Tax Reduction and Deferral Strategies for Trial Attorneys – Part 5

This entry is part 5 of 5 in the series Tax Reduction and Deferral Strategies for Trial Attorneys


This installment is Part 5 of my series on a tax reduction and tax planning strategies for trial attorneys. This installment introduces a completely new concept in the structured settlement industry- structured settlement life insurance. This strategy is designed for high income trial attorneys who represent plaintiffs that earn a contingency fee based on the damages awarded by a jury or settlement.

Part 1 of this series focused on tax reduction and deferral strategies for trial attorneys with contingent fee income using private placement variable deferred annuities in lieu of fixed annuities for structured settlement payments.

Part 2 of this series focused on the use of closely held insurance companies (aka captive insurance arrangements) to provide tax reduction and deferral of contingency fee income. In Part 2, the captive insurer functions as a multi-line insurer (property and casualty as well as life insurer) that issues the structured settlement annuities for the contingency fee deferrals referenced in Part I of this series.

In Part 3, the trial attorney was able to gain a charitable tax deduction equal to the amount of the contingency fee and invest that money on a tax-deferred basis using PPLI contracts. Part 3 combined several sophisticated planning techniques – a Charitable Lead Annuity Trust with back loaded payments to a charity; a preferred partnership in order to transfer growth in excess of a preferred partnership return to a family trust, and tax-free treatment on investments within the CLAT using private placement life insurance to create the tax benefits..

In Part 4, I focused on the use of Qualified Settlement Funds under IRC Sec 468B as an unlimited pension plan for trial attorneys. QSFs provide for unlimited contributions from a pension plan perspective, and unlimited tax deferral without a need for required minimum distributions and participation as required in pension law.

In Part 5, I focus on the utility of the QSF from an investment funding perspective to illustrate how private placement life insurance can be used in a split dollar life insurance funding format in order to to create a scenario where the trial attorney is able to create a retirement fund that exploits the tax advantages of life insurance – (1) Tax-free inside build up (2) Tax-free lifetime distributions through policy loans and withdrawals. (3) Income and Estate-tax free death benefit.

Generally, most trial attorneys have not utilized structured settlement annuities which are conservative fixed deferred annuity products issued by large life insurers. Apparently, trial attorneys have been content paying taxes at ordinary rates. Why?

JD Supra (press release)
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