Structured Attorney Fees

Structuring attorney legal fees is a smarter alternative to receiving a lump-sum fee. Structuring fees is a practice that has become increasingly popular with attorneys over the past decade by offering them a secure way to preserve their future income. Attorneys have the option to structure their fees regardless of whether their client’s decision to structure their settlement.  Similar to structuring a plaintiff’s settlement, attorneys are able to accept payments over time on a tax-deferred basis. To protect the tax benefits of any structured attorney fee arrangement, the same rules and tax principals of a structured settlement must be followed. Attorneys are not tax-exempt and must pay taxes on the fees in the year(s) that the attorney receives payment as income. 

The 11th Circuit U.S. Court of Appeals affirmed in Richard A. Childs, et al. v Commissioner of Internal Revenue, 103 T.C. No. Docket No. 15639-92 that attorneys who defer payment of their fees following a structured settlement arrangement are not obligated to include the legal fees generated from a settlement, judgment or verdict in their taxable income until the fees are received. As a result, fees are subject to income taxation; therefore, an attorney is able to earn interest on his or her fee prior to paying income taxes on those fees. 

Possible Uses

Retirement Planning
Structuring attorney fees can provide an additional measure of security by creating a supplemental retirement source, assistance in estate planning or complementing life insurance benefits for loved ones. Despite having a retirement plan in place, an attorney may also opt for early retirement since there are no restrictions on when a structure can begin to make payments.
College Planning
Because of the lack of restrictions on how the money is used and the flexibility to receive payments when they are needed the most, structuring an attorney fee is a viable option for establishing a college fund for children.
Overhead Expenses
A plaintiff attorney’s income can dramatically fluctuate throughout the year or from year to year. Therefore, structuring attorney fees provides the attorney with the comfort of having a stable fixed-income. Essentially, routine office expenses, buying out a retiring partner and funding lengthy cases are no longer obstacles because structuring fees provides an attorney with a steady cash flow despite volatile market conditions.
Dollar Cost Averaging
Structuring an attorney fee is a beneficial instrument when investing in a reliable and disciplined manner because the fee may be paid into a brokerage account on a regular basis. Dollar cost averaging helps avoid the adverse effects of market instability because the monthly investment stays consistent, which allows more shares to be purchased at lower prices and fewer shares purchased at higher prices.

THE BENEFITS OF STRUCTURED ATTORNEY FEES

  • Avoid colossal federal & state income tax liability in exceptional years
  • Spread out legal fees over years
  • Federal income tax bracket or marginal tax rate may possibly be reduced
  • Guarantee rate of return
  • Preserve wealth
  • Stabilize future income for yourself or your firm
  • Provide a low risk foundation for a diversified investment portfolio
  • Enjoy the same tax deferral benefits of traditional qualified retirement programs, similar to 401(k) s, without the contribution limits, administrative and regulatory requirements

Your Payments: 

  • Customized to meet needs
  • May be made monthly, quarterly, annually or in deferred lump sums
  • Reported on a form 1099 in year they are received
  • Can be made for life or a certain period
  • May be guaranteed to beneficiaries if you die pre-maturely