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Asset Protection for Physicians

July 22, 2015

It’s easy to make excuses for putting off asset planning, but it’s important to have a protection plan in place before its too late. Asset planning is complicated and includes legal, finance, tax and insurance planning. Proper planning protects your practice and your personal assets from a potential lawsuit.
 
Your asset protection plan should include insurance coverage, proper titling and structuring and be established early in your career. Consult with a team of advisors to ensure their plans provide you with the maximum level of asset protection.
 
Insurance Coverage
Proper asset protection begins with malpractice insurance, but it is important to know the difference between the two major types of malpractice coverage.

•    Occurrence–based: This type of insurance coverage is seamless regardless of job or location changes. You are covered while the policy is in effect, no matter when the claim is made. For example, if you are covered by carrier A when an event occurred in 2012, but the claim was made in 2014, carrier A provides the malpractice coverage, even if you are currently insured by another carrier.
•    Claims-made: This type of coverage protects you from claims only if the company that insured you at the time of the event is the same company providing you coverage at the time the claim is filed. If you switched carriers between the time the event occurred and when the claim was filed, you are not covered, unless you purchased an insurance tail when the original policy ended.
Having adequate malpractice insurance is important, unfortunately, it’s not enough. Umbrella insurance is another important type of coverage to have. It provides additional liability coverage beyond the limits of personal homeowners, auto and boat insurance policies. Umbrella insurance is a relatively inexpensive way to mitigate risk.
 
Titling assets
Many physicians make mistakes when titling assets. The most common mistake is to have large assets titled in either a sole name or a revocable trust. Neither type of ownership provides any protection from creditors. Similarly, putting an asset in the name of a spouse or family member exposes those assets to the sole or joint creditors of your spouse or family member and it can also put your family at risk for fraud.
 
Structure
Because of the risks involved with titling assets, structure your protection in a way that provides you the most coverage. If you and another party own something jointly, you share the risk with that party. Structure your joint venture in a way that limits your personal liability.  Limited Liability Corporations (LLC) and Family Limited Partnerships (FLP) separate safe assets, like bank accounts, from riskier assets, like real estate while still giving you control as a general partner. Be sure to work with an experienced attorney to understand why and how each asset should be legally structured.
 
Timing
One of the biggest mistakes a physician makes is waiting until it is too late to create an asset protection plan. Trying to protect assets after a claim is made is considered a fraudulent transfer and can negate any planning. 
 
As important as it is to have a plan, it is equally important to routinely update the plan. Factors like changing legal environment, client risk profile and asset titling should be evaluated when reviewing your plan.
 
Most doctors will be sued at least once in their career, but it doesn’t have to derail your business or personal life. A good asset protection plan starts with proper insurance coverage, including but not limited to malpractice and umbrella coverage. It is also important to ensure your assets are titled in a way that protects you from creditors.
 
Limited Liability Corporations and Family Limited Partnerships are legal entities that are be used to protect your practice from lawsuits. Perhaps the most important step to protecting your assets is to set up your many layers of protection long before there is a need. Having and maintaining a thorough asset protection plan is crucial in the medical profession. The above examples are just a few ways asset protection is used to protect your business and personal assets. Coordinate with your team of advisors to structure a plan that works best for you.