Fixed Rate Attorney Fee Structures

What is a Fixed Annuity Attorney Fee Structure?

With multiple attorney fee structures to choose from, fixed rate annuities, also known as structured settlement annuities, can be used to defer attorney fees on a pre-tax or tax-deferred basis. So, as opposed to receiving a lump sum payment, a fixed rate annuity allows the attorney to have their fees paid out in periodic payments over a pre-determined schedule through a life insurance company annuity.

What does the Fee Structure Process Look Like?

The process starts with the attorney determining the life insurance company and a specific annuity of their choosing. This process would include details like the fixed interest rate of the annuity and the distribution schedule. This information is to be included in the settlement agreement, and must be completed before the judgment is final. 
 
The defendant or insurance company will direct the attorney’s fees, according to the settlement agreement, to a 3rd party assignment company, like Havelet Assignment Company, which will use the funds to purchase said annuity.
 
The attorney will receive electronic payments into their bank account according to the previously determined schedule. Depending on the insurance company and the annuity, payment schedules can be arranged for monthly, quarterly, semi-annually, annually or in a series of future lump sum payments that can begin immediately of a specified future date.
 
These payments will be reported on a 1099-MISC as income in the years in which payments are received.

Benefits of a Fixed Annuity Attorney Fee Structure

Most savvy attorneys may be looking into a fixed annuity fee structure because of the income tax planning and retirement planning benefits. After all, attorneys can use ladder payments to better manage cash flow and control when they will be taxed for income tax planning purposes. And, attorneys can create a retirement plan without age restrictions and other drawbacks of a qualified plan. In addition to these benefits, attorneys can also enjoy the following benefits:

  • Tax deferral – Attorneys can defer taxes on their fees as well as the interest earned until the year in which they receive them. This allows attorneys to avoid paying taxes on fees in the year the case is settled.

  • Market risk – Fixed annuities aren’t subject to market risk like the alternative variable rate annuity.
  • Consistent rate of return – The rate of return on your investment is pre-determined and never changes with rates similar to bonds and other long-term debt instruments.
  • Investment growth – Your deferred fees will continue to grow-tax fee until the year you receive a distribution
  • Asset protection – Attorney fee deferral structures can provide more protection from creditors, judgments, and divorce decrees than alternative investments.