Guard Against Personal Liability Threats

Physician's Money DigestDecember 2005
Volume 12
Issue 16

Dr. Lynder is an emergency room physician,and his wife is an attorney. Like many doctorstoday, he is not only concerned about thethreat of a malpractice case, but how he can protect hispersonal assets. Many malpractice policies now containa provision called "the hammer,"which stipulatesthat if the carrier decides to seek a pretrial settlementand the physician refuses, then the physician assumespersonal liability for any amount awarded in excess ofthe settlement offer—even if covered by the policy.

"You try to save somebody's life, and oftentimesyou have to resort to some extreme procedures to dothat, but in the back of my mind is the nagging realizationthat if I fail, the family will sue. I have a verysuccessful practice. I earn a lot of money. I have a lotof assets,"says Dr. Lynder. "And I'm not sure how toprotect everything I've built."

Multiple Safeguards

Dr. Lynder is not alone in his fear. Like otherphysicians, Dr. Lynder needs to safeguard his assetsfrom the threat of personal liability, and with morethan a single line of defense. Use your practice'saccounts receivable as collateral for a loan from yourbank, an asset that cannot be taken away since it isalready encumbered, to protect yourself from creditors.Also, if you own a medical office building inyour name, a victorious plaintiff can claim it.Forming a limited liability company to hold the titlecan forestall such a maneuver.

Likewise, set up separate ownership companies foreach rental property that you own. That way, if a tenantsues the company that owns the building, he cannotgo after additional buildings to satisfy a judgment.Other defenses include assigning the deed to a familylimited partnership or similar entity, mortgaging yourhouse to the hilt to make it unattractive to creditors, orcreating a qualified personal residence trust.

Although it seems like a good idea, physicians shouldbeware of traditional offshore asset protection trusts.Because you must notify the IRS when establishing atrust, you automatically become a target for scrutiny.The IRS takes the position that an offshore asset protectiontrust means that you have something to hide.

Best Practice Strategy

Experts say that the best defense is to invest withestate planning in mind. This strategy holds up betterin court because it does not appear as if you are onlytrying to avoid creditors or judgments against you.One of the best ways to protect your assets is toinvest in a Swiss annuity.

Most physicians are not aware that Swiss annuitieseven exist. Like a US annuity, a Swiss annuity issimply a contract between an insurance companyand the policyholder. The major difference isSwitzerland's strict privacy law, the Switzerland BankSecrecy Act of 1934, which makes the Swiss annuitycreditor-and judgment-proof. Swiss insurance companiesdo not issue reports to any governmentalagency upon the initial purchase of the policy, paymentsmade into it, or interest and dividends earned.

Dr. Lynder and other physicians like him will benefitfrom deploying a variety of estate planning tacticsto protect themselves from the perils of personalliability. When it comes to asset protection, the bestdefense is to put assets out of reach of judgments andcreditors before the need ever arises.

is managing director of SwissGuard International,

GmbH, an independent financial consulting firm based in Zurich,

Switzerland. The firm offers Swiss annuities to American investors

through Swiss insurance companies established to meet the private

investment and financial protection needs of international

clients. Mr. Aviss welcomes questions or comments at 800-796-7496 or visit

Darrell Aviss

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