Page 23 - NC Triangle Vol 7 No 1

to the assignment company, as well as execute a proper settlement agree- ment and release employing required structure language and an assignment agreement and release freeing the de- fendant from future payment obliga- tions.
THE ATTORNEY’S MARKET- BASED SOLUTION
In 1996, the 11th Circuit Court of Appeals upheld a US Tax Court deci- sion allowing attorneys to use struc- tured settlements to defer income and recognize future payments in the tax year in which they are received. Attor- neys are permitted to take advantage of the tax-deferred savings compared to the likely higher and immediate tax hit when taking their contingency fees in an immediate lump sum at settlement.
erefore, structured attorney fees have become commonplace. Like claimants’ structured settlements, at- torney fee structures have been tradi- tionally funded with xed annuities from highly-rated life insurers. Bene- ts of structuring contingent attorney fees include: tax-deferral of lump sum attorney fees, the opportunity for tax- deferred gains (future payments are taxed as ordinary income in the years paid), leveling out income streams for the “up and down” income years, and future payments made before age 59 1⁄2 are not subject to early with- drawal penalties (as can be the case with quali ed retirement plans). But, again, the rates of return from these annuity-based attorney structures have been generally conservative. Un- til now!
Attorneys uninterested in conser- vative returns from a xed annuity product now have the option to in- vest their fees with the potential of market-based rates of return. And, the attorney can avoid an immediate, present year tax consequence – o en at the highest tax brackets – by tak- ing advantage of tax-deferred, future periodic payments. As with a tradi-
tional structured attorney fee, the future payments must be both “ xed and determinable.” e IRS recently re ned the de nition of xed and de- terminable in a series of private letter rulings. According to two recent deci- sions by the Service, payment obliga- tions are, xed when set forth in the terms and provisions of a settlement agreement and determinable when they can be calculated based on an objective formula. Like the claimant’s market-based product, contingent fee dollars are allocated in $10 units, and the unit value at the time payments are due is determined by the underly- ing investment. At or before the time settlement documents are executed, the attorney determines how many units are to be paid, and when they are to be paid.
Again, payment options include quarterly, semi-annually, annually and lump sums – or a combination thereof. As with traditional struc- tured settlements, the defendant/in- surer must agree to fund the upfront (or present value) cost of the struc- ture, then execute a proper release and assignment agreement.
Fees can be invested with the exact risk and return pro le desired by the attorney or his/her law rm. In ad- dition to low-cost model portfolios o ered thru our program administra- tor, the attorney has the option to use their own nancial advisor allowing their investment to work in conjunc- tion with speci c needs and overall wealth management strategy.
SEPARATE RISK CATEGORIES
Allocating a claimant’s settlement funds among separate risk categories is a fundamental principle of wise in- vestment. And doing so represents the evolution of structured settlements. ese are invaluable settlement plan- ning tools in resolving the thorniest and largest litigated cases. Moreover, these tools augment the traditional, xed annuity-based structured settle- ments when discretionary settlement
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dollars are available to the claimant. Each case is di erent, and a market- based solution is not always appro- priate for every claimant. However, when used in combination with a xed annuity-based and guaranteed future payment plans, a compre- hensive settlement plan o en makes sense in order to address future medi- cal and life care needs while provid- ing a market-based upside for dis- cretionary settlement dollars. Like a traditional structured settlement, the defendant and/or insurer can resolve di cult cases; obtain a full and nal release of future contingent liability; release o en-signi cant reserves, and take advantage of all available imme-
diate tax deductions.
Settlement Planning Services, LLC and its employees, agents and representatives are not licensed to sell any securities or nan- cial instruments and do not provide advice or services related to the purchasing of, selling of, or investing in securities or other nancial instruments. Any discussion of securities contained herein is not intended or written to be used, and cannot be used, as advice related to the purchasing of, sell- ing of, or investing in securities or other - nancial instruments. Settlement Planning Services LLL and its employees, agents or representatives do not provide legal, tax, or accounting advice or services. Any discus- sion of legal or tax matters or any nancial or market-based illustrations contained herein, are purely for illustrative purposes only.
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FOR MORE INFORMATION, CONTACT ME AT TACKER@ SETTLEMENTPLANNINGLLC.COM.