Earn Tax-Advantaged Supplemental Income Without Lifting a Finger
It’s no secret that a successful legal career doesn’t necessarily equal a predictable paycheck. Case volume ebbs and flows, offering little certainty. Plaintiff attorneys with an eye on the future are wise to explore investment options that deliver regular income with minimal effort. Fortunately, solutions exist that fit the bill without taking time away from your practice.
Attorney Fee Deferrals: Your Financial Weapon of Choice
Plaintiff attorneys have a leg up on their defense counterparts when it comes to investment options. Fee deferrals allow placement of an attorney’s contingency fees in a financial vehicle that spreads payments out over time. Payment streams can begin immediately or in the future (depending on the product), allowing you to create a predictable source of income to supplement your current cash flow or to support future expenses, such as college tuition or retirement. If you have an existing deferred comp plan, attorney fee deferrals are an excellent funding tool.
You may find additional benefits when it comes time to file your taxes:
- Since payments will be spread out over time, you may be able to remain in your current tax bracket, rather than moving up to the next bracket. Less taxes = more fees in your pocket.
- By deferring your payments as a part of your retirement nest egg, you may be able to take advantage of a lower effective tax rate in retirement.
- Your CPA can help you to determine if deferred fees will help reduce your AMT liability.
Fixed Annuities
For several years, structured attorney fees using fixed annuities have been the deferral investment of choice. The plan design is flexible and there is no income cap, nor any annual or lifetime contribution limits. With no overhead or management fees, the guaranteed1 rate of return is comparable with many traditional investments. Payments are fixed and guaranteed, allowing you to set this stream of income on autopilot and pay taxes only on the income received within each tax year.
Fee Structure Plus®
Attorneys seeking additional growth potential may want to explore Fee Structure Plus® (FSP) as an alternative. FSP uses a low-cost platform to invest your fees in market-based portfolios. In addition to providing many of the same benefits as fixed annuities, FSP accounts can be managed by your financial advisor as a part of your comprehensive financial portfolio. You can defer unlimited amounts of contingency fee income, with taxes payable only in the years in which you receive your FSP payments.
Alternative Options for Attorney Fee Deferrals
In addition to fixed annuities and Fee Structure Plus®, there are other attractive options that employ a variety of underlying investments including Vanguard Funds, U.S. Treasury Bonds, and fixed indexed annuities. The varied investments offer a broad range of solutions to diversify your portfolio and maximize your wealth management and tax planning efforts.
Contact Sage Settlement Consulting Today
Deferred fees provide you with a stress-free source of long-term, tax-advantaged income. To learn more, contact Kimberly Overby today.
How to Preserve Settlement Proceeds for Future Medical Needs
Despite success at the mediation table, settlement proceeds do not always sufficiently provide for an injured claimant’s future medical expenses. After paying attorney’s fees and liens, the typical claimant still needs money to cover medical costs incurred long after litigation ends, such as doctor’s bills, surgeries, medications, home modifications, and more.
Moreover, the Centers for Medicare and Medicaid Services (CMS) projects that from 2018 to 2027 the price of healthcare goods and services will grow at a faster rate than it has historically. CMS also estimates that healthcare spending will increase at an average rate of 5.5% per year during the same time frame.
Rather than leaving your client in a vulnerable financial state, it is best practice to develop a solid plan at the time of settlement. Here are two simple ways your settlement consultant can help protect your client’s long-term medical and financial needs:
#1: Provide Education Regarding Financial Pitfalls
Outside of advising your client against taking a cash lump sum and risking quick depletion, there are additional obstacles that claimants need to avoid, including:
Loss of Needs-Based Government Benefits Eligibility: Claimants who receive needs-based government benefits will likely lose their eligibility for such benefits if they accept a lump sum cash settlement. For example, in most states, assets totaling as little as $2,000 ($3,000 for couples) are considered enough for a claimant to be ineligible for Medicaid (Medi-Cal in California), SSI, and CHIP.
Medicare Non-Compliance: Although Medicare is an entitlement benefit, claimants who receive Medicare benefits have additional responsibilities when it comes to the cost of their future medical care. Medicare Secondary Payer provisions encourage Medicare-eligible claimants to set aside a portion of their settlement proceeds to cover future medical costs, typically in what is referred to as a “Medicare Set-Aside.” While in the past, many in the legal community have paid closer attention to future medical expenses in workers’ compensation cases, an MSA industry leader reported a recent case in which Medicare sought reimbursement for future medicals in a liability settlement.
#2: Offer Strategies for Preserving and Maximizing Settlements Long-Term
Once the potential complications have been identified, several solutions exist that may help your clients provide for their long-term medical and financial needs:
Special Needs Trusts: Disabled claimants under the age of 65 may meet the criteria for a special needs trust (“SNT”; also known as a (d)(4)(a) trust). Settlement proceeds placed in a special needs trust are not considered countable assets when determining eligibility for government benefits. The claimant can continue receiving their needs-based benefits while supplementing their financial needs with approved distributions from the SNT.
