Practice Asset Protection
While the priority of most physicians is to protect their personal assets, practice protection should not be overlooked. What are the most important practice assets? Certainly, your cash flow and income are most important.
The good news is that the tools that protect your cash flow also typically help you save on income taxes and build retirement wealth. These include qualified retirement plans, such as defined benefit plans, 401(k)s and combination plans, non-qualified plans, captive insurance arrangements and more.
Other important practice assets include the practice real estate, if any, and valuable equipment. If your practice has valuable real estate or equipment, you may want to separate these assets from the main practice, using limited liability companies (LLCs) to lease them back to the main practice entity.
Personal Asset Protection
Personal asset protection encompasses shielding a physician’s home, retirement accounts, other investment accounts, second home or rental real estate and valuable personal property.
We typically recommend leveraging your state’s exempt assets as a priority, because (1) they enjoy the highest level of protection and (2) they involve no legal fees, state fees, accounting fees or gifting programs. In other words, you can own the exempt asset outright in your name, have access to any values and still have it 100 percent protected from lawsuits against you.
Each state law has assets that are absolutely exempt from creditor claims. Many states provide exemptions for qualified retirement plans and IRAs, cash within life insurance policies, annuities, and primary homes. Make sure you seek an expert on this to find out the exemptions in your state.
Beyond exempt assets, basic asset protection tools like family limited partnerships (FLPs) limited liability companies (LLCs), and certain types of trusts should be used.
FLPs and LLCs will provide good asset protection against future lawsuits, allow for maintenance of control by you (the client), and can provide estate and income tax benefits in certain situations. For these reasons, we often call FLPs and LLCs the “building blocks” of a basic asset protection plan. Trusts can also play an important role in asset protection planning – if they are irrevocable.
Obviously, for all these legal tools, their asset protection benefits are reliant on proper drafting of the documentation, proper maintenance, respect for formalities and proper ownership arrangements. If all these are in place, the physician can enjoy solid asset protection for a relatively low cost.
The practice of medicine in any specialty has inherent lawsuit risks, primarily from medical malpractice. Risk management and asset protection planning go hand in hand to help physicians reduce their risk of liability and protect them in case liability does occur.
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David B. Mandell, JD, MBA
is an attorney and principal of the wealth management firm OJM Group www.ojmgroup.com
. He has authored more than a dozen books for physicians, including Wealth Protection Planning for Dermatologists
and For Doctors Only: A Guide to Working Less and Building More
and can be reached at 877.656.4362 or firstname.lastname@example.org.
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This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.