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Attorneys, deferring fees might be the tool you’re missing in your comprehensive wealth management plan.

As a trial lawyer, you have an advantage over business executives and doctors when managing wealth. In fact, you are part of the only profession with access to unlimited income deferrals. Leveraging your fees may be a smart way to create a supplemental retirement fund, manage the cash flow of your firm, or protect yourself from being bumped into a higher tax bracket.

Below, we answer some important questions attorneys commonly ask the team at Milestone about fee deferrals.

How do fee deferrals affect my taxes?

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.

What factors should I consider when deciding whether to defer fees?

There are a number of factors to take into account when deciding whether or not to do an attorney fee structure:

  • Age
  • Health
  • Present financial needs and goals
  • Future needs and goals (college, retirement, etc.)
  • Tax bracket
  • Risk tolerance

You must elect to structure your fees prior to settlement; it must be included in the settlement agreement. You can’t have constructive receipt of the money to be structured. It should be paid to the life insurance company via an assignment company.

Can I elect to defer a fee if my client elects to receive their settlement proceeds in a lump sum?

In most cases, you may create your fees regardless of what your client decides to do.

What if I worked on the case with another attorney? Am I still eligible?

Yes, you can still structure your fees. The stream of payments can be split among more than one attorney. Should more than one decide to structure, each gets their own unique payment schedule.

Is an attorney fee flexible?

Yes. You should choose a plan that best fits your individual needs.

How is my “attorney fee deferral” accomplished?

The attorneys deferred assets are custodied at TD Ameritrade Institutional and our team develops an investment strategy that is customized specifically do you and your family. The best wealth management approach for most of our attorney 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 a number of factors, including the type of incorporation the firm has (e.g. LLC, PC, etc.), dissolution plans of the firm, tax advantage, etc.

What does it cost to do a deferral?

As administrator, our firm charges 1% annually on the assets in the program. Monolith Advisers is our Registered Investment Adviser that provides the investment advice.

As an attorney, the most important player on your financial team is you. The second largest stakeholder is the IRS. Choosing when to pay them gives you the power to effectively design your stream of income, plan for retirement, and build wealth. We welcome you to contact Milestone Consulting with any questions about deferring attorney fees.

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