The next best thing to tax-free income is tax-deferred income. As plaintiff’s counsel you are the only profession that can take advantage of this unique “Gift from Washington”. You are permitted to receive all, or a portion, of your attorney fee in the form of periodic payments. You don’t have to wait until age 59 ½ and it’s taxed as you receive it! Your payments are fixed and guaranteed – unaffected by future market performance. Even if your clients choose to take all of their settlement in cash, you may still accept fees in the form of periodic payments.
A plaintiff attorney who structures their fee is effectively able to invest “pre-tax”, locking their share of the settlement proceeds into a high-yield guaranteed obligation. You may want to structure a portion of your fees to maximize your retirement benefits, fund college and post-graduate education for your children, or use this as part of your overall estate planning
This planning benefit is unique to the plaintiff and their attorney. For the claimant, the periodic payments from a Structured Settlement are received income tax-free for liability and workers’ compensation cases [IRS Sections 104(a)(2), 104(a)(1)]. For their attorney, the periodic payments from a Structured Settlement are received income tax-deferred (Childs vs. Commissioner 103 T.C. No. 36 Docket No. 15639-92). This same income tax deferral is also available to both you and your clients on taxable damages cases.
Benefits to the Attorney
- Guaranteed fixed payments.
- Tax-deferred income (federal/state/local).
- Customized payout scenarios.
- Lifetime payouts
- Term certain payouts
- Payments to you and your spouse
- Enhanced retirement planning
- Education funding
- Low investment risk and competitive rate of return.
- Commutation at death or demonstration of hardship.
The Power of Systematic Savings
The chart below illustrates deferring $50,000/Year in fees. Monthly benefits commence at age 60. The benefit plan provides Lifetime payments with 20 years guaranteed.*
| Annual Deposits Begin at age | Last Deposit at Age | Monthly Benefits beginning at Age 60 | Total Annual Payments | Total Guaranteed Payments(20 years) | Lifetime Expected Total Payments | Total Premium Deposits |
|---|---|---|---|---|---|---|
| 35 | 59 | $17,865 | $214,380 | $4,287,600 | $4,287,600 | $1,250,000 |
| 40 | 59 | $12,033 | $144,396 | $2,887,920 | $2,887,920 | $1,000,000 |
| 45 | 59 | $7,578 | $90,936 | $1,818,720 | $1,818,720 | $750,000 |
| 50 | 59 | $4,985 | $59,820 | $1,196,400 | $1,196,400 | $500,000 |
We can provide you with the appropriate language to include in your contingency fee agreement referencing your ability to receive all, or a portion, of your fees in the form of periodic payments. An election should be made in writing prior to fees being earned (i.e. before the settlement documents are signed). Ideally, the attorney’s election should be made before the attorney’s precise share of the settlement is determined, and the election should be irrevocable.
Contact our office for more information. Take advantage of this “Gift from Washington”.
