What is it? The Pass Structured Attorney Fee Plan defers to future years all or a portion of your current fees.
Why defer your fees? The tax savings and investment return from deferring your fees can be substantial. That is because the tax you don’t pay currently and the associated fees are invested. The earnings on the invested tax and fees are returned to you in later years in the amounts and at the times you decide.
For example, if you structure your $3,000,000 fee to pay $300,000 per year for ten years using the Pass Structured Attorney Fee Plan, then the annual federal tax will be a total of $213,820 through 2025 and $403,074 for the final 6 years. The tax savings in year one are $1,000,511 ($1,034,966 minus $34,455) all of which is available to invest at a market rate of return.
For firms operating on continent fees, the deferred fees may be useful to fund future case costs as a substitute for borrowing to fund those cases. Alternatively, the Pass Plan permits a portion of the deferred fees to be borrowed back by the attorney at very favorable interest rates
Why the Pass Plan? The Pass Structured Attorney Fee Plan is different. The difference is in the rate of return on the deferred tax and fees. Other plans provide a rate of return under 2% using annuities. The Pass Plan provides a market rate of return using your own investment advisor.
In Childs v. Commissioner, The Tax Court and the United States Court of Appeals for the 11th Circuit have confirmed that annuities owned by the assignees, such as Pass Advisors, Ltd., “will not trigger the economic-benefit doctrine, even when the future compensation is accompanied by guarantees, as confirmed by Priv. Let. Rul. 2008-36-019”. If the Payee’s rights in the Pass Attorney Deferred Fee Plan are non-assignable and therefore not capable of being transferred to lenders or investors at a discount, then the cash-equivalency doctrine is inapplicable.
How it works. The deferred fees can be described in the settlement agreement with the defendant. If that is not desirable for confidentiality reasons of for a lack of defendant cooperation, then the process is as simple as setting up a qualified settlement fund (QSF), paying the fees to the fund and taking your time to decide when and in what amounts you wish to receive the fees. Pass Advisors, Ltd. will supply all of the documents needed to establish the QSF. The schedule of deferred fees has been established, the defendant or the QSF will assign to Pass Advisors, Ltd. the obligation to pay those fees. Pass Advisors, Ltd. will then purchase a private placement variable annuity from Lombard Life Assurance Company. The attorney will provide to Pass Advisors, Ltd. general guidance with respect to his or her risk tolerance for annuity investments. The attorney will also suggest the investment advisor for annuity investment advice.
The attorney may periodically request a change to the investment policy (“Investment Request”) directed to Pass Advisors, Ltd. The attorney may not make an ‘Investment Request” during the first year of the contract and is limited to making two Investment Requests per year and no more than one Investment Request in any given quarter. Pass Advisors, Ltd. will have full discretion and control over the decisions to acquire, sell or hold any investments as well as over any changes to the investment policy.
