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By Sam Dolce-Powers, Esq.

If you’re an attorney about to receive your first $1 million fee this year, you are likely concerned about a six- or seven-figure tax bill at year-end. And rightfully so; the influx of that amount of income could send you into a higher tax bracket and increase your tax burden. The best thing to do is to understand your options and learn the best practices for contingency fee attorneys who receive large fees – and to be prepared long before the next tax season.

How attorneys can ‘structure’ their contingency fees

Many attorneys who earn contingency fees choose to reduce their tax burden year over year by receiving money from their fees over time (rather than in a lump sum all at once). Some choose traditional structures backed by annuities. Others choose market-based solutions, namely investment-backed structures, which are periodic payment obligations backed by investment accounts. Regardless of the path you choose, do not wait until it is too late, as there are steps that must be taken in advance to ensure the fee planning arrangement happens in time. We welcome you to contact our team at Milestone for a free, no-hassle conversation about your fee deferral options and what our feeMaster program offers.

What does a typical attorney fee structure look like?

Everyone has different immediate needs and long-term goals, which is why every attorney fee structure looks different. However, many attorneys choose to use a portion of their fee for retirement planning. For example, Fred is a 50-year-old attorney who is about to receive a $1.1 million fee. That money is excess income that Fred does not need up front. So, Fred chooses to take $100,000 now and invest the other $1 million using the feeMaster program. Fred chooses a payment schedule that will pay him from age 60 to 80. He lets the fee grow for ten years uninterrupted, and then collects $156,000 amount for 20 years. The best part? Fred’s invested funds continue to snowball, tax deferred, as he is only required to pay taxes on the payments he receives each year.

At Milestone, we would be happy to walk you through all your planning options. We specialize in helping attorneys and their clients make the most of their settlements. We have built our practice for decades to cater specifically to the plaintiff trial bar, and our team is here to assist you in your future wealth planning.

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