How to structure a fee.
In the right order.

The structure must exist before the settlement is signed.

Every working fee deferral hinges on one timing rule. The lawyer's right to a structured-fee payment stream must be established before the lawyer has an unconditional right to a lump-sum fee. In practical terms, that means the structure paperwork (the fee assignment, the carrier placement, the payment schedule) is in place by the time the underlying settlement agreement is signed.

This is the lesson of Childs read literally. The Tax Court's no-constructive-receipt holding rested on the fact that, at the moment the structure was put in place, the attorneys did not yet have a present right to a lump sum. Once a settlement is signed with a "pay attorney $X at closing" line, that right exists, and a subsequent attempt to structure is a different (and much worse) legal posture.

Decide the schedule before anyone signs anything.

The first conversation is about what the cash flow should look like. We pull a quote with the carriers using the expected fee, the lawyer's age and state of residence, and a target schedule. Common shapes:

• Period-certain: equal monthly or annual payments over a fixed term (often 5-20 years). Simplest reporting; predictable income smoothing.
• Lump-sum deferrals: a single large payment 5-10 years out (sometimes paired with a smaller current carve-out for living expenses).
• Layered deferrals: a mix of some current cash, a 7-year stream for cash flow, and a tail lump sum at age 65 for retirement.
• Life-contingent or joint-life: payments tied to the lawyer's life expectancy (or spouse's), with a guaranteed minimum payout period written into the annuity.

Once a target schedule is locked in, the carrier provides a binding quote that includes the assignment-company fee and the annuity premium. That quote becomes the basis for the assignment language drafted into the settlement papers.

The defendant has to be willing to assign. Almost always they are.

The defense side has to agree to the assignment language in the settlement agreement. From their perspective the cost is small (a few extra paragraphs and a wire to the assignment company instead of to plaintiff's counsel) and the benefit is real (clean closure of liability: once the assignment is complete, the defendant has no ongoing obligation).

What we draft into the settlement papers:

• A clause specifying that the attorney's fee portion is satisfied by a non-qualified assignment to [Assignment Company Name] (fees are not §104-excludable to the lawyer, so IRC §130 does not apply).
• The payment schedule, with carrier name and policy number once placement is final.
• Beneficiary designation language (default: revocable, payable to the lawyer's estate or designated beneficiary; can be adjusted).
• A release of the defendant from any further attorney-fee obligation upon completion of the assignment.

Defense brokers and insurance defense counsel see this all the time. Pushback is rare; if it comes, it usually means the defense isn't familiar with structured fees specifically and just needs a short explanation. We handle that call.

Which carrier writes the annuity matters.

Only some life insurance companies write non-qualified structured-fee business, and appetite, minimums and pricing differ. What we compare for every placement:

Larger placements ($1M+) are commonly split across two carriers, for the same reason a high-net-worth investor doesn't put it all in one bank. The fee is owed to you by the assignment company, and your payments depend on it and on the insurer behind its annuity. You are an unsecured creditor of the assignment company; the payments are not FDIC insured, and you should not count on state guaranty association coverage, which may not apply to this arrangement at all.

Closing day looks the same as any settlement closing.

On the day of settlement closing the defense wires the full settlement amount to the agreed accounts: the client's portion to plaintiff's counsel trust account (or the client directly), and the attorney-fee portion to the assignment company per the rider. The assignment company funds the annuity contract with the carrier the same day. The lawyer receives:

• A countersigned non-qualified assignment and release.
• The annuity policy or a memorandum of insurance from the carrier.
• A payment schedule with the first scheduled payment date.

From the lawyer's perspective, closing day is the same as any other settlement, except no fee hits the firm's operating account that year. The first annuity payment arrives on the scheduled date (often 30-90 days out, but variable based on the design).

What lands on your CPA's desk.

Each year the carrier issues a 1099-MISC (or 1099-NEC depending on the structure) for the year's payment. Your CPA reports that amount as ordinary income on Schedule C (if you're a sole proprietor), the firm's K-1 (if a partnership or PLLC), or as compensation if your structure flows through an entity. The carrier maintains the underlying records.

What we'll send your CPA, unprompted, in November of year 1:

• Copy of the non-qualified assignment and release.
• The carrier's payment schedule showing all future payment dates and amounts.
• The 1099 issued for the current tax year.
• A short cover memo with the case citations and IRS authorities (Childs, §451 and Reg. §1.451-2, §83 and Reg. §1.83-3(e)) so they can verify the position in 30 minutes if they're new to this.