Attorneys who receive large contingency fees from settlements face significant tax burdens. By structuring their fees into periodic payments, lawyers can spread tax liability over multiple years, achieve predictable income, and grow their earnings tax-deferred.
Payments are taxed only as received, reducing immediate tax liability.
Converts a lump-sum payout into a steady income stream
Payments are guaranteed and unaffected by stock market fluctuations.
Helps attorneys manage income post-career.
Design a schedule that aligns with your personal and business needs.
Instead of facing a one-time tax hit, attorneys can use structured fees to create a financial safety net that grows over time while optimizing their tax situation.
Setting up a structured attorney fee arrangement involves a straightforward but legally precise process:
The attorney must elect to structure fees before finalizing the settlement agreement.
Instead of receiving the full fee upfront, payments are directed to a structured settlement annuity or an assignment company, which holds and administers the funds.
Attorneys choose deferred payments based on their financial needs—monthly, quarterly, annual payments, or lump sums at designated intervals.
Because the fees are not "constructively received," taxes are deferred until payments are made, allowing for potential growth and tax-efficient distribution.
The attorney must elect to structure fees before finalizing the settlement agreement.
Instead of receiving the full fee upfront, payments are directed to a structured settlement annuity or an assignment company, which holds and administers the funds.
Attorneys choose deferred payments based on their financial needs—monthly, quarterly, annual payments, or lump sums at designated intervals.
Because the fees are not "constructively received," taxes are deferred until payments are made, allowing for potential growth and tax-efficient distribution.
TLC coordinates with settlement administrators, annuity providers, and tax professionals to ensure compliance, maximize benefits, and provide a seamless structuring process.
Structured attorney fees offer a well-established way for legal professionals to defer income
taxes and receive payments over time. However, traditional structured fee arrangements
provide fixed payments, which, while predictable, may not keep pace with inflation or market growth. Index-Linked Structured Attorney Fees present an innovative alternative by allowing payments to be tied to market performance, offering the potential for greater long-term returns while maintaining the tax advantages of a structured fee arrangement.
As with traditional structured fees, attorneys must elect to defer and structure their fees before the settlement is finalized.
Instead of receiving a fixed annuity, payments are linked to an equity index (e.g., S&P 500), a government bond index, or another financial benchmark. This allows payments to fluctuate based on market performance, with certain products offering downside protection.
Funds continue to grow tax-deferred, meaning attorneys pay taxes only when they receive distributions, potentially reducing their overall tax liability and allowing for strategic income planning.
Attorneys can structure their payments to fit their financial needs—choosing lump sums, periodic payments, or lifetime income streams.
Unlike fixed annuities, index-linked structures allow attorneys to benefit from market growth, increasing the potential payout over time.
By tying payments to an index, attorneys can mitigate the risk of eroding purchasing power due to inflation.
As with traditional structured fees, attorneys enjoy deferred taxation until payments are received, helping with long-term financial planning.
Many index-linked structures cap downside risk, ensuring that payments never fall below a certain threshold while still allowing for market participation.
This approach is best suited for attorneys who:
Want the potential for growth beyond fixed annuity rates
Are comfortable with some level of market fluctuation
Seek long-term financial security with tax advantages
Want the potential for growth beyond fixed annuity rates
Want to align their structured payouts with inflation and market trends
At TLC, we work with attorneys to evaluate their risk tolerance, financial goals, and cash flow needs to determine if an index-linked structured attorney fee is the right strategy. Contact us to learn more about how to maximize your fee structure while balancing security and growth.
Structured Attorney Fees are well-established and supported by legal precedent and IRS regulations. Key authorities include
Childs v. Commissioner, 103 T.C. 634 (1994), aff'd 89 F.3d 856 (11th Cir. 1996)
This landmark case confirmed that an attorney who elects to defer fees into a structured arrangement does not have "constructive receipt" or "economic benefit" of the funds at the time of settlement. As a result, tax liability is deferred until payments are received. The IRS and federal courts have consistently upheld this principle, making structured fees a widely accepted tax strategy.
Section 104(a)(2) excludes damages received on account of personal physical injuries or sickness from taxable income. Although this exclusion does not apply to attorney fees, structured settlements use similar assignment principles to defer taxation.
Section 130(c) allows qualified assignments of settlement proceeds to a third-party, reinforcing the legitimacy of structured settlements, including structured attorney fees.
Treasury Regulations & IRS Private Letter Rulings affirm that structured fees do not trigger immediate taxation if properly arranged before settlement finalization
American Bar Association (ABA) Guidance acknowledges structured fees as a tax-deferral strategy consistent with federal tax principles.
TLC ensures that attorneys structuring fees remain compliant with IRS guidelines, maximizing tax advantages while securing long-term financial benefits.
