ATTORNEY FEE DEFERRAL STRATEGIES
Plaintiff attorneys have the unique ability to place all or a portion of their contingency fees in several types of tax-advantaged investments. By electing to defer fees, an attorney also defers the tax obligation until the year in which payments are received.
Attorneys can choose to defer fees regardless of whether the claimant structures his or her own settlement proceeds; however, the ability to defer fees must be included in the settlement agreement.
Maximize Your Earnings with Structured Attorney Fees
To facilitate an attorney fee structure using a fixed income annuity, the defendant (or insurance company) directs the attorney’s fees to a third-party assignment company. The assignment company then uses the fees to purchase a fixed annuity that provides the attorney with payments based on a pre-determined schedule.
Payments are eligible to be electronically deposited into the attorney’s bank account and will be reported on a 1099-MISC as income only during the years in which the payments are received.
Structured attorney fees do not have any ongoing administrative or maintenance fees, so more money stays in the attorney’s pocket. Payment schedules can be arranged for monthly, quarterly, semi-annually, annually, or in a series of future lump sums and can begin immediately or on a future date1.
Understanding Tax Benefits for Attorney Fee Structures
Much like a structured settlement annuity for injured claimants, the tax treatment hinges on avoiding constructive receipt. In Childs v. Commissioner, 103 T.C. 634 (1994), aff’d, 89 F. 3d 856 (Table)(11th Cir. 1996), the Tax Court ruled that because the attorney’s fees were transferred from the defendant directly to the assignment company, the attorney did not have constructive receipt of the fees; therefore, the fees did not yet count as taxable income.
Explore Non-Fixed Annuity Options for Greater Growth Potential
Attorneys may select from several structured settlement annuity options, in addition to the fixed annuity. Minimums for investment may vary depending on the product, and non-fixed annuity options may include setup and/or annual administration costs.
However, non-fixed annuity options may offer the chance for greater growth than the fixed annuity while still providing guaranteed income. Your Sage structured settlement consultant can provide a thorough consultation regarding your annuity options.
Invest in Market-Based Structured Settlements for Financial Flexibility
A market-based structured settlement allows an attorney to invest a contingency fee, tax-deferred, in a market-related investment portfolio. The funds can be managed by a respected financial institution or by a financial advisor of the attorney’s choosing. Payments will be received on a periodic payment schedule, with taxes due only on funds received during a given tax year. For more information about market-based investments, visit our Market-Based Structured Settlements page.
Learn More: Watch Our Attorney Fee Deferral Video
For more information about attorney fee deferral strategies, contact us today.
1Payment start date restrictions may vary by issuing insurance company.
Recommended Reading:
- How Attorneys Can Create Steady Cash Flow For a Lifetime
- How to Protect Your Law Firm's Cash Flow
- Tax-Advantaged Programs For Your Contingency Fees
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See What clients Are Saying
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“- Marcus J. Bradley, Marlin & Saltzman
I worked with Lance Harris for the first time in 2013. Lance and his assistant, Rosa, were fantastic. They made the [structured settlement] process very easy and provided me with all of the documentation I needed to get the petition for the minor's comp
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“- Kurt Arnold, Partner & Co-Founder, Arnold & Itkin LLP
I have worked with Scott Freeman since the days my firm opened the doors over a decade ago. I trust Scott to ensure my clients' needs are always met both now and into the future. The most impressive thing with Scott is that he finds a way to keep in tou
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“- Robert Molettiere, Moletteire & Torpy
You certainly have made your case that it is vital for me to have you at mediation to get the numbers that are best for my client. Thanks for all your hard work on this case.
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Need the BEST? Look no further than Susan Gleason! She helped our family with an annuity settlement in a tremendous way! Her style, commitment, and interpersonal skills go unmatched!
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“- Attorney Richard M. Kenny
From my perspective, structuring a portion of my fee out of the settlement proceeds of the case we worked together on several years ago was the smartest move I ever made. With Mitch Kobil's help, I put together a financial plan that provided my three ch
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“- Brian Panish, Panish, Shea & Boyle, LLP | Los Angeles, CA
They are ardent supporters of the plaintiff bar community, and we consider them an integral part of our team.
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“- Mitchell Proner, Proner & Proner | New York City, NY
Christina is a caring, hard-working, and knowledgeable professional. She is meticulous about the details to protect my clients' futures. I would highly recommend her to anybody in need of an experienced settlement planner.
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“- Lawrence M. Kelly, Luxenberg Garbett Kelly & George | New Castle, PA
Any time that I'm in need of a structured settlement proposal for one of my clients George Audi is my first call. George and his staff provide the needed information and settlement options in a prompt and professional manner. George is also a valuable s
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