months if the case slips: approximately $4,800 ☐ Estimated settlement: $42,000 ☐ Attorney fee at one third: $14,000 ☐ Case costs: $2,500 ☐ Health plan reimbursement claim: $6,000 (negotiable) ☐ Provider liens: $9,000 (negotiable) ☐ Advance payoff: $3,400 ☐ Projected net to client: approximately $7,100 ☐ ⚠️ Now add a second $2,000 advance at month six and a third at month ten. The net falls below $2,500, and the client has paid roughly $4,000 in charges to borrow $6,000 against their own settlement.

📌 Run this arithmetic in front of the client. It is more persuasive than any warning.

The commercial waterfall, computed at five levels.

☐ Committed capital: $2,000,000 · Deployed: $2,000,000 · Formula: greater of 3x deployed or 20% of recovery ☐ Recovery $0: funder receives $0; client receives $0. This is the non-recourse feature working. ☐ Recovery $3,000,000: funder receives $6,000,000 under the multiple — ⚠️ exceeding the recovery. Confirm what the agreement does here; a well-drafted waterfall caps the funder at available proceeds after costs and fees. ☐ Recovery $8,000,000: funder $6,000,000; fee and costs; client's net is small. ⚠️ This is the level to negotiate around. ☐ Recovery $20,000,000: funder $6,000,000 (multiple exceeds the 20% alternative of $4,000,000); client nets well. ☐ Recovery $60,000,000: funder $12,000,000 under the percentage; client nets very well. ☐ The lesson: the multiple hurts at low recoveries and the percentage hurts at high ones. Know which regime governs at each level before signing.

The transfer, computed properly.

☐ Payments sold: 144 monthly payments of $800 ☐ Nominal total: $115,200 ☐ Amount received: $50,000 ☐ Present value at a conventional discount rate: materially higher than $50,000 ☐ Effective discount rate implied: well into double digits ☐ ⚠️ The pitch states only "$50,000, right now." The disclosure requirement exists to force the other three lines onto the page. ☐ Partial alternative: selling 48 payments instead of 144 may meet a $20,000 need while preserving eight years of income.

PART XI — FILE DOCUMENTATION

☐ The funding agreement or advance contract, complete with all schedules ☐ The payoff table provided at the time of the advance ☐ Counsel's written explanation of cost in dollars, and the client's acknowledgment ☐ The alternatives discussed, memorialized ☐ Every acknowledgment counsel signed, with any struck provisions initialed ☐ The lien ledger, updated whenever anything changes ☐ The confidentiality agreement with any funder, dated before the first sharing ☐ A log of materials shared with the funder ☐ Any disclosure made to the court, and the order requiring it ☐ The distribution statement and the client's written approval ☐ Every lien release obtained before final disbursement ☐ Trust account reconciliations covering the advance and its payoff ☐ For a transfer: the disclosure statement, proof of its timing, the independent advice or waiver, the notice to interested parties, the petition, and the qualified order

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