Non-Qualified Annuities

Settling employment and other non-physical injury claims by providing the plaintiff a stream of guaranteed periodic payments, rather than a lump sum, is truly a “win/win” for both parties. Structured Settlements benefit both the defendant/insurer and the plaintiff as a preferred vehicle when settling non-physical injury cases. Both parties may be able to resolve cases sooner and more economically, plus the plaintiff also benefits from deferring taxes and designing a payout plan to meet their specific financial needs.

If the plaintiff receives the proceeds in cash, they may have to payout more money than they actually receive from the award or settlement. Unlike proceeds from a personal physical injury case {IRC Section 104(a)(2)}, proceeds received from a non-physical injury case are taxable income to the plaintiff. In addition, the plaintiff is taxed on the entire settlement, not just their “net” proceeds. In most instances, the attorney fees and costs are not an “above the line” deduction for the plaintiff (Commissioner v. Banks, 2005). The American Jobs Creation Act of 2004 does permit the plaintiff’s deduction of attorney fees on claims of unlawful discrimination. However, this leaves the majority of non-physical injury cases excluded under the provisions of this law.

The Banks decision requires that all taxpayers must declare fees paid directly to attorneys as income. This includes contingency fees. Legal fees won in a courT award or settlement may be larger that the amount of the actual damages. Quite literally, the plaintiffs can find themselves losing…even when they’ve won!

For example, a Chicago woman won a court award of $300,000 in damages and $1 million to cover her legal fees (Spina v. Forest Preserve District of Cook County). She had to pay nearly $400,000 in taxes in addition to paying the attorney fee and costs. She lost nearly $100,000 even though she won the case.

Instead of accepting a fully taxable lump sum and losing most of it to taxes, a plaintiff can elect to collect proceeds in periodic payments, receiving the settlement over time. Although each payment is taxed, only a fraction of the total award is taxed each year as the payments are received. By spreading out the payments, the plaintiff may also reduce their tax rate to a lower bracket. In addition, an attorney can also accept their fee in the form of periodic payments and enjoy the same tax deferral benefits.

By entering into a Structured Settlement, the defendant/insurer and the plaintiff can tailor the annuity payments to meet a variety of financial needs, such as supplementing the plaintiff’s retirement planning, providing college education funds for their children, or providing a stream of lifetime income. The Structured Settlement can be designed so that the plaintiff cannot outlive their money. At the plaintiff’s death, any remaining guaranteed payments can be paid to their heirs.

Ferlisi Jolley Services

Personal Physical Injury or Wrongful Death

Determine the client’s financial needs, design the proper Structured Settlement plan to deliver those funds, and select the most competitive and secure life insurance companies entrusted to provide those funds.  

Attorney Fee Structures – Deferred Compensation

An excellent opportunity for attorneys to take advantage of deferring current year income tax liability and creating an income stream for a secure future. This option is available even if you client accepts a cash settlement.

Medicare Set-Asides (MSAs)

Protecting Medicare’s interest as secondary payer in Worker’s Compensation and/or Third-Party Liability cases.

Qualified Settlement Funds {IRC Sec. 468(B)}

Established to resolve or satisfy one or more contested or uncontested claims — a court ordered “safe harbor” advantageous to the plaintiffs and their attorneys, giving them control in the selection of various funding vehicles available to them, including structured annuities.

Non-Qualified Annuities

Settling employment or other non-physical injury claims by providing the client the benefit of a stream of guaranteed periodic payments instead of an upfront, lump sum payment which may cost them money.

If you would like more information about how Ferlisi Jolley Associates, Inc. can help you, call us at 205.803.6200.