Asset Protection for Physicians (and others in the medical field)
Medical professionals face high levels of liability. A 2010 survey by the American Medical Association (AMA) found that more than 60% of doctors had been sued at least once by late career. Furthermore, over 80% of surgeons have been sued at least once.
The Physician Insurers Association of America writes the defense against a medical malpractice claim averages over $22,000 for lawsuits that are dropped, dismissed or withdrawn, and more than $100,000 for cases that go to trial.
Without an effective asset protection strategy (in place before a lawsuit arises), medical professionals risk losing their personal assets to these lawsuits.
Professional liability insurance may not cover all claims, or a claim for malpractice may exceed policy limitations, so what type of planning can help avoid catastrophic loss, encourage lawsuit settlement and still allow for access to assets and other personal resources?
Irrevocable Trusts
An irrevocable trust is a part of many asset protection strategies. If the physician or medical professional is willing to forego access or benefit of the assets in trust. It’s an effective form of asset protection because the trust assets are not available to the physician’s creditors (if set up properly). Beyond the asset protection this type of trust planning can provide significant estate tax savings. Although this type of asset protection trust involves losing control and ownership, certain planning strategies, like a Spousal Lifetime Access Trust, allow for trust property to be returned to the physician in the case of divorce or other major life events.
Asset Management LLC
Stocks, bonds, notes, brokerage accounts, etc. owned by physicians can be lost to frivolous lawsuits and creditors. An Asset Management LLC can be utilized to hold and grow these investments. The LLC protects these assets and takes them out of the personal name of the physician. So long as there is a business purpose to this Asset Management LLC, the assets will be protected from creditors. Business purposes include the investing of assets, financial management and planning, stipulating future uses of the assets for the benefit of the members, and intergenerational transfers and management.
This type of LLC should be used to hold “cold” assets (i.e. assets that aren’t a source of liability). The Asset Management LLC may own the physician’s other LLCs which house riskier, “hot” assets like rental estate.
Domestic Asset Protection Trusts
A Domestic Asset Protection Trust allows a physician to protect assets without losing all control or benefit from the assets in the trust. Only certain states, like Nevada, Wyoming, and Alaska, offer these trusts. A Domestic Asset Protection Trust allows for serious protection of assets without having to maintain a business purpose, as was mentioned previously with the Asset Management LLC.
A Domestic Asset Protection Trust requires the services of a trustee, in the jurisdiction of the trust. This role is usually filled by a professional trustee who charges based on the amount of assets in the trust. However, Wyoming offers the creators of these asset protection trusts the option of creating a private trust company to manage the trust assets. This allows the trust creator some increased flexibility and the opportunity to reduce the ongoing fees of the Domestic Asset Protection Trust.
Colin Ley is a Seattle asset protection attorney. He is also the co-founder of LayRoots along with his wife, Shreya.
