Estate Planning for Medical Professionals
Needless to say, we are currently living in extremely uncertain times. The global spread of COVID19, and its resulting social and financial uncertainty, has disrupted the professional and personal lives of many. For healthcare professionals, who are at the front-lines of the fight against the virus, it means stress, exhaustion, and increased health and professional risks. With this in mind, it is no surprise that doctors and healthcare workers are now urgently looking to create or update their estate plans.
Estate Planning For Healthcare Professionals
The main objectives of estate planning are to protect wealth during peoples’ lifetimes as well as preserving assets after their passing. To this end, any comprehensive estate plan should include a Last Will and Testament and a Revocable Living Trust. These documents will provide essential instructions for asset distributions after your passing and may also include instructions for who is to take care of any minor children.
Most people are aware of the importance of planning for their succession; however, many overlook planning for incapacity. This could be a serious oversight since unfortunately most people will be incapacitated at some point in their life. A power of attorney grants a trusted loved one with the authority to make financial and/or medical decisions on behalf of another in the event of incapacity. Having someone with the legal authority to take financial and medical decisions prevents having to commence court proceedings when someone is suffering from a lengthy period of incapacity.
While physicians and other healthcare professionals share the same estate planning goals as the rest of us, the demanding nature of their work, combined with the serious risks involved, means medical practitioners need more comprehensive planning than most. It is common knowledge that healthcare professionals are often targeted by opportunistic lawsuits, the magnitude of this trend is truly alarming. The American Medical Association has published its research showing that over a third of doctors have been the victim of a lawsuit at some point during their careers. For physicians over 55 years of age, almost half have been sued, and for general surgeons and gynecologists, the numbers are closer to two thirds. Unfortunately, even for the most diligent medical professionals, facing a legal threat may be simply a matter of time.
Asset Protection Trusts For Healthcare Professionals
The good news is that healthcare professionals can put together an asset protection plan to protect themselves from potential legal threats. Asset protection is the process of arranging financial affairs in a manner which reduces the chances that property could be lost due to a lawsuit. There is a common misconception that sophisticated asset protection solutions are only for the super wealthy.
This is simply not true. Someone who is worth $20 or $50 million can cover the costs of a vigorous and prolonged legal defense without affecting their standard of living. Whereas families or individuals worth a few hundred thousand dollars or a few million dollars could see a significant part of their net worth used to cover litigation costs and an adverse judgment.
Due to the greatly increased risks they are facing, powerful asset protection solutions should be an integral part of almost any physician’s estate plan.
While there might not be much that can be done to eliminate the risk of being sued, there are multiple solutions that can greatly reduce the potential consequences. Liability insurance is a basic way to protect personal assets from legal threats, but the protection afforded is limited to the face amount of the policy. Even with generous policy limits, there is no guarantee that the recovery will not put personal assets at risk. Physicians might also be tempted to transfer assets to their family members or other loved ones to reduce their liability. However, joint ownership still exposes part of the asset to liability, and a total gift results in loss of control and often has tax consequences.
Building an adequate bulwark against lawsuits will often require the use of limited liability business entities, in combination with either a domestic or international trust. The backbone of any asset protection plan is an Asset Protection Trust. With an Asset Protection Trust, the grantor can remain the beneficial owner of his or her property, and the individual managing the property will be legally prohibited from paying a claim to someone who is suing.
Used effectively, these solutions can greatly reduce the amount of personal assets are at risk in case of legal action, while at the same time retaining a great amount of control over any of the assets held in trust. Unlike a normal revocable living trust, an Asset Protection Trust is irrevocable, and is afforded legal protections that make it significantly costlier and more difficult for a plaintiff to go after the assets held in trust.
For the highest level of asset protection available, physicians should consider a two-phase Hybrid Asset Protection Trust. This type of trust combines the security of foreign asset protection with the simplicity of a U.S. based plan. The Hybrid Asset Protection Trust starts as a Domestic Trust, however, in case a legal threat arises, the trust management is transferred to an offshore company, meaning the trust would no longer be subject to the jurisdiction of the U.S. court system.
For offshore trust management, we generally recommend companies in St. Kitts and Nevis and the Cook Islands, jurisdictions known for their robust asset protection laws. Faced with the prospect of having to litigate their suit in a foreign country, even the most determined plaintiffs might be left with no option but to abandon the lawsuit or settle for a significantly lower amount.
Combine Asset Protection With Estate Planning
Due to the inherent risks they are faced with everyday, effective asset protection is more complex for healthcare professionals. This should not be disincentive, as there is perhaps no other professional group more at risk than those in the medical practice. Ideally, an asset protection plan must be completed before there is any type of legal threat on the horizon. While there are solutions that can still mitigate the risks even after a lawsuit has already started, such options are not always ideal. To make your plan as effective as possible, it is best to act preemptively, and make an effective asset protection plan as part of a broader, comprehensive estate plan. Transfers of funds or properties into trusts are generally seen more legitimate if drafted together with a Last Will and Testament and other basic estate planning documents.
Courts have stated that when considering challenges, it is important to consider the entire context in which a transfer is made, and look beyond the single transfer itself. Transfers made in connection with a broader estate plan are generally seen as having been made without fraudulent intent.
Why Blake Harris Law?
At Blake Harris Law we have worked with numerous clients over the years to find estate planning solutions that fit their needs. If you have any questions or if you would like to discuss the benefits of an estate plan, please call or email us today. We are always happy to meet for a no-obligation consultation at no cost to you, or to discuss over the phone or teleconferencing software.
