What’s it like being the only profession to be able to defer vast amounts of taxable income? Doctors and enteprenuers have been trying to figure it out for a long time. You the trial lawyer have been able to control the timing of your and your firms fee income, and thereby the taxation of it since 1996. Pre tax growth is the entire reason why most americans save through qualified retirement plans such as 401K’s.
I know what you are thinking, structures aren’t very popular now because of the interest rates. Did you know you have options including investments in Equities? Long standing tax treaties allow assignment companies outside the US to own US based life insurance, so you can participate in the market. The growth vehicle for your deferred fee is practically unlimited.
Considering a periodic payment obligation, whether you are a highly compensated sport figure, a business owner selling their interests, or a trial attorney settling a case, is just good tax planning. Accumulation and disciplined savings is what makes business people wealthy. As trial attorney’s mature in their practice, they begin to look for ways to get real wealth working outside of the practice. We know a few attorneys who deferred their fee just so it wouldn’t get spent. Spent in the business, spent on the next case, invested in the future of the firm. Making good money doesn’t always mean that you have saved good money. The attractive tax treatment of a deferred fee is reason enough to get to know the strategy well. Talk to the experts and understand it. It’s good for your practice and your financial mindset, even if you never do it.
Myth: I have to have big fee in order to make it actually work. Fact: waiting for the big fee to come along, and it not being spoken for when it arrives, is a significant reason why wealth accumulation doesn’t happen for many attorneys. We have clients who for every $300,000 case, they take $25,000 and defer it. They could have just as easily settled the case for $225,000. A consistent approach to deferral and accumulation can really make the difference over a decade or a career. We have clients who have consistently done this on 3-5 cases a year for the past decade, and they have over a million pretax dollars working for them. Its as simple as getting base hits.
You and your practice have to be financially ready for it, but I see so many young attorneys think that they can’t afford to. And ten years later, it’s the same equation. It’s a family conversation. The saver in the family will want to know more about it.
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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).