Recently, more plaintiff
attorneys have structured a portion of fees earned in
personal injury case settlements. The attorney benefits
from the income tax savings achieved by spreading income
over several years, competitive interest rates of return,
and the ability to receive lifetime income payments
calculated with the same favorable mortality assumptions
used for personal injury claimants.
marginal federal income tax rates jump from 25% on taxable
income over $75,300 in 4 steps to 39.6% on income over
$466,950. Plus there is a 3.8% tax surcharge on investment income over $250,000. By spreading income over multiple years, attorneys can possibly reduce their tax rates by 7 -
10%. This could be especially true if the income is
deferred to retirement years. The effect of state income
taxes enhances the savings from this strategy.
addition, by receiving and investing a substantial fee
over several years, an attorney reduces the risk of
investing all of the fee proceeds at a high point in
the stock market.
The benefit to attorneys from
life annuities occurs because many life companies will
group plaintiff attorneys with the pool of injured structured
settlement annuitants when pricing their life annuities.
Attorneys with less than perfect health can be medically
underwritten to receive a "rated age". In contrast,
purchasers of non-structured settlement life annuities
are assumed to be making the decision to buy a life
annuity because they are extra healthy and come from
long-lived families and, therefore, the pricing for
the annuities is affected by "adverse selection". In
spite of the impact of "adverse selection" most financial
planners recommend that some portion of a person's retirement
assets be invested in an asset paying life time benefits.
Plaintiff attorneys generally fund their own retirement
plans and have little opportunity for life-time income.
By structuring their fees, plaintiff attorneys can enjoy
life-time retirement income at favorable rates.