When an emotional distress or psychological lawsuit is settled, the claimant does not get a deduction for the attorney’s fees. That means that the claimant must pay taxes on the entire cash settlement before the pay the attorney fees. On a $1,000,000 settlement the claimants share could be as little as $230,000.
The Challenge: How to provide the claimant the greatest recovery after paying their taxes.
The Solution: The Pass Tax Deferral Solution lets the claimant spread their recovery over a number of years, thereby reducing the claimant’s tax bracket. If the claimant’s attorney agrees to defer his fees as well the net payout to the claimant can be significantly larger than an all-cash settlement.