Structured attorney fees, the primary tax planning tool for lawyers to reduce current year taxes

It is that time of the year again, April 15th and trial lawyers nationwide are looking at their increasing tax bills, the excessive cost of law suit financing and law practice debt, as well as their depleted retirement accounts. This week on Speaking of Settlements, Mark Wahlstrom examines the use of structured attorney fees as a tax and income planning tool for trial lawyers and the ways in which they can be used to reduce current tax bills, provide more cash now to pay off or reduce case funding and to fund retirement plans for lawyers. 

Structured legal fees, also referred to as structured attorney fees, are a long standing planning tool afforded to trial lawyers who want to spread the tax hit of a big case or big earnings year over several different tax years. This is done through the use of a structured attorney fee annuity, negotiated at the time of settlement and designed in partnership with the trial lawyers tax professionals. It allows for carefully designed payment schedules that move income into future years, secured by a settlement annuity, and thus allow for tax planning options to be used vs simply taking a lump sum of cash and paying taxes.  

The implications, given increased income tax rates on the state and federal level, are huge as many lawyers are facing marginal tax rates well in excess of 50% and consequently are paying more in tax than they are keeping on large cases. Couple this with the need in many cases to pay down case financing with after tax dollars and we actually see situations where the lawyer nets almost zero on a case due to poor planning.

Mark Wahlstrom, President of Wahlstrom & Associates, is one of the nations leading experts on structured legal fees and the planning issues trial lawyers face. There are crucial aspects of any such plan that need to be done in conjunction with tax professionals and as part of case settlement, so tune into this quick broadcast and learn more about the process. There are ways for some lawyers to convert fully taxable income into contributions to a qualified retirement plan, dramatically lessening the tax hit and putting in place a safe and orderly retirement funding plan.

Its tax season... Does structuring your attorney fee make sense?

Tax season in my business is typically the last two months of each calendar year. The reason being is that most cases are settled in the last 12 weeks of each year and most attorneys are faced with year end tax questions about deferring income into future tax years or funding and modifying their existing pension plan. Here are a few points to keep in mind as we approach tax season in 2013 if you are a trial lawyer:

1. You have a unilateral right to structure your legal fee on both taxable and non-taxable cases. However, you must include the appropriate language into your settlement documents, have a clear paper trail indicating that at no time were the fee's in your possession ( constructive receipt ) and you need to vet your situation with a qualified settlement professional.

2. There are a wide range of options for structuring your legal fee. You can do lump sum payments in future years, monthly and annual installments, you can increase or decrease amounts and you can make them payable for life. You can also defer the start date for several years and with some companies you may even include your spouse as a joint annuitant, meaning that it can pay for as long as one or both of you are alive.

3. Most attorneys don't know that there are options for professional corporations and partnerships to structure fees! If your partnership or firm wants to defer income to future years to even out cash flow this is an excellent tool to use.

4. You may structure out of a 468b trust, out of a mass tort case and out of most kinds of litigation. However, not every life insurance company writes every type of annuity so get with a qualified professional to determine what your options are and what the restrictions might be in dealing with a claims administrator on a mass tort case.

5. You can work with your own professional, you do not need to work with the defense! If you do not want defense counsel, casualty companies and other brokers knowing your business, do yourself a favor and engage a qualified plaintiff expert. Obviously, I would like you to choose Wahlstrom & Associates.

6. You can now obtain loans on structured legal fees. This has been worked on for many years and now it is possible for you to obtain the tax benefit of a structured legal fee, but also get the cash you need to pay off case expenses and financing. Contact Wahlstrom & Associates about this option and what the underwriting and qualification standards are in your particular case.

7. If you cannot structure this year you most definitely can create a pension plan that allows you to save tens, if not hundreds of thousands, of dollars in taxes this year. However, you MUST set this up and talk to our experts prior to December 31, 2013. Call our office today to discuss how we can assist you in pension planning for your firm before the end of the year.  

Structured Attorney Fee's, what you need to know.

One of the biggest misconceptions with structured legal fee's is that the Child's vs Commissioner case still is the governing case law and that there is some cloud over the tax status of structuring attorney fees. Nothing could be further from the truth.

The fact is that virtually every life market in the structured settlement arena now offers structured legal fees, all with a variety of options and features that make it one of the primary methods for deferring income to future years for trial lawyers. You have a broad selection that will depend on the case you are working on and the underwriting standards of each particular company at that time. 

Here is the list of life insurance companies that offer structured legal, or structured attorney fees:

1. AIG/American General Life Insurance.

2. Metropolitan Life Insurance Company.

3. Prudential Life Insurance Company.

4. Pacific Life Life Insurance Company.

5. Berkshire Hathaway Insurance 

6. New York Life Insurance Company

7. Mutual of Omaha

8. Independent Life

Keep in mind that each company has it's own little quirks and requirements but that in general you can work with each of them on most cases to fund a structured annuity on your legal fees.