Broker Check

Attorney Fee Deferrals

We specialize in unique tax deferral options only available to contingency fee attorneys.

Whether you like guarantees against loss or are comfortable with higher risk for potentially higher returns, we have solutions. Below is a list of solutions, beginning with the newest and highest risk. Market-based structured settlements allow attorneys to invest a contingency fee, tax-deferred, in a market-based investment portfolio. We can setup the deferral, the funds can be managed by us, or we can provide advice on both. We can invest your funds into thousands of different investments including but not limited to: stocks, bonds, ETFs and mutual funds. Below are a few different options for this type of deferral.

  • 1. Deferred Compensation Plans

    Unlike all of other solutions listed below, setting up a deferred compensation plan does not require defense involvement. Additionally, no “special language” needs to be added to the release. However, just like choosing a structured attorney fee deferral, you will still need to determine what percentage of your fee you want to defer into the plan and the timing of how the documents are executed is important.

    Then, you will need to enter into a plan agreement with the deferred compensation plan administrator (which is similar to a 401k plan administrator). There are limited options for administrators and we are happy to discuss the pros and cons, such as fees, access and fund availability of each.

    Your retainer agreement (allowing the fee deferral), and the plan agreement will need to be completed and executed before the release for the case is executed by your client (even the day before will work). Yes, we have had numerous fee agreements updated to enable a fee deferral.

    Once the deferred compensation plan is established, the settlement process continues as usual, and the case settles.

    The main difference here, is that the plaintiff attorney can submit the funds from the firm’s IOLTA account, instead of being forced to fund directly from the defendant.

    Some other key differences with this type of deferral are;

    • Market Rates of Return: A major difference between a deferred compensation approach from an annuity is that you can earn market rates of return when using a deferred compensation plan. You are not limited to the low fixed rates of return that some annuities offer. But the returns in a deferred compensation plan aren’t guaranteed. The value of your plan is going to fluctuate with the market. If you can manage risks, and if you have confidence in the long-term growth of the market, then a deferred compensation plan could be a good fit for your next fee deferral.
    • Flexible Timing: Another attractive feature of deferred compensation plans is that you don’t have to decide at the time of settlement when you’re going to receive distributions in the future. A deferred compensation plan provides more flexibility in terms of the timing of distribution amounts and payout dates.
    • No Defense Counsel Involvement: If you prefer the defense not to have any knowledge about you deferring your legal fees, then deferred compensation plans are the best fit. Many attorneys don’t like the fact that in order to use a structured settlement annuity, the defendant and their broker must be involved. There’s language that needs to be included in the release, and there’s a qualified assignment document that needs to be signed by the defense. In short, in an annuity, the defendant and the adjusters will know more information about your business than you’d probably prefer. In a deferred compensation plan, they don’t have to sign any documents or even know that you’re deferring your legal fee. 
    • No Offshore Assignment: One more benefit of deferred compensation plans is that the money never goes offshore. Sometimes in a structured settlement annuity for attorney fee deferrals, the funds will be forced to travel offshore. Some might go through Barbados-based assignment companies or Ireland-based companies before coming back onshore. You don’t have to worry about the funds going abroad in a deferred plan approach.
    • Risk: These funds are not guaranteed against loss, and you could lose principal. There is risk with this type of investment option which will be directly related to the allocation and performance of the underlying investments.

    Fee Structure Plus® (FSP) must be setup exactly like the annuities referenced below, with the defense's involvement at settlement. FSP brings much-needed tax planning solutions and forward-thinking investment strategies to the arena of structuring attorney fees, allowing attorneys to have their fees invested in a vehicle other than a traditional annuity. With FSP, attorneys have investment flexibility and the potential to realize a greater rate of return on their deferred fees.

    Benefits Of Fee Structure Plus®

    • Income Tax Deferral: Rather than paying taxes on a lump sum, the full amount of the contingency fee is placed in FSP pre-tax. This approach permits the attorney to spread out tax liability as the payments are received, allowing the FSP account to continue growing in the meantime.
    • Diversification of Funds: Fee Structure Plus® can help attorneys achieve asset-class diversification to address income needs, retirement planning, operating expenses, and other financial considerations.
    • Market-Related Returns: In addition to tax-deferral on contingency fees, deferred funds may be allocated to market-related investment portfolios.
    • Periodic Payments to Meet Individual Needs: Periodic payments are designed to deliver the flexibility and customization needed to meet an attorney’s specific financial goals. Attorneys can manage their tax burden by distributing payments over several years or deferring payments to a time or place when their tax rate is lower.
    • Risk: These funds are not guaranteed against loss, and you could lose principal. There is risk with this investment option which will be directly related to the allocation and performance of the underlying investments.
  • 3. Structured Attorney Fees – Fixed Annuities

    Structured Attorney Fixed Annuities can be used as the cornerstone for a trial lawyers retirement planning, and should be utilized, especially when rates are above 4%. These annuities are purchased by the defendant (insurance carrier or QSF) to a third-party assignment company. The assignment company then uses the funds to purchase a fixed annuity that provides the attorney with payments based on a pre-determined schedule. When the process above is followed, your attorney fee annuity is purchased with pre-tax dollars allowing for up to 40% more of your dollars to begin compounding interest.

    With these types of annuities, we can make lifetime payments to the attorney, and their spouse as a “joint life” payee (with certain life markets), and even lump sum payments to account for large purchases or children’s college funds. We can name your firm as payee to even out cash flows, or your trust to push payments and taxes into your estate. Payments can be electronically deposited into your bank account and will be reported on a 1099-MISC only in years when payments are received.

    The case law that allows attorneys to defer taxes originated from Childs v. Commissioner, 103 T.C. 634 (1994), aff’d, 89 F. 3d 856 (Table)(11th Cir. 1996), where the Tax Court ruled that since the attorney’s fees were paid from the defendant to the assignment company, the attorney never had constructive receipt of the fees, and therefore, the fees could not be counted as taxable income in that year.

    These accounts have similar risk to a typical retirement annuity, and we can use the word, "guaranteed" when discussing future payments. We have numerous options when it comes to ratings ,up to A.M. Best A++ 15 rated life companies. 

  • 4. Structured Attorney Fees – Fixed Index Annuities

    These annuities must be set up in the same way as discussed above, but the principal has the ability to grow before payments begin. While these annuities are guaranteed against loss, they can underperform the traditional fixed annuities discussed above. These annuities can be a good fit for lawyers that are deferring fees at historically low interest rates, with the hope that they can use inflation to increase the account value before the payments are annuitized. However, if you are comfortable with the potential for loss of principal, in exchange for the opportunity to achieve higher returns, a market-based deferral (referenced at the top of the page) may be right for you.

  • 5. QSFs

    A Qualified Settlement Fund (“QSF” aka, a 468B Trust), is settlement tool that provides a sterile account to address and resolve issues found during litigation. Recently, many lawyers have been using QSFs to preserve their clients’ ability to structure, while providing time after settlement to educate them on options. This extra time may also benefit attorneys since they can defer receipt of funds (often into the following year) while providing time for all parties to make constructive receipt decisions. These accounts have similar risk to a checking or savings account. Learn more about QSFs here.