Fee deferrals are one of the most valuable financial planning tools available to plaintiff attorneys, but they only work if they're built correctly. The tax benefit that makes them worth doing is also what makes them vulnerable: the same rules that allow income to be deferred are exacting about how that deferral must be structured. When the arrangement fails, it typically fails in one of three specific ways, and all three are avoidable with the right guidance.

The legal foundation for fee deferrals is Childs v. Commissioner, the 1994 U.S. Tax Court decision affirmed by the Eleventh Circuit, which established that properly structured deferrals don't trigger constructive receipt at settlement. But Childs also defined what "properly structured" means, and deviating from that framework is what causes deferrals to collapse.

Three Fee Deferral Risks

The constructive receipt problem is the most common failure point. If an attorney has already earned a fee outright at settlement, meaning the fee agreement was never amended to defer the attorney's right to payment, then deferring it after the fact doesn't work. The IRS treats the fee as received at the moment the attorney had unrestricted access to it, regardless of whether they actually took it. The amendment has to happen before settlement is finalized, not after.

The economic benefit doctrine creates a separate trap. If deferred assets are set aside in a fund or account specifically for the attorney's benefit, they may be taxable immediately even though they haven't been paid out. The assets need to remain subject to the general creditors of the deferral provider, not held in trust exclusively for the attorney. The moment the money is functionally the attorney's, the IRS has a basis to argue it's taxable.

A third failure mode involves how the defendant's payment obligation is structured. If the attorney simply directs the defendant to pay a deferral provider rather than having the defendant assume an independent obligation to make future payments within the settlement agreement, the IRS may treat the arrangement as an anticipatory assignment of income: the attorney earned it, then redirected it. That doesn't accomplish a deferral. The defendant's future payment obligation has to be built into the settlement documentation from the start, not tacked on afterward.

Each of these failure modes points to the same underlying principle: the deferral only works if the attorney’s right to the money is genuinely and irrevocably relinquished before settlement is finalized. This is the foundation the entire agreement rests on.

It’s also worth noting that the IRS has increased its scrutiny of fee deferral arrangements in recent years. The underlying legal framework established in Childs remains intact but heightened enforcement attention makes proper structuring more important than ever. This is precisely why the choice of adviser is not a secondary consideration.

The Investment Side Is Part of the Structure

Most conversations about fee deferrals focus on these tax and legal mechanics. But there's a dimension that receives less attention: how the deferred assets are invested affects the overall integrity of the arrangement, not just the financial return.

A deferral provider that invests deferred assets recklessly, becomes insolvent, or operates outside regulatory norms creates risks that extend beyond investment performance. The assets need to remain subject to the provider's general creditors. The provider's financial stability, custody arrangements, and investment practices are therefore part of the compliance picture, not separate from it.

"Attorneys spend a lot of energy getting the deferral structure right at settlement, which is appropriate," said Bryan Courchesne, CEO of DAiM, which manages Bitcoin allocations within deferral plans through a partnership with Structures Inc. "What gets less attention is what happens to those assets over the next twenty years. The investment management of deferred fees is connected to the same fiduciary standards that govern how the deferral was structured in the first place."

Bitcoin as an Investment Option

The recent availability of Bitcoin within fee deferral plans adds a new dimension to the investment conversation. Unlike annuities, which are stable and predictable, or mutual funds, Bitcoin is a volatile, high-return-potential asset with a fundamentally different risk profile. Attorneys considering it within a deferral need to think through several questions that don't arise with conventional options.

●     How much of the deferred assets should be in Bitcoin? An allocation sized appropriately for a long-horizon deferral looks very different from one sized for a five-year payout.

●     What does the rest of the attorney's portfolio look like? An attorney who already holds concentrated equity exposure in other accounts is in a different position than one who is broadly diversified.

●     What is the payout schedule, and does it give the Bitcoin allocation enough time to absorb volatility and recover from drawdowns before distributions begin?

These aren't arguments against including Bitcoin in a deferral. They're arguments for thinking about it carefully, with advisers who understand both the tax mechanics of the fee deferral and the investment characteristics of the asset. The two conversations can't be fully separated. The structure of the deferral shapes the investment decision, and the investment decision reflects back on the structure.

What Good Looks Like

Settlement planners who advise attorneys on both sides of this picture are increasingly part of how these decisions get made well. Amicus Settlement Planners, whose team includes attorneys, CFPs, and an in-house CPA, advises on fee deferrals alongside structured settlements, lien resolution, government benefits planning, and trust work.

"The attorneys who get the most out of a fee deferral are the ones who treat it as a serious financial planning tool, not just a tax move," said Greg Maxwell of Amicus Settlement Planners. "That means thinking about what the deferred assets are doing, who's managing them, and how the investment strategy connects to when and how they're going to be paid out. Bitcoin makes that conversation more interesting and more important to get right."

The attorneys who use fee deferrals most effectively are those who approach them the way they'd approach any significant long-term financial commitment: with attention to the legal requirements, clarity about the investment objectives, and advisers who understand the intersection of the two. The addition of Bitcoin to the available options raises the stakes of that conversation and the rewards for having it well.

Disclaimer: This article is provided for informational and educational purposes only and reflects industry perspectives on contingent fee deferral structures and digital asset investment considerations. It should not be interpreted as financial, investment, legal, or tax advice. Readers should consult qualified financial, legal, or tax professionals before making any decisions regarding fee deferral arrangements or investments. Investments in digital assets, including Bitcoin, involve significant risk and volatility and may not be suitable for all investors. References to companies, advisers, or service providers are included for informational context and should not be considered endorsements.