Asset Protection Trusts and Medical Professionals

By Christopher A. Voukides

Medical professionals often question the extent to which their personal assets may be subjected to a malpractice claim. While the answer to this question varies significantly upon case specific circumstances, New Hampshire is one of several states that affords medical professionals (both New Hampshire residents and non-New Hampshire residents) methods for protecting assets from future creditors, including future malpractice claims.

In 2008, the New Hampshire legislature enacted the Qualified Dispositions in Trust Act, R.S.A. 564-D, which allows an individual to establish a self-settled asset protection trust. Quite simply, this means that you may establish a trust, of which you are a beneficiary, that will protect your assets from future creditors.

While the creator (grantor) of the Trust is prohibited from serving as trustee, the grantor can  retain significant control over the assets transferred therein.  In addition, the grantor can be afforded the ability to veto proposed distributions to other trust beneficiaries.  The grantor can also reserve the right to remove and replace trustees and can serve as the “investment adviser.” Generally, the investment adviser controls the investments of the trust estate without the need of approval or consultation of the Trustee.  First, the grantor can have a testamentary limited power of appointment over the assets in the trust.  This means that the grantor, in a written instrument by his last will, may direct the distribution of the trust assets to family members, but is limited not to direct the assets back to the grantor or the grantor’s creditors.  This power may be exercised in favor of any person, to be distributed in any manner the grantor desires.

Although the statute imposes several technical requirements, they are generally easily met. Specifically, a New Hampshire asset protection trust must; (1) be irrevocable; (2) provide that the laws of the state of New Hampshire govern the trust; (3) contain a valid “spendthrift clause”; and (4) consist of at least one “qualified” New Hampshire trustee (although we recommend all trustees reside in New Hampshire). A “qualified” New Hampshire trustee must be (a) a resident of New Hampshire or (b) a state or federally chartered bank or trust company having a place of business in the state, authorized to engage in trust business in New Hampshire.  The trustees must also either:

  1. Maintain or arrange for custody of some or all of the trust property in New Hampshire.
  2. Maintain records in New Hampshire for the trust;
  3. Prepare (or arrange for the preparation of) fiduciary tax returns for the trust in New Hampshire; or
  4. Otherwise materially participate in the administration of the trust in New Hampshire.

As noted above, a New Hampshire asset protection trust will shelter assets from future creditors. Specifically, New Hampshire law bars creditor claims against trust assets if the claim arises after the date property is transferred into the trust and the claim is brought after the fourth anniversary of such transfer.

To shield assets from existing creditors, notice of the transfer must be provided to the relevant creditor. Four years after such notice, those trust assets will be excluded from the creditor’s claims.

To summarize, New Hampshire asset protection trusts can serve as valuable tools for medical professionals (residing in New Hampshire or elsewhere) engaged in high risk practices. These trusts offer the ability to protect assets from future creditors, while still affording the grantor significant control over and indirect access to the protected assets.

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