Structured attorney fees offer an excellent income planning opportunity for personal injury lawyers, aviation lawyers and other contingency fee lawyers and law firms . There are a number of ways to structure legal fees. Planning ahead should be your mantra. New York/ CT area structured settlement broker and settlement planning expert John Darer frames the issues for lawyers to consider in this video
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New York attorneys should be aware that the Allstate Insurance Company approved list for structured annuity issuers includes just three companies:
The list for structured attorney fees is even shorter, just Allstate Life Insurance Company of New York, by way of a non qualified assignment through the Allstate International Assignments, Ltd.
Allstate International Assignments, Ltd. is a Barbados based facility that is the fulcrum for Allstate's innovative deferred payment programs for non qualified cash flows from employment, divorce and other no physical injury settlements. It also a tactical facility for structured celebrity endorsement fees, structured installment sales, structured deferred commission payments to real estate brokers and structured deferred bonus payments to investors in oil and gas lease programs.
Obligations assigned to Allstate International Assignments, Ltd. are subject to a guarantee or Agreement to Pay by Allstate Life Insurance Company
It is important to understand that Allstate International Assignments, Ltd. is a separate legal entity from Allstate Life Insurance Company of New York and Allstate Life Insurance Company. Neither Allstate Life Insurance Company nor Allstate Life Insurance Company of New York currently give any slack to the time it takes for international check clearing to Allstate Insurance Company and charge a lock in fee if a quote is locked in with in excess of 30 days from the lock in date. The situation could simply be rectified by Allstate Insurance Company wiring the funds to Allstate International Assignments, Ltd, however my understanding from speaking with an Allstate rep today is that it will not do so.
As I've previously stated to readers in other posts (e.g. below), it is the paying insurer's prerogative (1)how it will make its offers; and (2) which life insurance companies it will permit for structured annuities on cases it resolves on behalf of its insureds. Yet I also see a certain sense of unintended injustice where a company is ostensibly saving an international wire fee while its affiliated company charges a lock in fee that exceeds it.
While the contentious nature of litigation may sometimes create the sense of not wanting to do the attorney any favors the opposite may be true as well. Given its status as one of the leading writers of automobile , homeowners and other types of insurance, surely Allstate recognizes there is a cumulative effect that goes both ways.
MetLife has a viable solution in its MetLife Insurance Company of Connecticut reinsurance product. If MetLife Insurance Company of Connecticut were to be permitted to be used, it would save Allstate Insurance Company an international wire fee and benefit the attorney because MetLife has a more liberal free lock in window. (90 days). Alternatively, in my opinion, Allstate should consider liberalizing its free lock-in window.
**Note that outside of New York, Allstate Life Insurance Company and John Hancock Life Insurance Company (U.S.A.) are substituted for their New York counterparts. At the time of posting Metropolitan Life Insurance Comapny is licensed in all 50 states.
Related general reading on structured settlements approved lists
Structured Settlements: Insurer Approved Lists: Why Don't Ask Don't Tell Is A Breach of Trust
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How can structured settlement payment rights acquired in the structured settlement secondary market be used to achieve your client's goals?
$8,937.11 per month for 11 years 1 month (133 months) guaranteed certain, increasing at 4% compounded annually starting August 2, 2031 and ending August 2, 2042.
Estimated Cost: $244,559 Total Future Benefits: $1,460,166 Internal Rate of Return ("IRR") 7.25% Annuity Issuer: Has an A+ (Superior) A.M. Best rating with over $100B in assets. Comparative rates (Source: Bloomberg.com) United States Treasury 10 year 2.96% United States Treasury 30 year 4.22% AAA Municipal 20 year 3.89% AAA Municipal 30 year 4.322% Discussion: Remember that from a settlement planning standpoint we are looking at the ENTIRE time continuum, not just the beginning or the end. Prospects for this solution (using the above deal as example) Plaintiff lawyers who, like us, have seen the obnoxious and sometimes misleading ads on TV from "cash now pushers", have every right to be horrified at the thought of doing business with a cash now pusher. However, despite saturation advertising, only a small percentage of structured settlement annuitants actually sell their payments rights and that those that do must get past a judge in their jurisdiction. In New York City, there are tough judges such as Ruiz and Hunter. As the structured settlement watchdog I have worked hard to expose abuses and will continue to do so. Yet the choice is this. The cash flows from the structured settlement transfers, that ARE approved by judges, can either be acquired by and benefit hedge funds, sovereign wealth funds and the wealthiest of investors, OR they can benefit tort victims. And if it can be done right, then I ask you "why the heck not?" For some plaintiffs, a Settlement Asset Management Trust ("SAM Trust") is a way for a plaintiff to purchase structured settlement payment rights without having to become experts. Institutional expertise through a fiduciary is applied, consistent with parameters of the indidividual's trust document, to assure that benefits are maximized, spendthrift protection is maintained and that the trust maintains some liquidity. For more information contact John D. Darer, CLU ChFC CSSC RSP at 888-325-8640/ in CT 203-325-8640. ** note that the aformentioned deal was available at time of writing and may not be available by the time you read this. Like the supply of fine art at an auction house that is moving fine art, or the chances of finding the specific model, and color and accessories of your desired "wheels" at a used car lot, the quality of secondary market deals is dependent on inventory.
