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Tax-Advantaged Programs for Your Contingency Fees

Tax-Advantaged Programs for Your Contingency Fees
Sage Settlement Consulting

Summer is here, but that doesn’t mean it’s time to take a vacation from your wealth planning strategy. Now is the perfect time to explore tax-advantaged attorney fee deferrals.

Deferred Fees = Limitless Growth Opportunities

Deferral programs are only available to contingency fee attorneys. Attorney fee deferrals do not have a contribution limit, and by spreading the payments over multiple years, attorneys can take advantage of pre-tax growth, while reducing their tax liability within a given year.

Once you receive your payments, you can use the money as you wish. Whether you want to use the payments to help your children pay for higher education, to help fund your retirement, or to provide a stable source of income to fill in gaps throughout your working years, you have the flexibility to do so.

Two of the most popular fee deferral options are fixed income annuities and market-based programs:

Fixed Income Annuities

Traditionally, attorney fee deferrals have utilized fixed income annuities to fund future payments. The defendant (or insurance company) directs your fees to an assignment company, which then purchases a fixed annuity that provides you with regularly scheduled payments. Payments can be direct deposited into your account and will be reported on a 1099-MISC as income only during the years in which you receive them.

There is also an option to have the income stream paid directly to your law firm, rather than to an individual attorney. If that’s the case, then your firm will have to report the payments as taxable income during the years in which the payments are received.

Market-Based Programs

Plaintiff attorneys who want to leverage additional growth potential may choose to utilize market-based programs for fee deferrals. Fee Structure Plus® allows you to allocate your contingency fees to a tax-deferred, market-related investment portfolio. You can even choose to have your own financial advisor manage the funds as a part of your overall wealth management strategy.

As with fixed income annuities, there is no limit to the amount that you can contribute. You will receive a 1099 for the payments you receive within a given year.

A few items to remember:

  • You can structure your fees, even if the claimant does not structure their settlement.
  • Specific language allowing you to defer your fees must be included in the settlement agreement.
  • If you have already received your fees, it is too late to set up a deferral.

Contact Sage Settlement Consulting to Learn More

Take some time this summer to proactively plan your attorney fee deferral strategy before your next case settles. For more information, contact Sage Settlement Consulting today.

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Sage Settlement Consulting, LLC and its affiliates (collectively, “Sage”) does not provide advice or services related to the purchasing of, selling of, or investing in securities or other financial instruments. Any discussion of securities contained herein is not intended or written to be used, and cannot be used, as advice related to the purchasing of, selling of, or investing in securities or other financial instruments. Sage does not provide legal, tax, or accounting advice or services. Any discussion of legal or tax matters contained herein is for illustrative purposes only and is not intended or written to be used, and cannot be used, as legal advice or for avoiding any penalties that may be imposed under Federal tax laws.

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