Attorney Fee Deferrals: Annuities versus Deferred Compensation Plans

HomeAttorney Fee DeferralsAttorney Fee Deferrals: Annuities versus Deferred Compensation Plans

Deferring contingent legal fees using a structured settlement annuity versus using a deferred compensation plan has advantages and disadvantages. One isn’t necessarily better than the other. It depends on what the attorney’s goals are and what he or she is looking to accomplish.

When Structured Settlement Annuity Wins

If you know exactly when you want the funds paid to you in the future and you want a guaranteed rate of return, then a structured settlement annuity is a great solution. At the time of settlement, you’re able to decide when and in what amount you’re going to receive those future payments.

For example, if you’re looking to set up a guaranteed retirement plan for the rest of your life, you can have those payments start whenever you plan to retire, and have the annuity pay you for the rest of your life. You can also do a joint-life annuity with your spouse to make sure that you and your spouse have guaranteed income for the rest of your lives.

Annuities are the best option if you’re looking for guarantees for a lifetime income stream that you can’t outlive, or if you don’t want to take any risks in terms of market fluctuations in your account since annuities are guaranteed. While those interest rates currently are historically low, they are guaranteed. In this situation, a structured annuity makes a lot of sense.

When a Deferred Compensation Plan Is Better

Market Rates of Return. A major difference between a deferred compensation approach from an annuity is that you can earn market rates of return when using a deferred compensation plan. You are not limited to the currently low rates of return that structured settlement annuities offer. But the returns in a deferred compensation plan aren’t guaranteed. The value of your plan is going to fluctuate with the market. If you can manage risks, and if you have confidence in the long-term growth of the market, then a deferred compensation plan is a good fit.

Flexible Timing. Another attractive feature of deferred compensation plans is that you don’t have to decide at the time of settlement when you’re going to receive distributions in the future. A deferred compensation plan provides much more flexibility in terms of the timing of distribution amounts and payout dates.

No Defense Counsel Involvement. If you prefer the defense not to have any knowledge about you deferring your legal fees, then deferred compensation plans can do the trick. Many attorneys don’t like the fact that in order to use a structured settlement annuity, the defendant has to be involved. There’s language that needs to be included in the release agreement, and there’s a qualified assignment document that needs to be signed by the defense. In short, in an annuity, the defendant and the adjusters will know more information about your business than you’d probably prefer. In a deferred compensation plan, they don’t have to sign any documents or even know that you’re deferring your legal fee. 

No Offshore Assignment. One more benefit of deferred compensation plans is that the money never goes offshore. Sometimes in a structured settlement annuity for attorney fee deferrals, the funds will have to travel offshore. Some might go through Barbados-based assignment companies or Ireland-based companies before coming back onshore. You don’t have to worry about the funds going abroad in a deferred plan approach.

Conclusion: Annuities versus Deferred Compensation Plans

The choice between using a structured settlement annuity or a deferred compensation plan depends on what your goals are and what you’re looking to accomplish.

Give us a call if you’re considering deferring some of your fees. We’d be happy to walk you through the pros and cons of each option, and we’ll make sure you find the right solution that best fits your needs.

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