The risk of losing personalassets is greater for physiciansthan for nearly anyother profession. Somecommon threats faced byphysicians include taxes, lawsuits,squabbling with a business partner, divorce,and malpractice. These risksmust be taken seriously because theycan jeopardize a physician's practice,assets, family finances, and retirement.Many physicians believe they are protectedwhen they are, in fact, vulnerable.
The often utilized professional corporationdoes not offer a physicianprotection against malpractice. Malpracticemay also have more to dowith a physician's deep pockets ratherthan their innocence. Insurance offersno guarantees, since policies haveexclusions. Trust structures, commonlyused by physicians, can also be ineffective.When assets are placed in a livingrevocable trust by the grantor, theyare not protected. In most states, evenan irrevocable trust may not providecomplete protection.
For physicians, wealth preservationand asset protection techniques shouldreach beyond malpractice insurance.Successful asset protection planningdecreases the threat of most lawsuitsby removing the predator's economicincentive: the assets. Some plans callfor multiple entities so that all of theeggs are not placed in one basket.Dangerous assets, for example, can besegregated from safe assets. Or entitiescan be set up in multiple states tocause creditors additional headaches.
It is important to consider organizationalstructures that offer significantasset protection. Family limited partnerships(FLPs) and limited liabilitycompanies (LLCs) are effective becausethey have two levels of ownership: theactive level (ie, general partners andmanaging members) and the passivelevel (ie, limited partners and members).A general partner or managingmember with 1% ownership controlstheir respective entity. Thus, a physicianis able to give away 99% of theentity and maintain total control.
What makes an FLP/LLC into aneffective "family" protection vehicle isthe incorporation and drafting of severalkey provisions. With these protectiveprovisions, creditors cannot reachinside the FLP or LLC and get theirhands on the assets, nor can they takeover management control. FLP/LLCinterests can also be discounted about35% for lack of marketability and lackof control or minority ownership. Thiscan save a huge amount of estate tax.An LLC can also own and protect personalproperty such as your home.This strategy is especially protectivewhen the home is equity-stripped.
After a clear organizational structureis in place, it is important toimplement a combination of truststhat protect physicians and their families.The Heritage Trust is unequaledas a legal strategy because of its limitlesspossibilities. This trust is a combinationof strategies and trusts thatachieve maximum protection andminimum taxation for physicians, relatives,and future generations. Commontrust instruments used by physiciansas part of this strategy includeliving trusts, irrevocable trusts, irrevocablelife insurance trusts, privacytrusts, and non-self-settled trusts.
The ultimate asset protection approachfor each physician uses many ofthe above strategies and applies them totheir unique practice, financial situation,and objectives. Consult an assetprotection specialist to review andstructure your own protection.
Alan R. Eber is a pioneer in the asset protectionfield. He practices law in the fields ofasset protection and estate planning, trusts,and business structuring. To request thenew booklet, For Doctors' Eyes Only: How toProtect Your Hard Earned Assets, call 800-800-9191 or goto www.assetprotectionlaw.com.