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It’s the Most Wonderful Time of the Year (to Defer Your Fees)

It’s the Most Wonderful Time of the Year (to Defer Your Fees)
Sage Settlement Consulting

If you have been on the fence about deferring your contingency fees, now is the time to make a plan. Structuring fees allows you to minimize your tax liability, keep more money in your pocket, and create a source of regular income to stabilize your finances.

Example: Cash Lump Sum Fees vs. Deferred Fees

Here is a simplified example of the power of deferred fees. As you can see, the attorney who accepts a cash lump sum forfeits nearly half to taxes, right off the top.

The attorney who defers their fees has the full $1M to place in a financial vehicle where it will grow tax-deferred and provide regular payments. Income taxes will be due only on the payments received within a given year.

Cash Lump Sum

Attorney Fee Deferral

Attorney Fee

$1,000,000

$1,000,000

Federal Income Tax (35%)

-$350,000

-$0

State Income Tax (6.85%)

-$68,250

-$0

Net to Invest

$581,750

$1,000,000

Note: The example above is for illustrative purposes only. Please contact your financial advisor or tax professional to discuss your individual situation.

Attorney Fee Deferral Options

An attorney fee deferral can be customized to meet your personal goals. Unlike a traditional retirement plan, there are no contribution limits for most options, so you can defer as much income as you want.

Fee Structure Plus®

Fee Structure Plus® uses a market-based investment portfolio as the underlying investment for deferred fees. The funds grow tax-deferred and can be managed by a professional fund manager or the attorney’s financial advisor.

Structured Settlement Annuity

A structured settlement annuity offers a guaranteed1 rate of return and no ongoing fees. Issued by highly-rated life insurance companies, traditional structured settlement annuities are one of the safest financial vehicles available.

Low interest rates can be a significant factor when considering a fee deferral. Consider incorporating a fixed indexed annuity into your structured settlement plan for increased growth potential with more protection than investing directly in the market. Growth is tied to a market index (e.g., S&P 500), and the annuitant is protected against market losses.

Another option that includes a structured settlement annuity is the Growth Structured Settlement (GSS). Attorneys who choose this option split their fees between a structured settlement annuity and Vanguard growth-oriented mutual funds. Note that this option does include a funding limit; however, it far exceeds the contribution limit for a traditional retirement account.

Next Steps

Ready to get started? Here’s what you need to do:

1) Contact your Sage consultant before the case is finalized. Once finalized, it is too late to defer your fees.

2) Be sure that the settlement agreement and release include a provision allowing you to defer your fees. Your client does not need to structure their settlement for you to be able to defer your fees. However, your client and the defense need to sign off on your ability to defer fees.

Don’t let 2021 end before you create your plan! For more information, contact us today.

1Guarantees are subject to the claims-paying ability of the issuing insurance company.

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