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A look at what asset-protection trusts are and how they can help physicians.
Asset-protection strategies for physicians take many forms and range from sound policies and procedures that seek to minimize risk and liability to crisis-management plans, the right kinds insurance, and, finally, specific legal tools. All of these strategies can be valid and effective parts of a true asset protection and risk management system and the key to the success of most plans is having many effective layers instead of seeking a single solution cure.
In previous discussions we’ve addressed the use of specific tools like limited partnerships and captive insurance companies by doctors, to name just two specific examples of tools that can be effective when used and drafted the right way. This week examine the Asset Protection Trust (APT) and address some of the most basic questions and misconceptions we’ve helped thousands of physicians investigate on a consistent basis.
When can I do it?
As with any asset-protection strategy, the key element is timing. This is preventative or defensive medicine but terribly ineffective against a pending or existing exposure. Implementing this against something that has already happened is called “fraud”.
What is it?
The Asset Protection Trust or APT is typically an irrevocable trust that becomes the owner of the assets being put into it, typically referred to as “gifting” or “funding.”
Why is it irrevocable?
In order for the property to truly be outside the reach of a judgment creditor by law it must go into a vehicle that is granted permanent, irrevocable title. If you, the “grantor” can easily pull it back at will, it is generally not protected from others either. It must truly be the property of the trust.
Is it the same as my estate-planning trust?
Typically no, but some estate planning vehicles do provide asset protection. The estate planning trust most doctors have or have seen is generally referred to as a Revocable Living Trust, a.k.a. “family trust” or RLT. This structure is often correctly funded with your home, investment account, and other assets. This is so those assets follow a specific chain of custody at your death and avoid the probate process. Unfortunately because this vehicle is revocable by you at will it offers ZERO creditor protection during your lifetime. A simple way to keep this straight is this: Estate planning is death planning and concentrates of giving your property away as you desire at your death. Asset protection on the other hand is life planning and preserves the assets you have, use, and would like to pass on so that they actually get to the estate plan.
I paid a great deal for my trust, does that mean it does more?
Usually not. Fees can vary widely based on the local legal market and the skill and experience of the drafter and what their expertise demands. Unfortunately, paying more does not it automatically make it better or give it extra features.
Can any lawyer do it?
Like any area of the law asset protection is an increasingly complex and specialized practice and as such it should be ventured into with an attorney with some very specific experience, just as you’d select a divorce, tax, bankruptcy, or other focused practitioner. While it shares similarities with other areas of law including corporate law and estate planning, there are a variety of considerations that must be accounted for with every move including timing, the liquidity needs of the doctor, the most defensible choice of legal entity, the jurisdiction that controls and legitimate business purpose. As asset protection has grown increasingly popular with consumers the number of attorneys and non-attorney promoters that have entered the field has grown exponentially. Furthermore, the leading sellers of form legal documents have recently increased their marketing of documents structured for the this purpose. In some cases, those documents are adequate; in others they are hopelessly inappropriate or drafted with fatal errors. Either way, even assuming the form is perfect, the application must be learned and apply to your very specific asset structure and fact pattern. Buying the best laser in the world will not make me a surgeon.
This simple introduction just scratches the surface of the features and issues physicians should understand when considering an APT. We will continue the conversation over the next few weeks and cover issues like jurisdiction, selecting counsel and the appropriate use of the tool as part of a system. As always, this information is general in nature and never fact specific legal advice.