It’s that time of year again when attorneys across the country cringe upon receiving their tax bills. Fortunately, if you’re a contingency fee-based attorney, you have the opportunity to leverage tax-advantaged investments to keep more of your fees where they belong—in your pocket. Keep reading to learn how. Using a Fee Structure to Grow Your Wealth Why structure your fees? The reason is simple. Funds placed in an attorney fee structure grow tax-deferred. By spreading your payments out over time, you avoid paying a huge tax bill all at once, plus there’s the possibility that you may reduce your federal income tax bracket or marginal tax rate. There are multiple alternatives for attorney fee structure products, and each has its own set of minimum investment requirements, setup, and administration costs. Further, some products are only available through certain carriers. Therefore, it’s important to work closely with your Sage Settlement Consultant to determine which product is right for you. Regardless of which solution you choose, don’t forget that the ability to structure your fees must be included in the settlement agreement. Now, let’s explore your options: Higher Interest Earning Potential: Fee Structure Plus ® Fee Structure Plus ® allows you to invest your contingency fee, tax-deferred, in a market-related investment portfolio (similar to your 401(k), but without the access restrictions). Payments are received on a periodic payment schedule, and a 1099 is issued for funds paid in any given year. You can elect to have your Fee Structure Plus ® funds managed by a respected financial institution or by your own personal financial advisor. Fee Structure Plus ® offers you market-related growth while still providing a steady stream of income. It also allows you to invest the full amount of your pre-tax contingency fees. To illustrate 1 , here’s a simple breakdown of a $1 million contingency fee using the lump sum cash option vs. Fee Structure Plus ®
| Immediate Cash Payment | Fee Structure Plus ® |
|---|---|
| Pay Income tax now (40% tax bracket) | Defer Income Tax |
| $600,000 remaining to invest | $1,000,000 available to invest |
| Invest in market/fixed growth | Invest in market/fixed growth |
| Taxes as it grows | Grows tax-free until withdrawal |
Tried and True: Fixed Income Annuities If you aren’t interested in market-based investments, a fixed annuity provides guaranteed 2 fixed income. There are no ongoing administrative or maintenance fees, and even better, you’re in control of the payment amounts, schedule, and how the money is used. Saving money for your children’s college tuition? You don’t need to worry about whether the structured attorney fee payments are used for qualified educational expenses, as you would with a 529 plan. Building up your retirement nest egg? Unlike contribution limits associated with traditional retirement plans, there are no limits to the amount you can structure. Depending on the life company that issues your fixed income annuity, there may also be the opportunity to select a rider tying your annuity growth to the S&P 500 index. If the S&P rises within a certain period, then the annuity payments also increase by the same percentage (up to 5%). If the S&P declines or remains flat, there is no impact on the annuity payments. Historical Safety: Treasury Funded Structured Settlement™ Some attorneys prefer to structure funds via a Treasury Funded Structured Settlement™ (TFSS). Backed by the United States Government, a TFSS uses U.S. Treasury bonds as the underlying investment within the attorney fee structure. Your periodic payments are received according to a schedule that you help design and taxes are reported on a Form 1099 in the year they are received. By placing your fees in a TFSS, you can enjoy a reliable stream of income for up to 30 years. Don’t Wait: Contact Sage Settlement Consulting Today If you are considering structuring all or a portion of your contingency fees and want to learn more, contact me before your client’s settlement is finalized. I will help you choose the best product to meet your financial goals. For more information regarding your attorney fee deferral options, contact Kimberly Overby today at 281-460-6535 or koverby@sagesettlements.com.
1 Hypothetical example intended for illustrative purposes only. 2. Guarantees are subject to the claims-paying abilities of the issuing insurance company. Sage Settlement Consulting, LLC and its affiliates (collectively, “Sage”) does not provide advice or services related to the purchasing of, selling of, or investing in securities or other financial instruments. Any discussion of securities contained herein is not intended or written to be used, and cannot be used, as advice related to the purchasing of, selling of, or investing in securities or other financial instruments. Sage does not provide legal, tax, or accounting advice or services. Any discussion of legal or tax matters contained herein is for illustrative purposes only and is not intended or written to be used, and cannot be used, as legal advice or for avoiding any penalties that may be imposed under Federal tax laws.