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Structuring Fees

Attorneys Commonly Overlook Fee Structure Agreements

There are lots of advantages to structuring some or all of your fees from a settlement, many similar to those enjoyed exclusively by your clients. For one, no other financial management tool like this exists for other professionals except contingency-fee attorneys. In fact, after hearing the details, your CPA just might say it’s too good to be true! So why not take a closer look?

Better Manage Income Peaks and Valleys

Fee structures are a special kind of deferred compensation plan that allows you to receive periodic payments for fees instead of a lump-sum payment. And while payments from a fee structure are not tax free like your client’s annuity, taxes are deferred until you receive your payments. This increases the total amount of money you receive versus a lump-sum payment by spreading out your tax obligation over time.

More important, however, is the opportunity to better manage the income peaks and valleys typical of a contingency-fee practice with a steady stream of future income. For example, lawyers we’ve worked with will often structure enough fees to cover office expenses each year so they can focus all their energies on new cases rather than worrying about the operating budget. And unlike qualified retirement plans, there are no restrictions on the amount of fee income you can structure.

Seek Experienced Guidance on Requirements

You must carefully follow all the rules concerning fee structures to avoid tax problems. Thus, we highly recommended you consult a tax consultant and work with a Ringler consultant experienced in structuring attorney fees. Also keep in mind:

  • The option to structure attorney fees must be arranged prior to, or concurrent with, the plaintiff’s original settlement (normally in the contingent fee agreement).
  • Very specific documentation and wording is required in the settlement documents by the life company, and to avoid potential problems with the IRS.
  • Most life companies require a hold harmless agreement and IRS forms such as a W-9 or W-4 with the structure agreement.

Finally, be aware that the payment schedule from a fee structure is locked in once the settlement is finalized and can’t be changed, accelerated or deferred. But since there is infinite flexibility in the way payments are made, your Ringler consultant will help you consider all the possibilities by running projections from the nation’s top life markets.

Download this brochure for a quick overview. Or listen to this podcast from Ringler Radio, which features a discussion on fee structures with a prominent tax attorney and experienced Ringler consultants. Then when you are ready to get started, contact your Ringler consultant.