For attorneys who want to create a supplemental retirement fund, manage the cash flow of their law firm, and/or protect themselves from being bumped into a higher tax bracket, deferring attorney fees should be considered a viable investment option.
If deferring fees is the right option for you, the benefits are unbeatable. In Richard A. Childs, Et al. v. Commissioner of Internal Revenue, the 11th Circuit U.S. Court of appeals affirmed that attorneys who elect to structure their fees will not have to pay taxes on those payments until the year the income is received. This allows attorneys to spread out their income, rather than getting hit with a large tax bill in one year.
If you’re an attorney and have never deferred fees, it’s important to know that your deferring options are customizable and you’re in control of your money. Below are answers to eight questions about deferrals we’re commonly asked at Milestone.
When do I need to decide to defer my fees?
You must elect to structure your attorney fees prior to settlement, and it must be included in the settlement agreement. You cannot have constructive receipt of the money to be structured. It should not be paid to the life insurance company via an assignment company.
What factors can determine if deferring is right for me?
There are several factors to consider when deciding whether to structure fees. These include:
- Your age and health
- Present financial needs and goals
- Future needs and goals, such as college and retirement
- Your current tax bracket
- Your risk tolerance
An experienced financial planner will go over these and other factors to help you determine the best course of action.
Can I defer a fee if my client elects to receive their settlement in a lump sum?
In most cases, attorneys may structure their fees no matter what their client decides to do with the settlement proceeds.
Can I structure my fees if I worked on the case with another attorney?
You can still structure your fees because the stream of payments can be split. Should more than one attorney decide to structure fees, each can build their own unique payment schedule.
Is a structure plan flexible?
Yes, you can develop a plan with your financial advisor to best fit your individual needs.
How are fee deferrals established?
A financial team develops a customized strategy that works best for the attorney and his or her family. The best wealth management approach for most of our lawyer clients is a well-diversified individual stock portfolio that is mid- and large-cap dividend growth heavy.
How are payments made?
Payments can be made either to you or to your firm. Fee payments can be affected by factors including the type of incorporation the firm has (an LLC or PC, for example), dissolution plans of the firm, tax advantages, and others.
What is the cost of a deferral?
As administrator, our firm charges one percent annually on the assets in the program. Monolith Advisers is our Registered Investment Adviser that provides the investment advice.
Your financial future will greatly benefit from a little planning ahead. If you’re interested in speaking with an expert about your options, feel free to contact Milestone Consulting for assistance.
ABOUT JOHN BAIR
John Bair has guided thousands of plaintiffs through the settlement process as co-founder of Milestone Consulting, LLC, a broad-based settlement planning and management firm. Milestone’s approach is comprehensive and future-focused. John’s team has guided thousands of clients by taking the time to understand the complexities of each case. They assess the best outcome and find the path that enables each client to manage their many needs. Read more about Milestone Consulting at http://milestoneseventh.com/.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).