By Anthony F. Prieto, Jr.
For years, attorneys have recognized the benefits of deferring taxation of contingency attorney fees through the use of laddered attorney fee structures. Attorney fee structures are a pre-tax and tax-deferred investment vehicle available only for contingency fees. By laddering the fee structure plans, an attorney can use a strategy similar to dollar cost averaging to lower the interest rate risk. There is currently no limit to the amount of fees deferred during a calendar year. All other plans (Defined Contribution, IRAs, Profit Sharing, 401(k)s and Simple/SEP IRAs) are capped by the IRS on a yearly basis (2011 maximum is between 5,000 and 49,000 based on the plan).
Structured Attorney Fees allow an attorney to develop their own pension plan. To put it simply, an attorney may take a portion of a fee and create a guaranteed income stream for retirement. They attorney can select the amount of the fee structure and the payout schedule. For all investors, a percentage of their money should be in a low risk allocation (fixed income vehicle). Attorneys have the perfect vehicle in Structured Attorney Fees.
Recently, Kiplinger’s Retirement Report reinforced this practice as an exceptionally good planning technique. In “A Ladder of Annuities Can Hedge Your Bets” (Kiplinger’s Retirement Report, November, 2009, p. 6), the author, Managing Editor Rachel L. Sheedy, maintains that “laddering” annuity purchases (i.e. regularly buying annuities over time as opposed to purchasing all at once) helps achieve an optimal balance of return and hedge against inflation for those seeking retirement security. The article goes on to describe a 25-Year MassMutual Financial Group study which compared and contrasted several retirement-income strategies only to conclude that the laddered annuity approach returned 67% more money over that span than the traditional stock/bond portfolio and was the highest performing strategy overall. You may view the Kiplinger article by clicking HERE
The Kiplinger report is based on a retail investor using this practice. The difference for an attorney is the plan is done on a pre-tax basis. Attorneys are not subject to the fifty nine and a half rule so the plan can be set up to begin at any point in time that is most desired. Attorneys have a great deal of flexibility in setting up a plan.
Synergy, through Settlement Asset Management now offers full line of investment portfolios in our attorney fee deferral programs. You can choose from a list of some of the largest asset managers or high interest Enhanced Structured Income (“ESI”) payment streams guaranteed by highly rated insurance companies. ESI payment streams are court approved assignments of structured settlement payments. The interest rates are typically 2 to 3% higher than equivalent fixed income vehicles (5%-7% currently). To learn more about ESI, click HERE
Structured Attorney Fees should be a large part of your fixed retirement portfolio. The plans require certain language to be inserted into the settlement agreement. Synergy can provide you with all the necessary documentation to insure the pre-tax and tax-deferred status of the plan.
Putting together a laddered approach is easy and we have done it for many clients. Please don’t hesitate to contact Synergy if you need assistance with this type of planning or wish to speak with other attorneys that employ this investment strategy. One important and final note is that an attorney can structure any portion of a fee and any size fee; we do many for as little as $25,000.00.