Subscribe via RSS Feed Connect on LinkedIn View videos on YouTube

Attorneys should practice what they preach: asset protection planning for lawyers and other professionals

November 23, 2015

Having set up asset protection structures for almost twenty-five years, we have seen clients from all walks of life and professions. Certainly, current economic trends and fluctuations result in changes in clients sourced from specific industries. For example, starting at the end of 2007, with the severe economic downturn in the U.S. economy, many real estate developers and investors flocked to asset protection attorneys in a scramble to “protect what they had left.” The 90’s dot-com boom saw overnight millionaires seeking ways to protect new fortunes. We recently wrote bulletins about the new class of millionaires finding fortunes in natural gas fracking. We have also seen a recent uptick in retired small business owners seeking to avoid what we have dubbed as “post-sale price reductions” of their recently sold businesses.

attorney malpractice insuranceBut one industry that should be flocking to our doors in the coming years are those in financial advisory positions, and especially lawyers. As the adage goes, a lawyer who represents himself has a fool for a client. And true to that phrase, lawyers often fail to follow their own advice. Even lawyers involved in asset protection planning on a daily basis often forget to adequately protect themselves and their firms from litigation. While we maintain asset protection for our personal and company assets (as we have done for decades), many attorneys we work with have yet to protect their own assets.

Not only do lawyers fail to implement asset protection strategies, but they do so without carrying malpractice insurance. Many states do not release statistics on attorney malpractice insurance. While some states track coverage, and others require client disclosures for lawyers without coverage, only Oregon requires attorneys to carry a basic malpractice policy. The result being that an estimated 35% of private practice attorneys are uninsured and open to liability if not for an effective asset protection plan.

Why are attorneys at a greater risk now?

According to a 2014 survey conducted by Ames & Gough, a specialty insurance broker, the frequency of malpractice insurance claims has begun to level off, but the severity of those claims has spiked. Insurers reported a marked increase in the number of significant claims – claims in excess of $500,000 (and remember, even those who carry malpractice insurance are uninsured to the extent a claim exceeds the policy limits, or if the insurer figures out a way to avoid coverage altogether).

Ames & Gough analysts attribute the rise in severe claims to several factors. “The complexity and longer development pattern of the post-recession claims together with soaring defense costs led law firms to experience a significant uptick in malpractice claim severity” said Eileen Garczynski, partner and senior vice president of Ames & Gough.

Ames & Gough, in their analysis up of the data, stated:

“Among specific practice areas, real estate law continues to see the largest number of malpractice claims, albeit not to the extent as in prior years. Meanwhile, corporate and securities received an equal number of responses from insurers…”

What does this data tell us? It’s safe to assume that the rate of insurance claims is proportionate to the number of malpractice suits. It’s also safe to assume that if the number of claims is steady, but the number of severe claims has increased, attorneys now find themselves at a greater risk for catastrophic suits. Suits with damages in excess of the attorney’s insurance limit or personal net worth are becoming more common.
Should all attorneys carry malpractice insurance? Not necessarily. Insurance is not appropriate or available for all areas of practice, and has been viewed by some as a “magnet” for litigation. However, all attorneys should consider asset protection planning, in addition to, or in lieu of, malpractice insurance.

The protection afforded by offshore asset protection planning differs from malpractice insurance in many subtle, sometimes obvious, but important ways. An offshore asset protection trust:

  • Is effective against all liabilities, not just malpractice.
  • Is not limited or capped.
  • Is not required to be disclosed to clients.
  • Can remain in effect regardless of firm changes or employment status.
  • Annual costs are almost always lower that malpractice insurance premiums.

The message is clear: it is time for attorneys to practice what they preach, and themselves engage in offshore asset protection planning.