By Jeffrey A. Cooper, Guest Writer
By Dr. Marc Brodsky, Guest Writer
Suppose that a physician, whom we will call Dr. Sample, was having a nice lunch with friends at their yacht club in Greenwich, Connecticut, when the conversation turned to the subject of malpractice claims and liability protection. One of the doctor’s luncheon companions volunteered that he was in the process of establishing a Domestic Asset Protection Trust (DAPT) to help protect his assets. Dr. Sample was intrigued and wanted to learn more. After lunch, he made a call to his personal financial planner and asked, “Hey, can a DAPT protect my assets if I am sued?”
Understanding Personal and Financial Circumstances
Dr. Sample is a 55-year-old cardiothoracic surgeon with an annual salary of $600,000. His spouse does not work. They have grown children who do not live at home.
- Economic information: Dr. Sample expects inflation to average 3% a year and for his salary to keep pace with inflation.
- Insurance information: Dr. Sample has professional malpractice and personal homeowner’s and car insurance fortified by a Personal Liability Umbrella Plan (PLUP).
- Investment information: Each year, Dr. Sample contributes the maximum to a qualified retirement plan at his nonprofit hospital. He also invests additional savings in a taxable brokerage account. Dr. Sample self-administered a questionnaire that determined a moderate level of risk tolerance in investments. His expected and required rate of return is 8%. He expects to become more conservative as he approaches retirement age.
- Retirement information: Dr. Sample plans to retire at age 67. At that time, he projects that his retirement plans and investments will replace 80% of his pre-retirement salary.
- Estate planning: Dr. Sample and his spouse have a will and no other estate planning documents.
Dr. Sample’s financial planner produced a balance sheet and statement of cash flows as follows.
Identifying and Selecting Goals
- To protect assets from potential creditors during Dr. Sample's lifetime.
- To protect assets from creditors after Dr. Sample’s death and to enhance the lives of his spouse and children through their inheritances.
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While he has no known creditors, Dr. Sample would like to further protect his assets in the case of a future lawsuit. His current plan for creditor protection relies in large part on his professional and personal insurance policies. His qualified retirement account provides some creditor protection, as could cash value life insurance and annuities. Connecticut does not have robust homestead protection laws, and it does not allow married couples to title property as a tenancy by the entirety—both of which would offer additional creditor protection.
A Domestic Asset Protection Trust (DAPT) is another option to safeguard assets in the case of a future lawsuit. A DAPT allows a donor to transfer assets to an irrevocable trust established to provide future benefits to the donor and/or other family members. Traditionally, assets in a “self-settled” trust, where one person is both the donor and a beneficiary, would be available to pay claims of that donor’s future creditors. However, state law provides that a DAPT is exempt from this traditional rule, and the donor may also be a beneficiary of the trust without exposing the trust assets to future creditors.
Previously, donors seeking this type of creditor protection needed to establish trusts and transfer assets in far-off jurisdictions such as the Cook Islands or Nevis. Then, in 1997, Alaska passed legislation allowing DAPTs. The state legislature viewed its DAPT legislation as a means to generate trust business and the resulting state tax revenue while also protecting its citizens from the risks inherent in investing assets in overseas trusts. Since then, a number of other states have introduced DAPTs (including Utah, Hawaii, and Virginia) for similar reasons, seeking to generate additional state revenue while lowering the risk for their constituents who formerly needed to use foreign trusts.
While a DAPT may offer strong asset protection, these trusts do not protect assets from known creditors, and a trust-maker also must have sufficient funds available outside the DAPT to pay creditors in any lawsuits that had begun before the creation of the DAPT. Failure to do so would suggest the trust was a fraudulent transfer, and thus, it would be ineffective to shield assets from creditors. Planning ahead is crucial.
Developing and Presenting Recommendations
Connecticut is one of approximately 20 states with DAPT laws. By following Connecticut laws, Dr. Sample may create a DAPT and continue to have rights to benefit from assets that are transferred to the trust. Dr. Sample’s creditors, however, may not access assets that are owned by the trust. The trust will not protect “fraudulent conveyance” of assets from a known creditor before the transfer of assets.
Each state’s law varies for both the requirements for establishing a trust in that state and the creditor protection benefits available under that state’s law. Accordingly, Dr. Sample may consider the pros and cons of establishing a DAPT in Connecticut as opposed to another state. Typically, establishing a DAPT in a given state requires that the donor name a trustee and/or investment manager in that state.
