As compared to other types of businesses, law firms are at relatively high risk to key employee defections. In most states, law firms cannot use noncompete agreements, and providing equity ownership is not feasible in many cases. Deferred compensation is a proven way to retain talent, but unless the law firm can defer its fees, the partners will incur a tax cost if the firm provides deferred compensation.

Law firms can use CaR®s to provide, at no tax cost to the partners or shareholders, tax-deferred retention bonuses to help retain their key employees. Under a CaR® retention bonus plan, the law firm makes awards, in its discretion, of specified percentages of the CaR®s the law firm owns and stipulates the future service required to vest in the bonus.

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