Introduction

In the United States, there has been a malpractice crisis for the medical profession for a number of years. It has at its roots the American Trial Lawyers who advocate a position that the medical profession is not adequately regulated for physicians whose practice causes harm to their clients. Its associations vigorously contend that victims of malpractice by physicians are inadequately compensated from injury and demand that no limits can be imposed as to the amounts mandated by the jury. The insurance underwriters of medical professionals assert that large verdicts have caused them to raise premiums where they depart from economic reality. When a physician factors in the cost of insurance in terms of doing business, the risk-reward analysis in specific instances does not always result in a rational result.

In many instances, some physicians find that they are no longer able to carry sufficient coverage. The coverage they do carry many times is inadequate to protect their personal assets. A physician could be carrying coverage for a $10 million dollar limit of liability, only to have a verdict rendered which greatly exceeds that coverage. Their personal assets then become the target of enforcing the balance of an unpaid judgment. The same can be said for every individual who owns an automobile, and most individuals with substantial insurance coverage still remain open to this exposure. The negligence awards returned often greatly exceed an individual’s coverage. These examples illustrate but a few instances where Asset Protection Trusts make a lot of sense.

United States Case Law – Asset Protection Trusts

In the United States, legal professionals have sought for years to draft the requisite Asset Protection Trust for their clients utilizing the case law precedents established in their particular jurisdiction. Case law precedents vary from state to state, and it is common to draw upon select and important case concepts to formulate such an instrument. They offer no certainty in the United States because, though a case may be precedent, it can technically be viewed as only applicable to the precise factual setting that it was decided upon. A judge that does not desire to follow the precedent can find a factual distinction and thereby avoid applying the relied upon case. Where there is a statute, there is certainty that is subject to a court’s interpretation. Where there is case law, it defines a general path but with no certainty.

The typical individual does not want to relinquish control over their assets. Yet not even irrevocable transfers to a domestic trust and to independent parties as trustees provide any absolute predictability. On the one hand, the individual desires to retain a right to discretionary distributions of income and/or trust corpus. On the other hand, the predictability is predicated upon a relinquishment of those rights in a hedged fashion. Because of the complexity of these issues pertaining to non-statutory Asset Protection Trusts based upon case law precedent of United States state case law, this writing adheres to a few basic observations to enable the reader to grasp the dilemma.

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