Finally, it is crucial to note that if the donor is a beneficiary of a DAPT, the trust may not be effective to remove assets from the donor’s gross estate at death and, thus, might not reduce any estate tax payable at that time. Other forms of trusts may accomplish the goal of tax avoidance, but those trusts may require the donor to give up more control over and “enjoyment” from the trust than a DAPT does. For example, to exclude a trust from possible estate tax liability, the donor typically cannot be a beneficiary. Trusts may differ in tax consequences, an issue Dr. Sample should discuss with his financial planner and a qualified estate planning attorney.
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Implementing a Plan
Dr. Sample may engage the services of a skilled estate planning lawyer to design and draft a DAPT, a discussion which should include the pros and cons of establishing a trust under Connecticut law vs. the law of another state. Once a jurisdiction is chosen, Dr. Sample will assign a trustee who is a state resident or a trust company bank with a place of business in the chosen state. Trust assets might include Dr. Sample’s brokerage account and perhaps even his recreational asset, the sailboat. A DAPT may also be funded with a variety of other assets—including cash, limited liability companies (LLCs), real estate, intellectual property, and business assets.
Creating a DAPT is a complex strategy that could easily generate $10,000 or more in legal fees to establish, plus thousands of dollars each year for administration. With a net worth of over $10 million and a higher risk for lawsuits in his surgical specialty, Dr. Sample may well determine these fees to be a reasonable price to pay for the protection afforded by a DAPT.
Monitoring Progress and Updating
After the trust is implemented, the trustee will be responsible for overseeing the investment of the trust assets, record-keeping and administration, and making distributions to Dr. Sample and/or the other beneficiaries of the trust. In addition to receiving creditor-protection benefits and options for estate planning, Dr. Sample can benefit from professional management and the oversight of his trust funds.
The Bottom Line
A DAPT is one potential option for Dr. Sample to accomplish his main goal of asset protection, and it may contribute to preserving his financial legacy. Dr. Sample should further discuss the concept with financial, tax, and/or legal advisors and carefully consider the pros and cons of establishing a DAPT in Connecticut or another jurisdiction.
Do you use a DAPT? What are the benefits for you? Are there any downsides?
Disclosures: Marc Brodsky, MD, is a Registered Representative with Avantax Wealth Management Inc. Securities offered through Avantax Investment Services Inc., Member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services Inc., 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. 972-870-6000. The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management Inc. does not provide or supervise tax or accounting services, Avantax Representatives may offer these services through their independent outside business. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management Inc. or its subsidiaries. This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Investments & Insurance Products are not insured by the FDIC or any federal government agency, are not deposits of or guaranteed by the bank or any bank affiliate, and may lose value. Jeffrey A. Cooper is not affiliated with Avantax.
Some unrealistic assumptions in this. A CT surgeon would likely make at least twice this annual salary. Also having all children grown and out of the house at age 55 is a stretch. It takes a long time for them to launch and get off the dole. A 10 million dollar account seems unrealistic with having raised children and presumably paying for college.
There is a HUGE amount of variation in income and wealth among WCIers, so I wouldn’t discount any of that stuff you seem to be discounting.
1) If we hadn’t had a fourth child after 6 years when I was 40, we’d be empty nesters in two years at 52/49. If you don’t put them on “the dole” you don’t have to take them off. Even our 10 year old knows she’s leaving at 18.
2) Medscape’s annual compensation poll shows the “top” specialty income (Ortho) was $564K on average last year. So $600K for CT surgery seems very reasonable even if some make a lot more.
3) If one saves 20% of a $600K household income and earns 8% on it for 30 years it grows to $13.5 million. $10 million is certainly at least top 10% for docs in their 60s (about 25% are pentamillionaires plus), but hardly unreachable for lots of white coat investors. Save a little more or have a spouse with additional earnings or an inheritance and one can get to $10 million even faster.
At any rate, the point of the article is DAPTs, not how much docs should have on average.
I have set up DAPT in the last year. I live in UT where only as small percentage of a typical home own by a doctor is protected from creditors. Of course that would only possibly occur in the event of a catastrophic lawsuit that exceeds malpractice insurance limits. I am a surgeon and so the likelihood of a lawsuit statistically occurring is probably quite high (I have read some estimates that 9/10 surgeons will be eventually sued in their career – not sure how accurate that is). It wasn’t too difficult to set up, my costs were about $5k about a year ago. Although my understanding is that DAPTs are fairly new and there is not a lot of court precedent; it gives me more peace of mind in allowing me to be a doctor and provide care at a relatively low cost.
