As someone with over 25 years experience in the structured settlement business, and as one of the leading experts in structuring attorney fee's, I am continously amazed at the number of attorney's who still, at this late date in 2006, are utterly unaware of the fact that they can legally defer taxable income into future years using a structured attorney fee.
When I speak to groups or individuals on this topic I always make a point of asking them if 1.) Have they ever structured a legal fee using a structured settlement annuity, and 2.) If they haven't, what is stopping them from doing so. I think the answers are instructive in getting to some of the misconceptions many lawyers have about their options to defer taxes, with interest and fully secured by highly rated life insurance companies, into future years using annuity funding in their settlement agreements.
Lets discuss the most common reasons I'm told why they don't structure:
1. I wasn't aware that I could, and I thought the tax courts had struck down the practice back in the mid 1990's. While it is true that back in the early 1990's there was a very prominent tax court case, Childs vs The commissioner, in which it was litigated for some time whether or not attorneys had the right to use annuities to fund deferred payments into future years, that litigation was decided in Childs favor at the highest level of tax court over 6 years ago now. We have also had the subsequent Banks and Banatis decisions in the Supreme Court back in 2005, coupled with clear legislative action to carve out the right of attorneys to defer fees, when most if not all professionals don't have that option. Go check out the podcasts from Attorney Rob Wood here on our site for a really good 45 minute tutorial on the tax status and history and I think you'll agree the foundation for structuring fees couldn't be stronger.
2. My client isn't structuring and I don't want to raise the issue of my fee at the end of the case. Besides doesn't my client have to structure in order for me, the attorney, to structure my fee? No, you don't have to have your client structure their award in order for you to structure your fee. While it is true some life insurance companies continue to take a very cautious approach and won't underwrite cases where the plaintiff isn't also structuring, the number of companies that do "stand alone" fee structures is expanding by the month, and include firms such as John Hancock, Hartford Life, MetLife, Prudential, Allstate and other top ranked firms. You may, at your election in a personal injury case, choose to defer your fee via a structure as part of the settlement agreement, using a standard qualified assignment, and therefore obtain the benefit of tax deferral.
3. I'd like to structure but I never seem to have much money left over after a case, so I just use it to pay my expenses and go on to the next case. Yes we have all been there, but at what point are you going to get off the treadmill and start to bank cash flow for your future? We typically structure legal fees so that an attorney can do one of two things. First being to set up a secure cash flow to fund their practice for the next 5, 6 or 7 years by putting a guaranteed stream of income in place to cover over head each year. The second thing we do is use the cash flow to fund either extra retirement benefits outside their pension plan, or in most cases, target cash flow to make sure their pension plan gets funded every year. The point is that even if you are structuring $50,000 per case into future years, that's money you Aren't paying taxes on now, and can use for a better purpose in the future.
I'll be back next week with some additional ideas for trial lawyers and their experts in how to structure legal fees in personal injury cases. Remember you can always call me at 800-444-5924 and ask me questions on your specific case.