Attorney Fee Deferral Strategies

Contingency attorneys have a unique opportunity to boost their financial strategy with attorney fee deferral. This approach lets them allocate part or all of their contingency fees into tax-advantaged investments. By deferring these fees, plaintiff lawyers can delay paying taxes until they actually receive the payments in future years. This gives attorneys more control over their income and tax management, helping them plan better for the long term.

How Attorney Fee Deferral Works

Contingency fee lawyers can defer their fees even if the claimant doesn’t structure their own settlement. However, this option must be clearly stated in the settlement agreement. It’s crucial for attorneys to think about their fee structure early in the negotiation process. Including fee deferral in the agreement allows them to spread out their income over time. This avoids the heavy tax burden of receiving a large sum in one year.

Boost Financial Strategy with Structured Legal Fees

One effective way for contingency attorneys to defer fees is through structured legal fees. Here’s how it works: the attorney’s fees are assigned to a third-party assignment company, which then buys a fixed income annuity with the funds. This company manages the funds and ensures the attorney receives payments on a set schedule.

For example, an attorney might choose to receive payments monthly, quarterly, or annually, or they might prefer future lump sums. These payments are directly deposited into the attorney’s bank account. Income is only reported on a 1099-MISC for the years when payments are actually received. This method provides a steady income stream and lowers immediate tax liabilities, allowing attorneys to keep more of their earnings.

Financial Flexibility Through Structured Attorney Fees

Structured attorney fees offer great financial flexibility. Plaintiff lawyers can design a payment plan that fits their financial needs and goals. With no recurring maintenance or administrative costs, these plans can start immediately or later. This flexibility helps attorneys manage their cash flow, ensuring they have the resources when needed. Plus, deferring income to future years adds security and adaptability to their financial planning.

Understanding Tax Benefits of Attorney Fee Structures

Deferring attorney fees comes with significant tax benefits. The tax treatment depends on avoiding “constructive receipt,” a legal concept where income is not in hand but legally available. To avoid this and the tax implications, fees must go directly from the defendant to the assignment company. This setup is similar to the structure used in settlement annuities for injured plaintiffs.

The legal case of Childs v. Commissioner set the precedent for this. The Tax Court ruled that the attorney did not have constructive receipt of the fees because they were directly transferred from the defendant to the assignment company. Therefore, the fees weren’t taxable at the time of transfer. This ruling supports the tax advantages of attorney fee deferral.

Exploring Non-Fixed Annuity Options for Growth

Contingency attorneys can also explore non-fixed annuity options for higher growth potential. While these may require minimum investments and could have annual fees, they offer more significant returns. These options are part of a comprehensive attorney fee deferral strategy.

Non-fixed annuities balance the potential for growth with the security of guaranteed income. This approach is appealing to attorneys looking to maximize returns while keeping a level of financial security. Consulting with a structured settlement expert can help attorneys navigate these options and align them with their financial goals.

Market-Based Structured Settlements for Flexibility

Another option for contingency fee attorneys is market-based structured settlements. This strategy allows attorneys to defer their fees and invest them in market-linked portfolios. A reputable financial institution or the attorney’s chosen advisor manages these funds, offering flexibility in investment management.

One major advantage is that taxes are only due on the income received within a specific tax year. This setup allows attorneys to benefit from higher returns while deferring tax liabilities. Payments are made according to a periodic plan, providing a predictable and steady income.

Conclusion

Attorney fee deferral offers substantial financial benefits for contingency attorneys. By deferring fees and investing them wisely, attorneys can gain financial flexibility, reduce immediate tax burdens, and potentially increase their earnings. Whether choosing fixed annuities, exploring non-fixed options, or investing in market-based settlements, plaintiff lawyers have several strategies to meet their financial goals. Working with a structured settlement consultant can help attorneys make informed decisions that align with their long-term objectives.

Successful attorney fee deferral requires understanding the options and making strategic decisions that fit with long-term financial goals. By leveraging structured legal fees and market-based investments, contingency attorneys can maximize their earnings and secure their financial future.

How to Make the Most of Your Lawsuit

At Structures, we help plaintiffs and their attorneys make the most out of their payouts. You should plan for a win before you fight for your rights in settlement negotiations or a courtroom, particularly in complex cases.

Our Fee Structure Plus FSP program is designed to help attorneys take advantage of their contingency fees with income tax deferral, diversification of funds, market-related returns, and periodic payments that meet their individual needs.

No matter what financial changes you are facing after a successful lawsuit, our team can help you find the solution that works for you.

Call us at (844) 382-8358 or contact us online to learn more and get started today.