It should come as no surprise that Florida, our home state, is a litigious place. Attorneys and other prof-essionals have developed strategies, some better than others, to protect hard-earned assets from lawsuits due to medical malpractice and other risks. In answer to clients’ questions about alternative asset protection techniques, let’s explore the advantages and disadvantages of Family Limited Partnerships (FLP) and Offshore Trusts (OT).

Protected Assets In Florida –The Low Cost Method

Based on the liberal asset protection laws of Florida, FLPs and OTs should not be the first line of defense in a well thought out financial plan for a physician. The cornerstone of any asset protection strategy should start with the homestead, retirement plans (IRA, Pension Plan, 401k) and annuities; all commonly held assets that fill the dual role of asset protection and wealth creation.

Candidates for FLPs and OTs

Some physicians have more complicated situations that may require an FLP or OT. Two-physician households are candidates. When spousal transfer is not a useful option because both spouses carry the same medical malpractice risk, an FLP might be the answer. In addition, non-married physicians are candidates for these measures since spousal transfer is not an option and there are a limited number of protected assets that doctors can own in their own name.

Costs

Due to the upfront costs of setting up an FLP or OT, and the associated ongoing administrative expenses, a minimum of $1,000,000 of assets should be held in such a plan. Otherwise, this investment route does not make much financial sense. For example, if the cost of setting up an FLP is $15,000 to protect $1,000,000 of assets, the initial cost is 1.5% of assets (reasonable). On the contrary, if the setup cost stays the same on $300,000 of assets, the initial cost is 5% of assets, not very cost efficient!

Advantages and Disadvantages

There are advantages to using an FLP or OT. They can provide protection for any type of asset (real estate included). Also, once the plan is setup, there is no limit to the amount that can be placed in these vehicles. The first dollar in has the same amount of protection as the last dollar.

The previously mentioned set-up costs of FLPs and OTs and the ongoing administrative expenses are the primary disadvantages. There are more reasonably priced alternative asset protection plans for most physicians. The complexity of some FLPs and OTs make them difficult to understand and expensive to unwind when the risk being protected against is gone. Lastly, and possibly most importantly, FLPs and OTs provide a lower level of protection (current court decisions) than homestead, retirement accounts and annuities, which are all protected by state law.

Conclusions

Physicians should look for professional advisors who will be by their side for the long-term, not aggressive brokers or attorneys looking to sell the latest financial products. With competent guidance, physicians can formulate a safe and effective asset protection plan.