What should I do with my Contingent Fee?
Assessing what to do with your next large contingent fee can seem like a monumental task. Some attorneys don’t think about their options at all. They are delighted to finally getting paid for their hard work, pay the taxes and move on. Other attorneys deliberate about whether (and how) to invest, normally on a post-tax basis, or sock it away in their rainy-day fund. No matter what, wouldn’t you rather know all of your options before deciding what to do with that next large fee?
Deferring your contingent fees may help you reach your personal and professional financial goals faster than other alternatives, and may also help grow your legal practice more rapidly than traditional marketing options. The following questions and answers may help you determine if establishing a deferral is the right option for you and your practice.
I need the cash immediately and I have to pay the taxes. Why defer?
Historically, contingent fee options tended to be an all-or-nothing proposition: you either paid your taxes and took what was left of your cash or you locked-up your fee in an annuity. Unlike these options, market-based deferrals (like the ones pioneered by Brook-Hollow) provide you the opportunity defer some of your fee (and associated taxes), and take the balance immediately, or you may defer the entire fee if you don’t need the cash today. Knowing your cash needs is an important first step in defining the proper deferral structure for you.
I rely on my fee generation to run my firm. Can a deferral help me run my business?
Cash management is especially tricky for plaintiff attorneys. Let’s consider case costs for a moment: they are a “necessary evil” for plaintiff firms – you have to invest in future case expenses in order to have future settlements and earn fees. Unfortunately, case costs are not tax deductible, nor do traditional banks usually recognize them as collateral for business loans. This means many firms have usable capital locked up in these costs.
A more capital-friendly way to fund case costs may be with a business loan. Many of our clients defer their fee and then choose to borrow up to 97% of value of the deferral from our separate loan company, Brook-Hollow Capital. The loan proceeds may be used to fund future case costs and the interest is tax deductible. This is just one tangible example where a deferral solution may help change the way your firm manages its practice and its cash flow.
I have a line of credit with a personal guarantee at my bank. Can you offer me a line of credit with better terms?
When you defer your fee with Brook-Hollow Financial, you may be eligible for a business loan offered by Brook-Hollow Capital that you can use to reinvest in your practice or in a number of other ways. If approved, you may borrow up to 97% of value of your deferral.
The other feature of a Brook-Hollow Capital loan is that every deal is customized. You control many variables, including fee deferred, cash borrowed, investment risk, interest rate, and interest payment structure. Our loans are inexpensive and hassle-free when compared to other borrowing alternatives.
The return on a fixed annuity is really poor. Can you invest my deferral in something that may generate a higher yield?
Yes. The power of deferral through Brook-Hollow Financial offers you many investment options, including traditional and alternative investments. In addition, to traditional managed portfolios, Working with you and your financial and tax advisors, we can help design an investment solution customized to your financial goals and your risk tolerance.
Can a deferral help me with my retirement planning?
Deferrals may be used to accomplish a variety of goals, including retirement planning. Unlike traditional retirement options, there are no minimum or maximum contribution limits. A deferral may also be used to supplement existing retirement plan assets. With advanced planning, deferrals can provide a way to add to a pre-existing retirement plan, or alternatively, they can fill the gaps when not enough savings has taken place.
Our goal is to make sure potential clients fully understand the functionality of our services, get the answers they need and have the tools to make an informed decision. Contact Brook-Hollow Financial today to discuss which deferral investment options are right for you.
Brook-Hollow Financial and Brook-Hollow Capital are not investment advisors and do not provide investment advice. You should seek independent investment guidance from licensed advisors.