Attorney Fee Structured Deferrals: The Basics
While Structured Settlements are primarily known for helping secure the future needs of an injured plaintiff, there are also ways in which attorneys can benefit from the same tax codes & legal opinions associated with Structured Settlements. For any attorney that gets paid through contingency fees, they are able to strategize their earnings with an Attorney Fee Structured Deferral. The major difference is that, for the attorney that is structuring their fees – it is done on a tax-deferred basis and not a tax-free basis (which typically only applies to a plaintiff in a physical personal injury case).
If this idea has not jumped out at you as something particularly advantageous
from the perspective of financial
planning, tax-planning, and business planning – take a quick glance at some
of the key benefits of Attorney Fee Structured Deferrals:
- Avoid higher federal income tax brackets or marginal tax rates
- Lower your federal & state income tax liability that result from large cases
- Tax-deferred investment growth, similar to qualified retirement plans - but without contribution limits
- The ability to strategically spread your fees over time, in order to preserve wealth & stabilize future income for attorney and/or firm
- The flexibility of choosing along a spectrum of fixed (guaranteed rate of return) or market-based (higher risk) options
- Invest your savings at little or no risk, depending on your risk tolerance
First, you’d want to think about whether a fixed option or a variable option (market-based) makes more sense for you. If having a guaranteed rate of return (while sacrificing potential upside) is important to you, then you are most likely better off with the fixed option. On the contrary, if you have a heavier appetite for risk and you value the potential upside of the market, it may make sense for you to side with a variable option.
Next, you should consider whether you feel comfortable with your money being associated with an onshore vs. an offshore account. We’ll save getting into the details of all of the parties involved when it comes to attorney fee structured deferrals for now – but at the end of the day this consideration has more to do with your risk tolerance & the confidence you have in the institutions involved with your attorney fee structured deferral.
To conclude - I’ll say that given the tax codes & legal opinions that allow for attorneys to structure their fees, the benefits heavily outweigh the costs. However, there is a lot of consideration that must be taken into account from a planning perspective & from being knowledgeable enough about all of the different products, options, & companies involved.
Thank you for reading our inaugural blog post! We will be digging deeper into this topic in the coming months, so make sure to keep an eye out.
If you have any questions, I would appreciate the opportunity to provide my insight/experience. Please feel free to contact me here: CONTACT THE VALDEZ TEAM
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