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Divorce cases are a prudent application for structured settlements, where an annuity or non annuity based non qualified assignment can be used to secure negotiated alimony payments, child support payments and generate income from an equity distribution. Structured settlement expert and Registered Settlement Planner John Darer, of 4structures.com, LLC, in Stamford, Connecticut discusses your options in this video segment as part of his New York-Connecticut Structured Settlement Education Series
More information Divorce Structured Settlements
Divorce Settlement Ideas and Solutions Blog
Note: Divorce structured settlements require an up front payment
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The IRS recently disallowed a doctor's deduction for "professional insurance premiums" paid to an offshore entity and then recovered by him through a home equity loan. The decision was sustained by the Tax Court which also held that he had unreported income. Fraud penalties were also imposed. So what does this have to do with structured settlements and structured attorney fees in particular?
Cite: Douglas D. Child et ux. v. Commissioner; T.C. Memo. 2010-58; Docket No. 11021-06; IRC Secs. 162 ; 163(h)(3) ; 446(b) ; 6663 .
Cite: Richard A. Childs et al. v Commissioner of Internal Revenue 103 T.C. No. 36 Docket No. 15639-92
We live in a world where even one letter in a sound byte has the potential to create confusion. Thus I've chosen to frame the difference in the form of a lyric...
One Doctor Don't Stop No Show (loosely to the Tune of "One Monkey Don't Stop No Show" By The Honey Cone)
Cash Flow Must Go On..
Oh, One Doc-tor
Don't Stop No Show
If You Rip Off The Gov.
You're a Ho, You're a Schmo, You doe-doe
See The "CHILDS Case"
Is The Ace in The Hole
To struct-ure att-or-ney fees
"CHILD", It Don't Mean a Hill of Beans.
So Struct-ure
Att-or-ney Fees
De-fer-ral my bud!
If You Please, If you Please If You Please
One Doc-tor Don't Stop No Show (to fade)
This author, John Darer is a Registered Settlement Planner and an expert in structured attorney fees. With the end of year approaching attorneys should learn more about how structuring their fees can benefit them.
More information on structured attorney fees
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If you have around $18,500 sitting in your IRA, Roth IRA or profit sharing, don't have any restrictions on where you can place your money for the next 20-30 years, you can lock in an internal rate of return of 7% and produce a laddered payment stream, starting in 20 years, with a total payout of $88,116 over that time period. Compare that to the 30 year Treasury Bond that was yielding 3.908% at the time of writing.
The structured settlement payment rights are backed by a structured settlement issued by Metropolitan Life Insurance Company ("MetLife"). MetLIfe is the USA's largest life insurance company.
If you have around $57,450 there is an opportunity to an income stream for about 19 years also emanating from a structured settlement funded by an issued by Metropolitan Life Insurance Company. The Internal Rate of Return in that case is 6.27%
In order to acquire such rights you typically have to put 10% down and then pay the balance at closing. The purchase of structured settlement payment rights differs from the purchase of a standard annuity in that the rights are acquired through a court approved transfer. A judge must determine that the transfer is in the seller's best interest.
Due to a limited supply deals there is usually a short window that these deals are available.
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Fox news reports that a new proposed "millionaire tax under consideration in New York "would jack up a current millionaires tax another 11-percent" as a means to close the 9.2 billion dollar New York state deficit This is on top of the 11% raise from last year. The current "millionaire's tax" actually starts affecting people who have incomes over $200,000. High income tax earners would pay more than 13-percent of their salary in local taxes.
Many personal injury lawyers fall into the income category exceeding $200,000. They can mitigate the tax bite through the use of structured attorney fees. Structuring attorney fees, if done properly, affords an excellent tax deferral opportunity for personal injury lawyer and other high earners in the legal profession who earn contingency fees. The value of the tax deferral opportunity increases with a higher tax rate.
