Attorney Fee Deferrals
Attorneys, if you haven’t considered deferring your fees yet, now is the time. Deferring attorney fees is a viable investment option, especially if you are looking to create a supplemental retirement fund, manage the cash flow of your law firm, and/or protect yourself from being bumped into a higher tax bracket. Attorney fee structures can be invested in equities just like your 401k.Download PDF
Attorney fee deferrals have been part of the trial lawyer landscape since the 1980s. In Richard A. Childs, Et al. v. Commissioner of Internal Revenue, the 11th Circuit U.S. Court of appeals affirmed that attorneys who elect to structure their fees do not have to pay taxes on those payments until the year the income is received. This allows attorneys to spread out their income, rather than getting hit with a large tax bill in one year.
What You Need To Know
Your deferring options are customizable, your structure plan can be flexible, and you are in control of your money. Also, there are no limits to how much or how little you contribute.
Factors to consider when deciding whether to structure your fees include your age, your health, your present and future financial needs and goals, your current tax bracket, and your risk tolerance.
You must elect to structure your attorney fees prior to settlement, and it must be included in the settlement agreement. You cannot have constructive receipt of the money to be structured. It should not be paid to the life insurance company via an assignment company.
In most cases, attorneys may structure their fees no matter what their client decides to do with his or her own settlement proceeds. If you work with another attorney, you can still structure your own fees because the stream of payments can be split. Should more than one attorney decide to structure fees, each can build their own unique payment schedule.
How Are Fee Deferrals Established?
Our financial team develops a customized strategy that works best for the attorney and his or her family. The best wealth management approach for most of our lawyer clients is a well-diversified individual stock portfolio that is mid- and large-cap dividend growth heavy.
Payments can be made either to you or to your firm. Fee payments can be affected by factors including the type of incorporation the firm has (an LLC or PC, for example), dissolution plans of the firm, tax advantages, and others.
Milestone is happy to answer any questions you may have on attorney fee deferrals. Please download our free brochure for your reference.