The Settlement Alliance

Plaintiff Attorneys: Are You Leveraging This Tax Incentive?

Plaintiff Attorneys: Are You Leveraging This Tax Incentive?

Dec 12, 2014

Plaintiff attorneys often have unpredictable incomes—a few big cases can mean a drastic increase in income and likewise, a slower year could mean a drop in annual income. Luckily, structured fees allow attorneys to receive payments over time on a tax-deferred basis. This approach to wealth management not only stabilizes income, but it allows the attorney to retain more of their earnings.

How Does It Work?

Much like structuring a claimant’s settlement, structured attorney fees can be customized to meet the needs of the attorney. Payments can be made monthly, quarterly, annually, or in deferred lump sums. Rather than facing the burden of paying tax on the entire fee amount, taxes on structured fees are only payable in the year during which the payments are received.

Preserve Your Earnings

One of the biggest advantages to structuring fees is their return potential. Structured fees can offer returns comparable to those of traditional fixed-income investments. Because the establishment of structured fees involves less overhead expenses than traditional investments, a fee structured at a lower interest rate (e.g. 5%) could match the returns of a traditional investment at a higher interest rate (e.g. 7.5%). What’s more, the rates for structured fees are guaranteed, providing the attorney with one of the most reliable wealth-preserving tools out there.

In addition to providing a steady source of income, structured attorney fees can help prevent an increase in your tax bracket. Here’s an example:

For an attorney who earns $175,000 a year and files joint taxes with her spouse, one big fee could bump her from the 28% tax bracket to the 33% tax bracket. Instead of losing another 5% of her hard-earned money by taking her fee in the form of a lump sum, if she were to structure that fee, she’d only pay taxes on the payments in the year during which are received. This could possibly allow her family to remain in the lower tax bracket, while providing a long-term, guaranteed source of income.

What Other Advantages Do Structured Fees Offer?

The advantages of structured attorney fees are far-reaching and include:

  • Avoid massive federal and state income tax liability on large cases
  • Possible reduction of federal income tax bracket or marginal tax rate
  • Guaranteed rate of return with creditor protection
  • Wealth preservation
  • Stabilized future income for attorney and/or firm
  • Low-risk foundation for diversified investment portfolio
  • Same tax-deferral benefits of traditional qualified retirement programs and IRAs without contribution limits

If you are interested in discussing fee deferrals as a part of your wealth management strategy, contact one of our experts today.

Categories: Attorney Fee Deferral

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential