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Why You Are Not Capturing Attorney Fees

Rally In The Valley Day 1 Why you're not capturing attorneys fees

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Why You Are Not Capturing Attorney Fees

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  1. Why You Are Not Capturing the Structured Attorney Fee Sale - How to Use EAFS to Overcome Objections EPS Annual Meeting June 27, 2013

  2. Attorney Fee Structures Historically • According to a Hartford Life study, about $300-400M in annual fee structures during the 90’s • As interest rates have dropped, competition increased and durations requested by attorneys shortened, fewer fee structures are being done despite few deferral tools available to attorneys

  3. Why would an Attorney Need to Defer Income? • Lose less in taxes as tax rates increase • Provides a deferred comp-like/401k plan • Source of income for future investments • Provides income for operating expenses • Maintain lifestyle despite caps on deferred comp/401k contributions • Provides income…year after year • Hedge against risk of future disability or outliving your money • Possible creditor protection

  4. Creditor Protection for Attorneys • Each state protects certain assets and a limited amount of income from the claims of creditors to enable the debtor to live and provide support for his or her dependents. In many states annuities are given protected status because of their importance in providing protection for survivors and providing for the debtor’s retirement. • Each attorney should check their local state law on the creditor protection granted to annuities. • Attorney fee structures have proven to be protected in bankruptcy; see In re Lynch, 321 B.R. 114 (Bankr. NY 2005).

  5. Unique Benefits • No maximum contributions • No waiting until age 59 ½ for distributions • No tax to firm unlike NQDC plans • No prohibition on security unlike NQDC • Payments structured to fit the attorney’s specific needs

  6. Three Options for Attorneys Depending on an attorney’s specific needs, there are really only three fundamental choices: • Deferred with fixed annuity for guaranteed time periods or lifetime income; • Deferred with mutual funds for potential growth or inflation protection; • Cash (or loan providing more cash).

  7. Benefits of Cash to Attorney • Subject to current taxes, not impacted by tax increases in the future • Complete liquidity/easier to spend • Repay loans/debts incurred in litigation • Flexibility in investments • Funds can be managed by their chosen financial planner

  8. Objections to a Fee Structure • Historically low interest rates make fixed annuity returns somewhat less attractive…don’t want to tie money up at the those rates • Attorney wishes to participate in market appreciation • Their financial planner advises against it

  9. You Advise the Attorney the Structured Settlement is a Better Option Than Cash… • Attorney fee of $1 million in cash • Taxes deferred until payout • Deferred for five years with 20 year payout of $76,500 per year, paying $27,800 in taxes on each distribution • Gross payout of $1,500,000 less taxes on investments nets $943,840

  10. Investment Impact: Cash vs. Deferral Lump Sum Deferral $1,000,000 $ 350,000 $ 80,000 $ 570,000 $1,000,000 $ 0 $ 0 $1,000,000 Contingency Fee Fed Income Tax (35%) State Income Tax (8%) Current Year Total After Tax Taxes Deferred Net to invest

  11. But His Advisor Says Cash is Better… • Attorney fee of $1 million in cash • Less taxes of $430,000 • Net of $570,000 to invest • Assume 6% annual rate of return for 25 years • Gross payout of $2,448,000, less taxes on investments nets him $2,142,000 at the end of 25 years

  12. Counter – EAFS for Structured Attorney Fee Using Vanguard • Attorney fee of $1 million in cash • Taxes deferred until payout • Deferred for five years with 20 year payout of $71,000 per year with an assumed growth rate of 6% • Gross payout of $5,851,966 less taxes of $731,496 equals $5,120,470

  13. Overcoming Objections • EAFS can be used for short-term, medium and long-term payments; • MWT uses seven different Vanguard Funds which are well knownand have an excellent reputation/track record; • Attorney may request MWT to change the allocation within the fund options once a quarter, giving them flexibility. • Vanguard Funds are high quality and beyond reproach

  14. Q& A Next Steps For questions and sales support contact: Doug Brand Phone: 800.708.7000, Ext. 225 Cell: 805.402.7394 Email: brand@platinumIM.com

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