What is an Attorney Fee Structure?
Structured settlements are an excellent financial option for personal injury claimants, but they are also available for attorneys to use as well. A structured attorney fee allows the attorney to take all or part of the attorney fee to be deferred pre-tax and paid overtime. This allows the attorney to create some stability for the future, as well as lower their overall tax burden.
One great benefit of structuring an attorney’s fees is the ability to spread fees over several years avoiding a higher tax bracket and allowing the money that is saved in taxes to be invested at little or no risk with no money management fees. The attorney will receive the same tax-deferral benefits as a Qualified Pension Plan without all the hassle of having to adhere to the requirements of a qualified plan, including how much can be put in. The taxes on the fees are deferred, as well as the interest that it earns, until the year in which payment is actually received from the fee structure. The ability to create a guaranteed income stream through structuring offers financial security and stability, while the income’s tax-deferred status can reduce an attorney’s overall tax burden.
In general, the same rates are applicable for both the plaintiff and the attorney. The attorney is still able to structure his fees even if the plaintiff decides to take a lump-sum, the timing and amount of payments do not have to correspond with those of the plaintiff. If there are multiple attorneys involved in the case as well, they could act independently of one another in regards to structuring their fees. This means that if one attorney decides to structure their fees the other one is still eligible to receive a lump-sum payment. When establishing a fee structure, all documents (annuity contract, the settlement agreement, the fee agreement, etc.) should clearly state that the attorney has no right to accelerate any of the payments.
What qualifies an Attorney to Structure Fees?
Cases where an attorney is paid hourly or paid up front can not qualify to be structured. Cases that have an unknown value at the inception and are paid upon settlement are the cases that will qualify for the attorney to structure their fees. These cases usually involve injury or sickness, where evaluation of expenses are too hard to estimate during early stages. Other factors are involved as well including the attorney’s risk tolerance, retirement goals, tax bracket, and current and long-term needs. An attorney must agree to structure a fee prior to the case being resolved, meaning before a client signs documents and before checks are issued.
Rate of Return
JurisPrudent Deferral Program
A well-designed fee deferral program offers a variety of benefits, from reducing your tax burden and enhancing your wealth accumulation to improving financial flexibility and helping you retain key associates. The JurisPrudent Deferral ProgramTM gives attorneys the same level of benefits and protections that corporate executives enjoy — providing a level of safety, service, and transparency that is unmatched across the industry.
- Reduce Tax Burden — Increase Wealth Accumulation
You can base fee payments on a customized investment portfolio where just like in a 401(k), your money grows tax-deferred. But in this case, unlike with a 401(k), there are no limits on the amounts you can defer.*
- Flexibility for the Future
Like Fortune 500 executives deferring their compensation, you can have flexibility regarding the timing of income and resulting taxation. With added flexibility you can plan for your financial success by creating future payment streams that can be tailored to your needs and goals.
- Retain Key Associates
Fee deferrals can be used by your law firm to fund a retention plan for key associates and employees, mitigating the risk of important people leaving the firm and taking valuable cases with them.
At Vega Settlement Group, we make it our commitment to have these payments reflect the future obligations and goals of the client, thus protecting them from outliving their financial resources.
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