Medical professionals face a minefield of legal complications every time they step foot in the office. Without proper asset protection measures, you could lose everything in a lawsuit. Read on to learn about asset protection for doctors so you can put measures in place today.
Understanding the Need for Asset Protection
Doctors must juggle financial and legal risks on a daily basis. The risky nature of the medical profession requires proactive planning for protection against financial crises.
The High-Risk Nature of the Medical Profession
Compliance within the healthcare industry requires careful attention, precision, knowledge, and 100% accuracy at all times. A minor error in paperwork at a standard office job may prompt an angry email and a slap on the wrist, but such an error for a physician can compromise their title and place their belongings at risk if the patient sues.
Malpractice claims are a reality that all physicians must prepare for. The American Medical Association cites that approximately one-third of physicians in the U.S. will face a medical liability lawsuit at some point in their careers.
While one-third of physicians in the U.S. may not make liable mistakes in their careers, they will become targets for malpractice claims. By the age of 55, the average net worth of a family physician exceeds $1 million. Considering that over 82% of high-net-worth individuals report that their wealth increases the number of bullseyes on their backs for litigation, it makes sense that high-paying physicians face incredibly inflated risks of legal action.
The Importance of Proactive Planning
Whether you make a misstep that violates HIPPA or an angry patient unjustly sues you, you need an iron-clad asset protection strategy.
Unfortunately, you cannot quickly open a trust or start an insurance plan when actively involved in a lawsuit, and such tools will not reverse property seizures. Proactive planning is your strongest tool for protecting your wealth today from the unforeseen events of tomorrow.
Six Asset Protection Strategies for Medical Practitioners
Many people assume that malpractice insurance is well-rounded enough to cover every base when considering asset protection for doctors. While malpractice insurance can cover lawsuits up to certain degrees, it may not always provide full coverage, particularly for large claims. When malpractice insurance only provides partial coverage, you face risks of asset seizure.
So, let’s look at six asset protection strategies for comprehensive, proactive coverage.
1. Asset Protection Through Business Structures
The structure of your business impacts how liability falls in the event of a lawsuit. If you do not already have a protective structure in place, you can meet with an attorney to make some changes. Here are some popular options for asset protection through business structures:
Forming an LLC
A limited liability company (LLC) separates the business entity from the owner, so the owner cannot be held personally liable for debts collected against the business. For example, if a patient sues the practice for faulty equipment, your home, vehicles, and other assets would be safe from the debt collection process. As with any other business structure, LLCs come with taxation and reporting requirements that your attorney can help you execute.
Incorporating Your Practice
A professional corporation provides the highest level of liability protection for owners and other employees. As with an LLC, you will still face personal liability for any personal claims made against you. Professional corporations come with far stricter requirements but can offer increased advantages.
2. Using Trusts for Asset Protection
Trusts serve as a highly effective form of asset protection for doctors. When you place your assets inside a trust, you transfer the legal ownership to a separate entity, safeguarding the wealth from seizure during a lawsuit. You can create numerous types of trusts with varying advantages, including the following:
Asset Protection Trusts
An asset protection trust (APT) is a legal document designed to protect assets from creditors. With an APT, the grantor names themselves as the beneficiary of the assets to protect their wealth from seizure during a lawsuit or other scenarios. APTs have many legal requirements and require precise filing to ensure they meet all legal standards.
Offshore Trusts
Offshore trusts offer the highest form of protection as they allow you to create your legal structure outside of the U.S., where creditors typically cannot access your wealth because of jurisdiction boundaries. Domestic trusts can and have been seized, but offshore trusts created correctly and in the right location can guard your wealth in a legal, secure way. The following are some popular jurisdictions for offshore trusts:
Such locations enact strict laws against creditors in the U.S. If you’re interested in setting up an offshore trust, you must work with an experienced asset protection attorney to ensure you create the document following all legal requirements across jurisdictions. Despite creating the trust in another country, you still must follow U.S. taxation laws.
3. Insurance Options
While insurance may not offer 100% asset protection for doctors, healthcare professionals must keep this tool in their repertoire. Here are some common insurance options for your first defense line:
Malpractice Insurance
Malpractice insurance acts as your initial defense during a lawsuit. Your plan will typically cover your attorney costs and any damages from the claim up to the maximum defined in your policy. Each state has varying minimum coverage requirements and maximum limitations for practitioners, typically ranging from around $1 million to several million.
