Asset Protection Is Vital to Your Survival

Physician's Money Digest, July 2006, Volume 13, Issue 7

Many malpractice policiesstipulate that ifthe insurance carrierdecides to seek apretrial settlementand the insured party refuses, then theinsured assumes personal liability forany amount awarded in excess of thesettlement offer. Of course, judgmentsagainst you not only take a big chunk ofyour wealth, but also negatively affectyour future cost of insurance, futureearnings, patient confidence, credit ratings,etc. They can also jeopardize yourresidence, rental real estate, brokerageaccounts, and retirement plans.

Liability Burden

Often, physicians are unaware ofthese liability clauses in their insurancepolicies until they find themselves in asituation similar to Dr. Clausen's. Whenthreatened with losing their assets, theymay react after the fact by trying to hidethem. Obviously, this is risky. A physician'sbest strategy is to prepare for suchan eventuality by using a combinationof estate planning tactics, techniques,and entities to insulate their family andpersonal assets from claimants. Thegoal of this process is to make the physician'sassets too difficult to attach orplace a lien on, making them unattractiveto claimants.

In Dr. Clausen's case, he owns a medicaloffice building in his name, makingit vulnerable to a victorious plaintiff.Putting the title into an entity such as alimited liability company could possiblyplace that asset out of reach. Otherdefenses include assigning a deed to afamily limited partnership or similarentity, creating a qualified personal residencetrust, or even fully leveraging anasset so that it holds no equity value. Allof these tactics must be planned aheadof time, and tax implications must bethoroughly examined.

Most experts agree that these actionsundertaken during estate planning willhave a better chance of holding up incourt, because it won't look as if thedefendant was only trying to stiff creditorsor avoid paying possible judgments.From an asset protection perspective,the method of transferring assets into astructure is often more important thanthe structure itself. Transferring orattempting to move your money after alawsuit is anticipated or filed will generallybe struck down in court as a"fraudulent conveyance." If a courtfinds there has been a fraudulent conveyance,it can declare the transfer voidand the assets available to creditors.

Asset Assessment

The first step in asset protection is athorough assessment of your assets sothat you have a complete picture ofwhat is at stake. Inventory and calculatethe value of your assets (ie, personal,family, and business), and work withyour advisor to see how vulnerablethese are to attack. Be sure to includeIRAs; your 401(k) plan or other workplaceretirement account; pensions; personalinsurance policies; annuities;inheritances; trust income; businessassets; royalties, patents, and copyrights;bank, brokerage, and mutualfund accounts; home equity; valuablessuch as jewelry, cars, and boats; andhousehold furnishings and possessions,such as art and silver.

Once you've compiled an inventoryof your assets, develop an understandingof asset protection entities and anycurrent rules that might affect the strategiesyou plan to implement. No singleasset protection strategy fits all, and forevery individual seeking asset protectiona custom plan should be designed.

Rick Rodgers, CFP ®, is a certified retirementcounselor with Rodgers & Associates, PC inLancaster, Pa. His firm helps people who areretired or about to retire manage theirwealth by becoming their personal CFO. Hewelcomes questions or comments at 717-560-3800