During the past decade, it has become increasingly common for plaintiff attorneys to elect to structure their fees, deferring income until a predetermined future time. Not only does this reduce an attorney’s current taxable income, but it also offers a secure way to set aside income for future needs.
An attorney is taxed only as payments are received. Payments are reported on Form 1099 in the year in which the payment is scheduled. By using a structured settlement an attorney can:
- Spread out legal fees over years, possibly helping an attorney to avoid a higher marginal tax bracket, allowing the money saved (resulting from deferring current taxes) to be invested with little risk and no management fees. It is important to remember that when structuring a fee, an attorney is investing pre-tax, locking his settlement proceeds into a high-yielding investment.
- Choose when the payments will start at the time of settlement, there’s no need to wait until 59 1/2 for payments to begin.
- Create a low-risk foundation for a diversified portfolio.