Structuring future payments from a settlement is not just limited to the plaintiff; attorneys can also exercise this option to provide tax-efficient growth of their funds. The power of tax deferral allows attorneys to reduce their current tax burden and shift it to future years where income levels may be lower or non-existent.
For example, a 50-year old attorney earning a fee of $500,000 now (thus exposing themselves to the highest tax bracket), can instead defer the $500,000 to age 65 for a monthly payout of $4,500 for life, guaranteed for 15 years. By doing this, the attorney pays no tax in the current year or any subsequent year until the payments begin at age 65. Thereafter, the attorney would have $54,000 annually of taxable income. Depending on other income sources, the attorney will save tens of thousands of dollars in taxes, while also growing the initial premium invested.
Other notables about attorney fee structures:
The plaintiff is not required to do a structure themselves
Attorney has the option to make the annuity payee the law firm
Attorney can create a joint-life annuity with their spouse so that the payments never end as long one spouse is alive
The landmark case that allows attorneys to defer their tax obligation on fees is Childs v. Commissioner, 103 T.C. 634 (1994)
Take advantage of the opportunity to spread your income and stabilize your average tax bracket from year to year by securing your attorney fees in a structured settlement.
Provide a guaranteed source of future revenue to cover your operating costs with guaranteed payments for business expenses such as payroll, office rent, marketing and advertising.
Defer tax payments until you choose to receive your funds to potentially avoid a large fee being taxed at the highest marginal tax rate.
Ensure a future for both your ﬁrm and your legacy.
With your business securely financed, you can focus on getting the best outcomes for your clients, free yourself from concerns about “making payroll” and provide the flexibility and staying power to pursue full justice for your clients.
Independent Life provides safe and secure settlement and tax planning solutions for not only your client’s future, but for you and your law firm as well. Our structured settlements provide flexibility in how you receive your guaranteed payments and reduce your risk from volatile market conditions. You and your clients deserve a future free of financial insecurities - let us take care of you, while you take care of your client.