Articles in Attorney Fee Structures
Structuring attorney fees for later cash flow; comparison of after-tax cash flow from structured attorney’s fee vs. income from taxable investment accounts showed higher net income with structured fees.
Structuring attorney fees has benefits: better money management of future expenses such as a child’s education or your retirement, possibly lowering your tax bracket, guaranteed payments, and, as with injured-party settlements, receiving more money than if you had taken an initial lump sum payment.
Attorneys are beginning to look beyond cases typically targeted for structured settlements and recommending the settlement option to clients in a number of non-traditional, non-physical injury recoveries. Almost any type of non-physical settlement can and is being structured.
For some the structured settlement process is best illustrated by sample structures.
Although structured attorney fees do not have all the tax advantages of structured settlements for plaintiffs, there are still elements that make them attractive. Attorneys began using structured payments for legal fees in physical injury or sickness cases after the decision in Childs vs. Commissioner, 103 T.C. 634 (1994), affirmed 898 F3d 856 (1996). The Tax Court held that attorney fees from these types of cases could be received in periodic payments.
Most plaintiff attorneys are aware that their fees can be structured in personal injury cases. Less known is that structured fees, using a life insurance annuity, can also be created in non-injury (non-qualifying) cases.
Structuring attorney fees is increasingly becoming part of a law firm or sole practitioner’s financial planning strategy. Not every fee is eligible and certain initial steps must be taken so the fee qualifies for its preferred tax status. Patrick Farber, a structured settlements broker at Ringler Associates in Southern California, talked with Mark Simurda, a CPA and tax partner with Lesley, Thomas, Schwarz & Postma, Inc., in Newport Beach about structuring settlement fees.
Most attorneys are familiar with creating structured settlements for their fees whenever their personal injury clients agree to their own structured settlement. Many attorneys, however, are unaware that these same fee structures can be arranged on a stand-alone basis–even when the client chooses to accept a lump sum payment or in certain non-injury, contingency fee cases.