With these limitations, your policy may not cover your full judgment. For example, say you’re sued for $5 million, and the final judgment places you at $3.2 million. If your policy includes a maximum of $2 million in liability coverage, you would still owe $1.2 million, which now places your assets at risk.
Umbrella Insurance
Umbrella insurance kicks in when you’ve already exhausted the limitations of your other policies. This form of insurance can cover some types of lawsuits, injury claims, property damage, and more, providing an additional layer of coverage for your existing policies.
Disability Insurance
Disability insurance ensures you can receive income replacement if you cannot work because of an illness, injury, or disability. While this may not seem like a direct form of asset protection, it can safeguard your wealth from a financial hit during unforeseen accidents.
Similarly, many recommend documents like prenuptial agreements to prevent the financial losses that can occur during a divorce.
4. Retirement Accounts for Asset Protection
Your retirement plan maximizes your future financial security and can offer some asset protection. In the event of a lawsuit, some of the wealth inside of your retirement accounts may be protected from seizure. Ultimately, the level of protection will depend on your account and how much money the judge believes you need to live off of once you retire.
Popular Types of Retirement Accounts
Retirement accounts qualified under the Employee Retirement Income Security Act (ERISA) provide maximum protection against civil lawsuits, creditors, and bankruptcy. An ERISA-qualified plan must be maintained by an employer while complying with numerous federal rules. Examples include the following:
- 401(k)s
- 419(a)(f)(6)s
- HRAs
- FSAs
- HMOs
Self-funded plans, such as IRAs, provide less protection as they do not qualify for the ERISA. Even ERISA plans can be vulnerable to asset seizure during certain types of lawsuits or creditor claims, so it’s worth reading the fine print of your retirement plan to confirm either way.
Strategizing Your Retirement Plan for Maximum Protection
ERISA plans provide maximum protection, but you cannot rely solely on something like a 401(k) to protect all of your wealth. Instead, you should strategize with an asset protection attorney to develop the right plan for your needs. Your plan could involve a combination of offshore trusts, insurance, a 401(k), etc.
5. Estate Planning for Doctors
Trusts encompass just one form of estate planning and asset protection for doctors. Beyond this, you may want to consider the following:
Wills vs. Trusts
A will dictates where your wealth should go after you pass. The legal document does not provide robust asset protection but can ensure that some of your end-of-life wishes are met. Trusts compliment wills, ensuring that your belongings go to the correct beneficiaries without the requirements of long, complicated court proceedings like probate.
Healthcare Directives
Healthcare directives dictate your medical wishes in the event that you become incapacitated and can no longer communicate your preferences. The document can include structures like a healthcare proxy, which names a person who will make healthcare decisions, or a living will, which specifies treatment preferences. While advance directives may not act as a direct form of asset protection, you may want to consider adding this document to your estate plan as you go through the process.
6. Financial Planning for Risk Management
Healthy financial planning can help you mitigate risks during unforeseen events. By building your wealth the right way, you’ll have a stronger foundation to stand on for maximum asset protection. Here are some basic tips, though you should meet with a financial advisor for personalized information:
Diversifying Your Investments
Diversifying your investments reduces risks, increases the opportunity for growth, and can provide insurance against asset seizures. With investment diversification, you invest in a range of asset classes. Rather than placing all of your wealth in overseas trusts, local real estate, ETFs, etc., you choose a mindful asset allocation strategy.
Asset diversification can protect you from financial losses if your stock or real estate market crashes while providing an extra buffer against creditors.
Debt Management
While debt management may not offer asset protection, poor debt management can directly lead to asset vulnerability. If you cannot properly manage your finances and fulfill payments, your assets can become vulnerable to debt collection. To avoid asset seizure from overdue debts, you must manage your debt carefully and employ the strategies above to protect your wealth.
Choose Blake Harris Law for Comprehensive Asset Protection Support
At Blake Harris Law, we offer custom, robust asset protection for doctors. Our experienced attorneys work with you to develop a plan to protect your hard-earned wealth from the high-risk medical field.
With our iron-clad offshore protection trusts, you can enjoy complete peace of mind. We have extensive knowledge and experience in developing trusts in secure jurisdictions around the world.
Don’t leave your wealth at risk for one more day. Contact Blake Harris Law today to secure your assets.