Lawyers who have not previously structured their fees, should start considering their plans now rather than waiting until the end of the year panic. Being "done properly" means some advance preparation.
More on structured attorney fees, including a helpful video.
For additional details please contact John Darer at 888-325-8640
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Structured settlement expert John Darer addresses important issues for plaintiff attorneys who would like to consider structuring their legal fee in this video. The underlying message is if you want tax deferral start planning now.
Attorneys CAN structure their legal fees even if their client is not structuring their settlement.
If you are an attorney, or a tax or financial adviser for an attorney please call John Darer toll free at 888-325-8640 for more information and refer to the 4structures.com, LLC web page on structured attorney fees
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This just in from the Attorney Finance Blog* of a company that lends money to trial lawyers, that also "moonlights" in settlement planning industry for attorneys:
"No principle payment until the underlying case is resolved. The firm is not required to make any principle payments until a case is resolved. Traditional banks require periodic repayment of principle balances." November 18, 2009
"With most legal finance providers, No principle payments are required on the money until final disposition of the case, either through settlement or adjudication". October 5, 2009
Comments
"Principle" is a noun meaning rule, standard of law, guideline or doctrine. The above paragraph read literally could mean " No rules or standards until the underlying case is resolved"
"Principal" can either be noun or an adjective. In finance it means a sum of borrowed money (distinct from interest). If you make a mortgage payment on a conventional 30 year mortgage, part of your payment goes toward repayment of the amount you borrowed (i.e. principal) and part goes to interest on the amount you borrowed.
Is one's claim to be a "financial expert" valid when one does not display an understanding of the fundamentals?
FINANCIAL LITERACY-GET IT!
* current as of February 6, 2010 830am EST
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Having been contacted for a number of second opinions recently , I am increasingly troubled by the number of cases where I've observed that those who hold themselves out as competent advisers to plaintiffs are convincing (or attempting to convince) a plaintiff attorney to take an ultra short term structured legal fee over say 2-3 years, the result being that the attorney actually loses money because of the very low to non existent ultra short term rates. The only person that appears to be making money is the structured settlement broker and that's NOT right!
If the attorney wants to structure $1,000,000 the broker will make or split commissions of close to $40,000. So on a 2 year structure where the the total gross payout shows attorney comes out lower than what the attorney has allocated to the deferral is mostly a losing proposition, enriching the insurance agent at the expense of the attorney. The picture is dramatically worse after one takes into account the taxes that the attorney must pay in the tax year he/she receives the money.
In theory, structured attorney fees are advantageous because during the deferral period, there is implicit interest on that portion of the gross amount that would otherwise have gone to the IRS. While the plaintiff attorney may ultimately pay taxes on that money the net after tax amount MAY possibly be better than simply paying the taxes in year 1. It depends on the cash flow. One should not always fear paying one of life's "certainties".
One structured annuity company told this author today that it WILL NOT accept money to fund a structured attorney fee with one of its annuities in which the projected total payout is less than the premium paid to the company.
Until short term interest rates make a meaningful rise to support better pricing, an ultra short term structure would only have a modicum of benefit if the incremental amount being deferred pushes the attorney into a different tax bracket, or if a large gap in the case pipeline presents a near term projected income void that needs filling and the lawyer or firm is willing to accept losing money for the peace of mind.
For a few years a number of industry colleagues are marketing "companion" loan deals against structured attorney fees. The gist of it is (1) the attorney structured fees over a period of time; (2) shortly thereafter, in an actually separate transaction, the attorney takes a loan from a specialty finance company which is in substance "appears" to be tied in someway to the structured attorney fee. The sales pitch is that you avoid taxes recognition of income now, but "get use of a percentage of the money" via the loan. The transaction obviously depends on a healthy spread to work financially. Where are those spreads coming from today?
There are still plenty of good reasons to structure attorney fees. In addition to the reasons stated in the link to the left, my colleague Dan Finn alerted me to an article appearing in Kiplinger's Retirement Report on October 7, 2008 entitled A Ladder of Annuities Can Hedge Your Bets. The article, published during the 2008 financial meltdown, provides foundational support to systematic structuring of attorney fees by correctly suggesting that staggering purcbases or laddering annuities can smooth out highs and lows of interest rates, and payouts.
Attorneys who wish a consultation on structured attorney fees please contact this author, John Darer, at (888)325-8640, (203)325-8640 from within Connecticut.
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