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Attorney Fees and Deferred Taxation in Structured Settlements

Attorney Fees and Deferred Taxation in Structured Settlements

What does deferring attorney fees within a structured settlement mean?  When attorney fees are deferred within a structured settlement, the attorney agrees to receive their payment over time instead of a lump sum payment after the case.

The key benefit of this arrangement for the attorney is the potential tax advantages. By spreading out the receipt of income, the attorney can manage his or her tax liability more effectively, potentially reducing the total amount of taxes paid.

What are the benefits to the client?

For the client, deferring attorney fees might be part of a larger structured settlement. For example, in a personal injury case, the injured party might receive their settlement funds over time rather than all at once. This can provide a steady income stream, which can be especially helpful if the injury results in a long-term disability. Deferring attorney fees could be part of this overall financial arrangement.

Specifics of such an arrangement can be complex and are often subject to various legal and tax considerations. It’s always recommended to consult with a tax professional, structured settlement consultant, or legal counsel to fully understand the implications of deferring attorney fees within a structured settlement.

What is an Assignment Company?

An assignment company, within the context of attorney tax deferred fees, is a financial institution or a third party that assumes the obligation of paying the attorney’s fees over a period of time. This arrangement is established as part of a structured settlement.

Here’s how it typically works:

  • When a case concludes in a settlement, the attorney and their client agree on a fee amount. Instead of receiving this fee upfront, the attorney opts to defer the fee, which means they agree to be paid over a period of time in the future.
  • To formalize this, the attorney contracts with an assignment company. The attorney “assigns” (hence the term “assignment company”) their right to future payments to this company.
  • The defendant (or their insurance company) then pays the attorney’s fee to the assignment company.
  • The assignment company uses these funds to purchase an annuity (or another financial product) designed to make regular payments to the attorney over the agreed-upon period.
  • The role of the assignment company is critical to this arrangement. They assume the obligation of making future payments to the attorney. In many cases, assignment companies are subsidiaries of life insurance companies, as they’re typically the ones issuing the annuities.
  • This type of arrangement allows attorneys to spread their income and associated tax liabilities over several years, potentially leading to significant tax advantages.

Who are good candidates for Deferred Attorney Fees?

This type of investment opportunity through the structured settlement process would be for those that want growth opportunities. It is geared towards credited investors who have earned $200,000 in the past two years.  It is suitable for clients who are more risk-takers, have time to defer, are more aggressive regarding their investment objectives, have a longer time horizon, and are more market-savvy.  Third-party companies offer an actively managed portfolio of stocks and bonds that are not locked into any particular rate of return.

In a past podcast for Ringler Radio, we sat down with Hait Assignment company to learn more about this process.  Listen to the full podcast interview here: https://ringlerradio.buzzsprout.com/1467760/6241750

Hait Assignment company primarily uses Morgan Stanley as its investment advisor, and within the Morgan Stanley world, they have about 5,000 different managers that they vet/run their due diligence on and use in their investment portfolios.  The historical performance has been anywhere from 4% to over 17% for the past year and a half.

Hait company is not owned by an insurance company, giving them some latitude regarding the underlying investment products.  Hait Assignment Company is suitable for attorneys who meet the accreditation criteria and are interested in deferred attorney fees and deferred taxation on attorney fees. The company offers read-only access to the online portfolio, which guarantees that there is no constructive receipt within that arrangement.

What is the Deferral Advantage?

Deferral of taxation into the future benefits the investment portfolio by allowing the investor to invest 100 cents on the dollar for a certain number of years, allowing compounding to play in their favor.  This is because if someone were to invest their fees directly, they would have to pay taxes on it upfront, which can be 50% or more. The deferral of taxation into the future allows for exponential growth.

The plan is suitable for people with time to defer, people who are more aggressive regarding their investment objectives, and people who might have a slightly longer time horizon.  It also works well for those who are more market savvy and realize that there’s a lot of upside potential to be earned within this portfolio if they can participate in an actively managed portfolio of stocks and bonds that are not locked into any particular rate of return at this point.

What Types of Settlements is this Limited to?

This type of plan is not limited to personal injury cases, and it can be used for other types of cases such as construction default, wrongful termination, discrimination, and environmental cases. The plan is structured before the settlement agreement has been concluded to avoid constructive receipt. Clients can log in and view the account, see the holdings, and see the performance, but they cannot influence change within that portfolio.

To discuss this option for you in a current settlement, feel free to contact a structured settlement consultant near you!  Start your search easily by clicking here: Structured Settlement Consultants.

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