Same state, same approach to protecting home equity. So cheap it seems silly not to do it, even if it may not hold up.
Above policy limits judgements not reduced on appeal are very rare to start with, and now illegal in Utah after a bill passed this last legislative session (as long as a $1M malpractice policy is carried), but I did see this craziness in my email feed this morning:
https://www.beckershospitalreview.com/legal-regulatory-issues/steward-ordered-to-pay-nearly-1b-in-utah-malpractice-case/?ref=doximity
https://www.sltrib.com/news/2025/08/28/utah-steward-health-care-ordered/
No idea what happened to the doc in this “bad baby” case. Presumably settled for $1-2 million policy limits years ago. But if all of our lives are worth a billion dollars there’s a lot of things in our society that need to be adjusted. I can tell you they’re not going to get a billion dollars out of Steward. The CEO’s yacht was only worth $40 million.
Yuck – hearing those kind of stories is unsettling.
Even if DAPTs are not completely bullet proof in court – I doubt they are because nothing is – it does add a layer of difficulty for creditors to pursue.
I imagine it is a bit like stealing from parked cars (sorry for the analogy, lawyers – I am not saying you are theives, just using an analogy). If two cars are parked side-by-side and one the wallet is sitting in the front seat, the windows are down and the doors unlocked, while the other doors locked/windows rolled up and no valuables in sight – which one will someone more likely break into?
I can imagine that if a trial lawyer is juggling time between two similar cases and one has higher level of hassle to access funds, he/she will likely spend more time on the low hanging fruit. You don’t want to make it too easy to give away your assets.
If I live in NY state, which does not have DAPT protections, how effective is it to set up a DAPT in another state where DAPTs are good for asset protection?
Good question. looking forward to a response.
Nobody knows. Case law is scarce and it would be state specific anyway. Your lawyer will argue the other state’s laws should be used because that’s where you set up the trust. Your patient’s lawyer will argue your state’s laws apply because that’s where you live and practice. You can discuss this with an attorney in your state, but I bet they’ll hedge on the answer about as much as I just did.
“Creating a DAPT is a complex strategy that could easily generate $10,000 or more in legal fees to establish, plus thousands of dollars each year for administration.”
Give me a break. Why on earth would this cost that much to set up and administer. All to protect against something that happens extremely rarely (above policy limits judgement not reduced on appeal).
While asset protection strategies can vary and may be in part state dependent in terms of liability, multiple advisors have spoken of the virtue of irrevocable trusts. These can be two separate investment trusts owning homes and other assets, as well as qualified personal residence trusts both of which can protect you and your heirs from lawsuits and poor decision making ie bad marriages teenage driver mishaps. Best to set these up well in advance of any allegation or suit to avoid fraudulent conveyance claims if done after the fact
It’s hard to lose something you don’t own. But you better make sure you’re okay with the consequences of no longer owning it. That’s the beautiful thing about a DAPT, you get to be both the grantor and the beneficiary. But that’s also why they’re a little weak in the asset protection department. You kind of do still own it.
Very interesting article. Is there much point to this in states with limits to malpractice suits? In Va I think it’s 2.65 M which we have coverage for in malpractice. So I think that means zero risk of above policy limit suit?
I do have $5M umbrella policy too. I suppose the only risk is a suit for over $5M that’s not malpractice? Like a severe car accident or something. I wonder what the odds of an above $5M non-medical lawsuit is?
I’m very interested in asset protection but I think the conclusion for me is this risk is exceedingly low in states with limits on malpractice.
Thanks for your help and interesting article.
In most states with “limits” the limit is on pain and suffering. Actual economic damages are excluded. However, in Utah there was a law passed this Winter that says if you carry a $1M policy, you can’t lose personal assets unless you deliberately hurt the patient.
Looking up the VA law here: https://law.lis.virginia.gov/vacode/title8.01/chapter21.1/section8.01-581.15/
In any verdict returned against a health care provider in an action for malpractice where the act or acts of malpractice occurred on or after July 1, 2031, which is tried by a jury or in any judgment entered against a health care provider in such an action which is tried without a jury, the total amount recoverable for any injury to, or death of, a patient shall not exceed $3 million. Each annual increase shall apply to the act or acts of malpractice occurring on or after the effective date of the increase.
It appears to be pretty comprehensive, not just pain and suffering. It’s $2.7M right now but goes up each July 1st.