Spend-Down: In certain states, “spending down” the settlement proceeds may allow an injured claimant to maintain needs-based benefits, including Medicaid. The spend down method has many stipulations related to the timing of purchases, what constitutes an allowable expense, and whether or not needs-based benefits will be suspended for the month in which the settlement proceeds are received. Claimants who are considering a spend-down should always consult with their caseworker or agency representative before receiving the settlement proceeds.
ABLE Accounts: Individuals who became disabled before the age of 26 may be eligible for an ABLE (Achieving a Better Life Experience) account, a tax-advantaged savings account. Funds held within an ABLE account can be used to cover qualified disability expenses, including healthcare, education, housing and transportation for the disabled individual. While annual and lifetime funding limits for an ABLE account may vary by state, ABLE account funds are exempt from asset tests for needs-based government benefits, provided the total funds in the account do not exceed $100,000.
Professional MSA Administration: While some claimants choose to personally administer their own Medicare Set-Aside accounts, professional administration provides management of future medical funds by experts that can save your client money and help them live worry free. Post settlement, a professional administrator handles all of the claimant’s medical concerns pertaining to pharmacies and doctors, insurers, employers, attorneys, medical providers and Medicare. A professional administrator automatically files all reporting requirements for Medicare Set-Aside accounts to CMS, allowing the claimant to treat freely. CMS “highly recommends” the use of professional administration to make sure the funds are preserved as long as possible through discounts only a professional administrator can provide.
Some administrators also offer subject matter expertise and consultation on federal and state benefits for beneficiaries of worker’s compensation and liability settlements.
Certain programs even offer transparent pricing into the real-time cost of prescriptions and treatment, providing the injured party visibility into the actual pricing of these services.
Contact Sage Settlement Consulting to Learn More
To learn more about these settlement planning solutions, contact Kimberly Overby today. Our experienced team will help you and your client create a customized financial plan to secure a better future.
Houston Area Women’s Center Inaugural BELIEVE Luncheon 2019
Supporting the mission to end domestic and sexual violence for all! #HAWC #Believe
This signature event raises critical funds in HAWC’s mission to end domestic and sexual violence for all.
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A Qualified Professional is of Paramount Importance
When making important financial decisions, such as those arising from a lawsuit or settlement, it’s often assumed that a financial advisor can provide the best guidance. While that may be true in certain circumstances, effectively safeguarding a settlement requires the specialized expertise of a Settlement Consultant.
Here are 3 reasons why your client NEEDS a settlement consultant.
Reason #1: Specialized Knowledge
A settlement consultant’s training goes beyond traditional wealth management strategies. It also encompasses experience with providing solutions specific to the financial intricacies of injured claimants and plaintiff attorneys, to include structured settlements and attorney fee deferral products.
In particular, settlement consultants are familiar with roadblocks that can prevent a smooth settlement resolution. From helping prevent the loss of government benefits to knowing whom to consult when a lien report is inaccurate, a settlement consultant has specialized experience needed to provide the most comprehensive level of service during and after settlement negotiations.
Reason #2: Holistic Approach
Not only are an injured claimant’s financial needs unique and different than those of a non-injury victim, but there is also an emotional aspect to settlement planning that a settlement consultant is better equipped to navigate. When someone has experienced a traumatic injury or the death of a loved one, their wrong can never be made right regardless of the amount of money they receive through a settlement. Newfound wealth can often feel like more of a burden than a blessing — especially if the windfall came as a result of a loved one’s death. A settlement consultant is an advocate for the injury victim and can help navigate emotional storms while keeping claimants focused on goals and a well-thought-out plan that provides for financial stability.
Whereas the typical financial client may be focused on investments that can provide for retirement savings or funding extensive vacations, injured claimants must deal with economic complications as a result of an accident, and planning for the costs of their future medical treatment. The cost of prescription drugs, prosthetics and home modifications; eligibility for needs-based government benefits; replacing lost income; and trying to adjust to a new reality are all elements that must be considered in an effective settlement plan.
Settlement consultants work daily with injured claimants and their family members, and they understand how to provide detailed, expert guidance while offering empathy and emotional support.
Reason #3: Team-Based Solutions
Different than the typical solo approach often associated with advice provided by a financial advisor, the best settlement consultants recognize the strengths that other experts offer in the settlement process and will choose the right professional partner to quarterback every component of settlement resolution for the claimant. Reputable settlement consulting firms have access to a broad range of tax, government benefit, lien resolution, estate planning, trust services, and wealth management experts that can help the claimant create a seamless plan for his/her financial future. Moreover, settlement consultants are not captive agents, guaranteeing that they will only consider the best interests of the claimant when recommending products and services.
Contact Kimberly Overby Today
Sage is proud to be the largest plaintiff-oriented settlement planning firm in the nation. With offices from coast to coast and a national network of experts, we have the resources you need to ensure that your clients are receiving the best advice. Contact Kimberly Overby today to learn more.