Portfolio CHECK-UP

Physician's Money Digest, November30 2003, Volume 10, Issue 22

Name: Shawn Russell, MD

Residence: Florida

Age: 44

Family: Married; 2 children

Years in practice: 13

Type of practice: Gastroenterology

Annual income: $265,000

Savings: $312,000 in 401(k) pension and profit sharing plan

Financial concern: Dr. Russell thinks he is on the right retirement savingscourse. However, with increasing litigation in the health care industry andrising malpractice insurance fees, he is concerned about protecting his accumulatedpersonal and professional assets. In addition, because of increasingmalpractice insurance costs, he is considering lowering his malpractice insuranceby reducing the coverage he has to the minimum amount requiredunder current law.

The Finance Professor's Solution

First of all, in the state of Florida, one's primary residence is protectedfrom creditors up to one half acre within city limits and 160 acres outsidecity limits. Also protected from creditors are qualified retirement plans,IRAs, and the cash value accumulations within both life insurance policiesand annuities. Assets held outside of these vehicles may be exposed to creditors,depending on how they are owned and titled.

Dr. Russell has nearly $300,000 in accounts receivable. In addition, hishard assets, which include medical equipment, are worth $100,000, net ofaccumulated depreciation. The replacement cost of these hard assets wouldprobably be in the neighborhood of $200,000. In total, Dr. Russell has about$400,000 to $500,000 in practice assets.

One option Dr. Russell may want to consider is "stripping the equity"from his practice assets by obtaining a bank loan (secured by the assets),investing the proceeds in protected investment vehicles, and then pledgingback the investment assets as secondary collateral for the loan. By doingthis, creditors will not be able to attack these assets. The bank will have aprior claim on these assets, ahead of potential creditors.

For more information, call Mr. Kosky at 800-953-5508or visit www.assetplanning.net.

Thomas R. Kosky and his partner, Harris L. Kerker, are principals of the AssetPlanning Group in Miami, Fla, specializing in investment, retirement, and estateplanning. Mr. Kosky teaches corporate finance in the Saturday Executive andHealth Care Executive MBA Programs at the University of Miami.