Resource Image

The U.S. Court of Appeals for the 11th Circuit has affirmed that attorneys who defer the payment of their fees pursuant to a structured settlement are not required to include them in their taxable income, until the year that the fees are received under the terms of the structure (Richard A. Childs, et al vs. Commissioner of Internal Revenue 103 T.C. No. 36 Docket No. 15639-92). Therefore, income taxes on attorney fees from the tort award are payable only when the amounts are received in each annuity payment.

Incorporating an analysis of the structured attorney fee on any large case is a prudent and viable financial-planning tool.

The advantages include:

  • Cash flow management
  • Customized income stream
  • Retirement planning
  • Income tax deferral

The focus for attorney fees on any case can be negotiated to effectuate tax deferral. The end result is a guaranteed rate of return which is equivalent to a higher taxable rate.

Spreading fees over several years avoids a higher tax bracket and allows the money saved in taxes to be invested at little or no risk with no money management fees. As an added feature, the moneys in a structured settlement may be exempt from creditors.

Structured attorney fees offer many of the same tax deferral benefits of the traditional qualified retirement programs without all of the administrative and regulatory requirements.

Another example- some attorneys structure their fees with benefits to begin at the time their children enter college.