The Trust Lawyers Blog

Protecting Assets from Malpractice With An Asset Protection Trust

Posted by Dave DePinto on Thu, Jan 26, 2012

asset protecting trusts malpracticeMany medical professionals fear losing their personal assets to a malpractice claim. There's good reason for this, too. An estimated 25% of practicing physicians are sued annually, and over half of all physicians will likely face a malpractice suit sometime during their careers. While only around a quarter of these are won by the plaintiff, payouts are often high enough to be ruinous to the doctor, especially as malpractice insurance coverage continues to shrink. With odds like that, it would be very unwise not to investigate an asset protection trust to shield your wealth in case of disaster.

There are a number of different asset protection structures available to you for protecting your wealth against court claims. Among the most popular of these is the Family Limited Partnership (FLP). An FLP is a form of business structure where there are general partners with managerial rights, and limited partners with less governorship but also less personal liability. As this FLP would become the owner of your assets, it becomes much more difficult for claimants to get a hold of them. One typical scenario involves the FLP being set up with you as a limited partner, and your spouse the general partner, since he or she would not be involved in a malpractice suit.

FLPs can also pull a double shift by acting as estate planning as well. It can be used to gradually distribute your wealth to your heirs, generally as limited partners, helping to ensure as much of your wealth as possible goes to them before your death. Upon your death, remaining assets are taxed at a lower rate than the estate tax takes.

Irrevocable trusts or offshore trusts are another option, although these are somewhat more drastic and may not be needed unless you are in a high-risk area of practice. In the case of these, you would be permanently transferring your wealth into the hands of a trust, which then governs their usage and investment.

Much of the value of asset protection structures lies in their deterrent effect. Many malpractice suits are launched in hopes of a large payout. If you convince the plaintiff's lawyers that your assets are shielded, they may just take the insurance settlement, rather than risk a lengthy and expensive court battle with questionable chances of success.

However, with any of these asset protection trusts, the key is planning ahead. Once a lawsuit has been initiated against you, attempts to protect your assets will be fruitless. Just as you have malpractice insurance to protect you professionally, asset protection is insurance for your money itself. An ounce of prevention, as they say, is worth a pound of cure – especially when that “cure” is your own wealth.

Tags: Asset Protection Trust, Fiduciary Services, Asset Protection