You know your structured settlement consultant already works hard for your clients. Why not put her to work for you, to help you find and utilize the right structure to reduce your tax burden, to keep more of what you earn, and to grow your personal wealth?
If you’re a contingency fee-based attorney, you have the opportunity to leverage tax-advantaged investments, whether or not your client opts for a structured settlement.
Funds placed in an attorney fee structure grow tax-deferred. By spreading your payments out over time, you avoid paying a huge tax bill all at once, and you may find yourself with a lower tax liability in the future.
But this isn’t something to think about only on April 15, or when you’re doing end-of-year financial planning. We advise a 12-month strategy, because the ability to structure your fees must be included in the settlement agreement.
Our best advice? Start strategizing early. You can design a plan for short-term needs, like your firm’s overheard, or long-term planning, including setting up a deferred compensation plan, or both.
We recommend you work with your financial advisor, Certified Public Accountant and structured settlement consultant to pinpoint your income needs and select the right structure for you. As personal circumstances and needs change over the years, you’ll want to revisit your goals and projections.
There are multiple alternatives for attorney fee structure products, and each has its own set of minimum investment requirements, setup, and administration costs.
But you don’t need millions of dollars in fees to make structuring work for you. One of my attorney/clients established his investment by deferring fees from two separate cases, in the amounts of $700,000 and $1.1 million. After that, virtually every fee he deferred was between $50,000 and $200,000. We began to work together when he was 42 years old, and his game plan was to establish $400,000 of guaranteed annual income from aged 53 to 83. We achieved that objective in 11 years, and he retired at 52.
In many cases, you can defer fees as low as $20,000. Because some products are only available through certain carriers, it’s important to work closely with your structured settlement consultant to determine which product is right for you. Let’s explore your options:
Fee Structure Plus® allows you to invest your contingency fee, income tax-deferred, in a market-related investment portfolio (similar to your 401(k), but without the access restrictions).
Payments are received on a periodic payment schedule, and a 1099 is issued for funds paid in any given year. You can elect to have your Fee Structure Plus® funds managed by a respected financial institution or by your own financial advisor.
Fee Structure Plus® offers you the chance for market-related growth while still providing a steady stream of income. It also allows you to invest the full amount of your pre-tax contingency fees.
Look at what happens to a $1 million fee using the lump sum cash option: You pay income tax now, in the 40% tax bracket, which leaves you only $600,000 to invest in either market or fixed growth options. That money will be taxed as it grows. Fee Structure Plus®allows you to defer income tax, which means the full $1 million will be invested and not taxed until payout.
If you aren’t interested in market-based investments, a fixed annuity provides guaranteed1 fixed income. There are no ongoing administrative or maintenance fees, and even better, you’re in control of the payment amounts, schedule, and how the money is used.
Saving money for your children’s college tuition? You don’t need to worry about whether the structured attorney fee payments are used for qualified educational expenses, as you would with a 529 plan.
Building up your retirement nest egg? Unlike contribution limits associated with traditional retirement plans, there are no limits to the amount you can structure.
Depending on the life company that issues your fixed income annuity, there may also be the opportunity to select a rider tying your annuity to growth to the S&P 500 index. If the S&P rises within a certain period, then the annuity payments also increase by the same percentage (up to 5%). If the S&P declines or remains flat, there is no impact on the annuity payments.
Some attorneys prefer to structure funds via a Treasury Funded Structured Settlement™ (TFSS). Backed by the United States government, a TFSS uses U.S. Treasury bonds as the underlying investment within the attorney fee structure. Your funds are received on a periodic payment schedule that you help design and taxes are only due on the funds received within a given tax year.
By placing your fees in a TFSS, you can enjoy a steady stream of safe, reliable income for up to 30 years.
For more information regarding your attorney fee deferral options, contact Traci Kaas at Kaas Settlement Consulting today at (800) 354-2258 or by emailing Traci@tracikaas.com.
1 Guarantees are subject to the claims-paying abilities of the issuing insurance company.