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®
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.
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.
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.