I got a recent phone call from my physician-brother. In an attempt to save money, he was contemplating reducing his medical malpractice insurance coverage from $1 million/$3 million to $250,000/$750,000. However, he was worried about the increased exposure of his personal assets to creditors following this move.
We discussed the fact that a very powerful means of asset protection in our state (Florida), holding assets "as tenants by the entireties" between husband and wife, was not available to him as a single doctor.
We then reviewed the options open to him and to other "singles." I'm not an attorney, and not legally able to dispense legal advice, so we discussed the issue generally. Anyone interested in this subject should meet with a competent asset protection specialist.
We discussed that his qualified retirement plan at work was safe from creditors. In Florida and many other states, IRAs are also generally protected from creditors. I argued that his maximizing contributions to both his qualified plan and nondeductible contributions to his IRA made good sense for retirement and tax issues, in addition to their attractive asset protection features.
He asked about life insurance and annuities, and we discussed that these have been a safe asset protection category in most states. He was concerned that money he put into insurance or annuities would become much less available to him for other needs, a point well taken.
Although he doesn't own a home, we noted that Florida has very strong protection of one's homestead from creditors, and that he might consider putting some assets there. I did tell him that other states are not nearly as generous with homestead allowances, and that he'd need to consider where he might be living in the future. I have seen it argued elsewhere that paying off a mortgage with liquid assets is one way to safely "encumber" personal holdings in the face of a lawsuit, but I told my brother to check this with a lawyer.
PLAN FOR PLANS?
After reviewing all these ways to protect himself, he asked about family limited partnerships (FLPs), limited liability companies (LLCs), and offshore asset trusts. I again cautioned that I could not give competent legal advice, but that I had been reading many opinions by asset protections gurus. It appears that some judges are beginning to "pierce" the protective structures of the FLPs and LLCs, especially when they are made up by a "single member," or when they appear to have no other legitimate purpose other than as an asset protection device.
There has been the suggestion that such structures with some other additional "purpose" involving other members of the family (FLP) or additional "members" (LLC) might continue to be a good asset protection tool. Our discussion on offshore asset protection trusts concluded with the agreement thatâ€”properly structuredâ€” they could be a powerful, but complex and expensive tool, and that he'd use this as a last resort.
Overall, our conversation was fruitful, and he decided to review the issues with his attorney. We both look forward to the day when the concern of losing assets won't be one of the major worries of a physician.
Steven Podnos is a practicing internist in
Florida. Realizing that his enthusiasm for
finance had become stronger than that for
medicine, he earned his MBA degree and
recently passed the Certified Financial
Plannerâ„¢ practitioner boards. He has begun a
transition to a full-time financial planning career and welcomes
questions or comments at email@example.com.