Structured attorney fees, the single best tax planning tool for trial lawyers

As viewers of our content and commentary over the years know, Wahlstrom & Associates is one of the nations leading experts in and advocates for ​structured legal fees. These secured annuity funded programs allow trial lawyers and other lawyers to carefully, securely and wisely move taxable income from a large case or a banner year, into future tax years so as to smooth out the tax hit and more carefully plan their cash flow needs. 

​Structured legal fees, the single best planning option for trial lawyers to reduce their tax burden.

In this weeks edition of Speaking of Settlements, Mark Wahlstrom looks at the impact of the 2013 income tax increases on both the state and federal level and the fact that many lawyers are now facing tax rates in excess of 50%. When coupled with the fact that most large verdicts and large fee awards also come with substantial litigation debt financing that needs to be repaid, it is possible that some lawyers can actually net close to zero after paying taxes and litigation loans and financing!​

While in past years it was always the advice of tax lawyers and CPA's to take income in the current year as taxes go up, we are now faced with the reality that taxes HAVE gone up and there is a strong argument to be made for deferring income into future years and possibly lower tax rates or brackets. ​I can't stress this enough, no other profession has the option to safely and securely income average their current year revenue into future years and to not at least examine if this makes sense for your tax situation is beyond foolish! Call your CPA or tax professional, schedule an appointment and find out the key points of what your new marginal tax rates are, what is your anticipated 2013 income and call Wahlstrom & Associates to determine if a structured legal fee annuity is possible on some of your cases in 2013. 

The only certainty at this point is that you WILL pay higher tax rates in 2013 but with careful planning and working with an experienced structured settlement planning professional you can design a plan that works to save you money, fund your retirement and get off the case financing treadmill!​

The fiscal cliff. Should you structure your sale or settlement before 2013?

Few metaphors have been more over used in the last month or so than that of "The Fiscal Cliff".  

That said it is important for the next four weeks ending 2012 that professionals and others be aware of the issues and questions related to the certain tax law changes and how they relate to structured settlements, structured sales, structured legal fees and oil&gas lease bonus deals.

Structured Settlements:  For all intents and purposes people who are considering a tax free, section 103 qualified structured settlement should be more comfortable with the decision given the almost 100% certainty that marginal tax rates are going up on the federal level. The ability to obtain guaranteed, tax free income that is not subject to state or federal tax is going to have greater value just due to the tax savings, but also in comparison to other investment options such as dividend stocks, which are scheduled to be taxed at a much higher rate under anticipated tax plans in 2013. 

Structured Sales of real estate or farm property: Under anticipated tax plans we are almost certain to see a rise in the capital gains tax. No matter how foolish this might be in the big picture of our economic policy, we can pretty much take this to the bank. Furthermore, all income will now be subject to the Obamacare tax of 3.8% on top of what ever the marginal rate is for a particular year, so it is safe to say that capital gains tax rates are as low now as they are going to be for some time.  With that knowledge I strongly encourage anyone who can complete a sale in 2012 to close it, pay your taxes at the lower rate and invest your money. I see no strategic advantage in 2012 to structuring sales out into future years at higher rates of taxation. 

Structured Legal Fees: Much in the same line as structured sales, which allow for the deferral of currently taxable income into future tax years, structured legal fees are designed to secure guaranteed future income by pushing it into the future in an orderly, structured plan. Again, given the certainty of much higher marginal rates at the top end, coupled with the 3.8% Obamacare surtax on income, a lawyer is well advised to take as much income in 2012 as is practical and to begin to devise structured legal fee techniques on income that you know is going to fall into 2013. No responsible settlement advisor would suggest structuring income at the end of this year given the certainty of the tax increase, so don't let yourself get talked into anything unless you have a substantial planning reason for doing so. 

Oil and Gas Lease Bonus structures: Again, the rule on taxable income or ordinary income or gains that qualify to structure hold here, if the tax rate on your income is certain to be higher in 2013, then take as much income in 2012 as you can and pay down debt or build up your cash reserves. However, once 2013 rolls around and we see what rates are, the value of structuring taxable income from oil and gas lease bonus payments will be much greater. 

In summary, if you have tax free income via a structured settlement option there is no reason to delay as the tax free nature of the payment increases in value when tax rates rise. However, if you are considering a taxable transaction you are well advised to take the funds in 2012 and being to acquaint yourself with deferral options in 2013 and beyond. 

Looking to structure your divorce settlement so as to save taxes and secure income? Allstate has the answer.

Divorce is rarely a happy event but a successful divorce settlement that can bring tax advantages and greater security to both sides of the transaction is going to be great news for many divorce attorney's and their clients across the country.

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Today Allstate Financial has continued it's tradition for innovation and expansion in the structured settlement marketplace by announcing to brokers nationally that Marital Property Transfers, ie Divorce settlements, are now eligible to be structured using their Allstate International Assignments, Ltd, facility and Allstate Life Insurance Company as the funding mechanism. 

This one area of structured settlements has been for the settlement planners who specialize in structured settlements in taxable damage situations, sort of the holy grail, as it is an area of the legal profession where there is a lot of activity and financial planning stress due to the nature of the situation involved. Now with the ability to use a structure to bridge the negotiation gap between parties, the potential exists to provides real value to both sides of the transaction in money saved and security added. 

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Mark Wahlstrom, the host of The Settlement Channel will be doing a commentary on the entire process later this week on Settlement Expert TV, and at that time will provide a more detailed tutorial on how structured divorce settlements work, the tax implications and advantages for both parties if they elect to structure a divorce settlement and who might be most interested in pushing funds into future years and securing cash flows. 

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Obviously the initial benefit of a marital property transfer being funded through a structured divorce settlement is the payer gets a full tax deduction for the amount funded, while the beneficiary of the payments has a secured cash flow from a AA+ rated credit and only pays taxes on the funds in the years in which they receive them. Mark will discuss the creative application of this powerful tool in his commentary later this week. Until then to learn more about the Allstate Financial divorce structured settlement program, keep checking back to our web site and contact Mark Wahlstrom for more details.