(May 12, 2007)

There is no doubt that many people are very concerned about the so-called litigation crisis in America. No profession seems more concerned than physicians. It’s fair to say that many physicians fear lawsuits and are willing to take dramatic steps to protect their assets from future, unknown creditors.

In response, many attorneys and financial planners are now holding themselves out as "asset protection" specialists. There are many asset protection websites and even asset protection journals. Physicians are herding to such specialists. But just what do these guys do? Well, you don’t need a crystal ball to see that a lot of these guys are pandering to the fears of their clients. The real question is whether their clients are getting their money’s worth.

To begin with, it’s relatively easy to learn a few rules about creditors’ rights, primarily relating to tenancies by the entireties, exemptions and charging orders. Armed with such minimal knowledge, the "specialists" start making money, and that means they are selling products.

For example, insurance salesmen advise their clients to buy exempt assets, such as annuities or life insurance, and then reap the commissions. OK, if that’s all it is, then we’re merely talking about how the physician invests his savings. No big deal – no foul.

The problem, however, is that there is no "sizzle" in simply advising the purchase of an exempt asset. The "big time" specialist makes a lot more money by pitching complicated schemes, such as those with interest-only loans, liens on receivables, etc. To put it bluntly, physicians who buy into those schemes are suckers. The bottom line is those schemes generally make the situation worse. Just remember. No sale, no commission.

As an attorney, I hate to say this, but attorneys who hold themselves out as asset protection specialists are often essentially commission salesmen. The difference is that they sell limited partnerships, rather than insurance products.

Frankly, it is depressingly common to see attorneys nowadays set up limited partnerships for estate planning and asset protection planning purposes. While preparing the documents is often little more than changing names and addresses on a computer form they did not draft, the attorneys command large fees for creating a complicated structure via a volume of unintelligible legalese, much of which many of them don’t understand.

What such asset protection attorneys don’t tell their clients - either because they don’t know or worse - is that the same estate tax valuation discounts and asset protection benefits stemming from use of a limited partnership can not only be accomplished via a much simpler, less expensive LLC, but in the case of a creditor’s attack, the hiring of an asset protection specialist can itself be evidence of intent to hinder creditors. But then how would they get the big fees?

Is that fair comment? Have I overstepped the line? The chorus of asset protection specialists who disagree can’t all be wrong, can they?

Well, the answer is that asset protection, properly understood, is just part of a good estate plan - and the advice of a talented estate planner can be quite valuable. It’s just that it’s hard to know who the good ones are.

One clue is to realize that it is rare for a good estate planner to hold himself out as an asset protection specialist. Another clue is that the best ones rapidly adjust to changes in the law. As a prime example, consider that limited partnerships were state of the art before the Florida legislature revamped the LLC statutes in 1998. At that point it became very difficult to justify establishing limited partnerships.  If you set one up after 1998, well…

The old saw applies: "Lots of people may be doing it, but that don’t make it right."

©2010 Steven M. Chamberlain. All rights reserved. Republication with attribution is permitted.