If you’re managing a boutique law firm earning contingency fees, you already know that when the big case hits, you must be prepared to capitalize. I watched first-hand as my own family’s firm navigated big wins – as well as financial crisis and tax season. However, there are tools available to help you navigate the ups and downs of a contingency fee practice – and no, they’re not all expensive lines of credit. A firmwide qualified settlement fund (QSF) allows you to gain greater income recognition by choosing which fees you want to accept as revenue and which you want to defer into future tax years. How it works is simple. A firmwide QSF is a 468b trust that operates parallel to your escrow/IOLTA and can accept settlements and attorney fees from cases.
How it works
When the settlements and fees are settled into a QSF, the defendant receives an immediate payoff/1099; however, actual receipt is temporarily paused for both the plaintiff and their attorney. In other words, as funds remain in a QSF, there is no recorded revenue or income yet for the plaintiff or the attorney. A law firm then has adequate time to decide whether they want to accept the fee or structure it into periodic payments through an attorney fee deferral. Meanwhile, the client has time to consider government benefits preservation and other settlement planning options.
A firm-wide QSF can be uniquely branded to your firm. Attorneys often choose “Law Firm Name Settlement Account.” The firm QSF has its own bank account, which Milestone administers, and funds can only be moved from the account with a signed disbursement request. If you are operating a boutique-sized law practice that will be seeing large fees, partnering with an expert is the best way to plan for the future of that money. We welcome you to contact Milestone to discuss ways to help your law firm make the most of big fees.