If you are an attorney enjoying success in your practice — and you are looking for ways to save more money before federal and state income tax — the attorney fee deferral is a method to consider.
Most attorneys who have gotten to the point of considering a qualified settlement fund and periodic payments to defer income have spent a significant amount of time talking to their peers, doing their own research, and finding industry experts who provide these tax deferred solutions. If you’re not quite there yet, let me save you some time.
You will most likely want your own QSF. Regardless of an already existing master settlement agreement for a mass tort or multidistrict litigation, a class action with its own class administration, or a single tort case with a handle full defendants, your firm’s own QSF is a professional standard of care in our business. The trustee or fiduciary of the QSF should be versed in its administration but especially sophisticated in properly documenting and creating a periodic payment for the parties.
The first rule of establishing a QSF is that someone — the defendant, insurer, or a QSF administrator — must create a “promise to pay” or “periodic payment.” This right should be set forth in the release document that releases the party making payment.
Every obligation must be assigned to an “assignment company” that is independent of the defendants and insurance companies in the cases. The owner of the obligation is critical to making any periodic payment deferral work. If you are willing to stick to a fixed guaranteed annuity, you can stay onshore, and create a payment plan backed by a major insurer, like Metropolitan Life. Even in these transactions, attorneys are forced to be a creditor of the assignment company. Remember, in order for the tax deferral to work, someone other than you, the attorney, has to own the account.
Offshore Assignment Companies – What’s the Deal?
The advent of offshore assignment companies was born in the 1990s to give litigating attorneys options on taxable settlements. Basic tax spreading couldn’t be accomplished through traditional IRC 104a2 and 130 assignments. Major insurance companies like Prudential, Allstate and Liberty Mutual created assignment companies in Tax Treaty-friendly Barbados. This legacy of work is why we founded our independent Global Periodic Payment Assignment Company (GPPAC).
Are offshore assignments safe? These transactions should be 100 percent transparent; the lawyer should be fully aware of the location of their fee assets and their security protections.
Secondly, if you are going to trust a company to hold millions of dollars of your fees for 10 to 20 years, there should be a bulletproof security guarantee. Our GPPAC provides a automatic guaranteed account ownership transfer to our attorney beneficiary, should there be any incidence of failure to pay or default or a breach. These contractual provisions are further strengthened with an escrowed default judgment executed by the periodic payment obligor, GPPAC. We believe this is the only security measure of its kind in the U.S.
Note: just because the obligation goes offshore, doesn’t mean your assets reside there. In fact, in a professionally administered attorney fee deferral program, the assets should be custodied in the U.S. with a major third party custodian like DA Davidson, Charles Schwab, TD Ameritrade, or a trust company as the independent trustee.
Fee deferrals can be a smart wealth management tool throughout an attorney’s career, but it’s critical to understand the process. If you’re considering structuring your attorney fee, our comprehensive settlement planners can answer your questions. Feel free to contact Milestone Consulting to learn more about getting started with fee deferrals.
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).