Don’t Go It Alone: Fee Structuring Requires Special Handling

Payouts from a fee structure are not affected by stock market gyrations.

The Basics

Structuring fees requires knowledge and cooperation. Not every insurance company makes this option available, but the potential economic benefits to a trial attorney are significant and can be highlighted as part of settlement discussions. Current tax opinion stems from a 1994 case titled Childs v. Commissioner. From this case, the industry has developed some best practices to which parties should adhere. These steps are not complex; most are common sense, as is the concept of tax-favored savings.

The most recent Retirement Confidence Survey, published by the Employee Benefit Research Institute, points out that many Americans still don’t feel ready to leave the workforce despite the recovery. College tuition costs have risen at twice the rate of normal inflation over the last 40 years. Practice income is often unpredictable and may be dependent on factors that cannot be controlled, like health, competition and legislation. Structuring benefits for the injured party is done in part to guarantee the important things in his or her life. Attorneys often have the option to do the same.

Future benefits are funded by an annuity contract issued by a major U.S. life insurer. Money that would normally be lost to immediate taxation can grow on a tax-deferred basis, with future fee payments taxable in the year received — whether in 2015 or 2045.* Like with the injured party, these fee structure arrangements are creatively designed to coincide with the attorney’s future needs, wants and/or goals ... funding things like future overhead costs, retirement, children's college educations and more. Read this month’s Structure Strategies (this page) to see how two attorneys created a plan to allow them to enjoy what they do more.

Attorneys can structure fees at settlement for future expenses ... even if the client doesn't.

Practice Pointers and Other Key Benefits

1. Get the ball rolling early: Fee structure arrangements must be made before settlement documents are signed. It's also a good idea to include boilerplate language in client fee agreements that outlines the option to elect periodic future payments.
    
2. Consider even if the client doesn't: It's not required that the client structure for the attorney to do so. Most structured annuity issuers allow stand-alone fee structure arrangements.
    
3. Fee structure in any firm: Fee structure arrangements can be written for solo practitioners, professional corporations, partnerships and LLCs.
    
4. Reassure accountants, planners: Direct advisers to Childs v. Commissioner and other resources as listed below.

Consult the Pros

Ringler Associates has created more structured fee arrangements than any other structured settlement company. We can help design a unique plan or show the parties a variety of creative ideas other attorneys have used to make their futures brighter. Our knowledge of all the parties and protocols makes us uniquely qualified to help get it right the first time.

* As with any tax-planning strategy, we recommend you consult your professional advisers.