Questions every plaintiff lawyer asks
before signing a deferral.

Then the payments would depend on how that insurer's troubles are resolved. The fee is owed to you by the assignment company, which funds it with an annuity from the insurer, so your payments depend on the assignment company and the insurer behind its annuity. You are an unsecured creditor of the assignment company, and the payments are not FDIC insured. Do not count on state guaranty association coverage; it may not apply to this arrangement at all.

What reduces the risk: the insurer's general account is regulated reserves under state insurance law, with required risk-based-capital ratios and NAIC oversight; the insurer's financial-strength rating is checked at quote time; and large structures ($1M+ of premium) are often split across two insurers to spread the credit risk. For very large placements, three-insurer splits are reasonable.

The federal tax treatment doesn't change. Each year's payment is reported on the year's return regardless of where you live. The state-source question depends on the type of recovery and your residency at the time each payment is received:

• Don't assume a move takes the fee out of California tax. California generally treats pay for services performed in California as California-source income, even when it is received after you become a nonresident.
• The main exception is federal: 4 U.S.C. §114 bars states from taxing a nonresident's retirement income, which includes certain nonqualified deferred compensation paid in substantially equal periodic payments over at least 10 years or life. Whether a particular structured fee fits that definition is a design question for state-tax counsel before placement.
• Retirement doesn't change anything. Payments continue on the schedule until the term ends or the life-contingent design pays out.

If a state-residency change is part of your plan, build it into the design conversation up front. A short consultation with state-tax counsel before placement is usually money well spent.

Both are possible; entity structures are more complex but increasingly common. Considerations:

• Personal structure: The lawyer individually is the named payee under the annuity. Cleanest Childs posture. Reported on Schedule C or as personal income depending on firm structure.
• Single-member PLLC: The PLLC can be the payee. Pass-through tax treatment; same federal income picture. Often used when the law practice is run through a PLLC for liability and state-law reasons.
• Partnership / multi-member firm: Possible but requires careful coordination of the firm's K-1 reporting with the structure. Some firms structure at the firm level and allocate the income via partnership distributions; others structure individually and treat the receipt as personal income to the named partner. §409A overlay needs careful analysis.

Your firm's tax counsel is the right person to make the entity-structuring call once the broad design is in place.

The dominant practitioner view is that properly designed contingency-fee structures fall outside §409A. The reasoning: the "service recipient" for §409A purposes is the defendant or defense carrier, not the law firm; the lawyer is not a "service provider" to the firm for purposes of the contingency fee in the §409A sense; the schedule is fixed before the fee is earned (no "deferral" in the §409A sense).

That said, §409A is the modern overlay where most live design questions sit. Where structures get more complex (multi-firm fee allocations, common-benefit fund participations, fee allocations between principals and associates), the §409A analysis gets harder. Tax counsel at design time is essential. We can recommend specialists if your firm doesn't have one in-house.

See the IRS-position page for a longer treatment of the §409A picture.

Generally no. Structured attorney fees are a routine planning tool and don't change the lawyer's duties to the client or the firm's malpractice posture. Some carriers ask about them in renewal questionnaires; routine disclosure satisfies the question. If your carrier flags structured fees specifically, that's unusual and we can provide carrier-level documentation and citations on request.

Generally no. The structure is the lawyer's own tax planning regarding the fee the lawyer is already entitled to receive. The client is not affected by how the lawyer chooses to take payment. ABA Model Rule 1.5 covers fee reasonableness, written disclosure, and contingency-fee rules; none of those rules are implicated by the lawyer's choice to receive the fee through a structured annuity rather than a single check. Individual state bar rules vary; check yours if uncertain.

It depends on how the settlement is documented. If the settlement agreement specifies "attorney fee $X, paid in lump sum at closing," and that document is signed, the lawyer has a vested right to the lump sum, so constructive receipt risk is high if you try to structure after that.

If the settlement is documented with a placeholder ("attorney fees per separate fee arrangement") and the structure is finalized before the wire moves, that's a much better posture, but tighter than Childs's clean fact pattern.

The cleanest practice is to begin the structure design as soon as a settlement looks likely, often during late-stage mediation or court-ordered settlement conferences. Carriers can quote in 24-48 hours; final placement usually takes 7-14 days. So a 30-60 day runway pre-closing is comfortable.

Yes. Beneficiary designations are revocable during your lifetime. On death, remaining scheduled payments pass to your designated beneficiary (spouse, children, trust, charity) at the same dollar amount on the same dates until the term ends. The beneficiary inherits as Income in Respect of a Decedent (IRD) under §691, with the §691(c) deduction available for any estate tax paid on the remaining payments' present value. Life-contingent designs terminate at the lawyer's death (or the named life's death); period-certain and joint-life designs continue.

Direct structuring of contingency fees into a SLAT or dynasty trust is fact-specific and depends on whether the trust qualifies as the payee under the carrier's assignment terms and the §409A overlay. Many lawyers instead structure to themselves personally and use a portion of each annual payment to fund existing estate-planning vehicles via gifts or trust contributions. Coordination with your estate planning attorney up front is essential. We can structure most designs to be flexible on this point.

The carrier issues a 1099-MISC (or 1099-NEC, depending on the carrier's reporting practice and the entity structure) for the dollar amount of the year's payments. Box 3 (other income) or Box 1 (nonemployee compensation) depending on the arrangement. Your CPA reports the income on the appropriate schedule (typically Schedule C for sole proprietors). No 1099-R, no installment-method reporting (Form 6252). This isn't a §453 installment sale; it's a deferred services payment. The reporting is straightforward once you've done one.

The insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places the structure; Hans's share is about 2.4%, with no trail. It is built into the annuity pricing, not a separate fee. You pay nothing out of pocket. The rate you receive on the structure is the same regardless of which licensed broker places it; carriers publish one set of rates. Same compensation model the structured-settlement industry has used since 1982. Disclosure of the broker's compensation is part of the placement documents.