Physicians should examine their estate and asset protection planning in 2021. Due to increased risks including COVID-19, the economy, various current social, legal, and political variables. Unfortunately, not all strategies marketed to doctors are equally legitimate or effective. Here are some common mistakes to avoid.
Failing to act
Doing nothing or failing to act under blue skies, while you do not have any existing claim, is the single biggest and most common asset protection and estate planning mistake doctors make.
Know and manage all your risks, not just malpractice
Doctors are naturally concerned about professional liability, and you should be, but acting as if that your only significant risk can be financially fatal. You have risks as a business owner, employer, parent, real estate owner, board member and many others that must be managed; think holistically.
Failure to lead and manage
Many exposures are based on a failure of leadership, management or compliance. The best way to avoid a lawsuit or any other exposure is still managing bad behavior that creates risk by yourself, family members staff and partners so you don’t have a problem to begin with.
Failing to adequately insure personal risks
I routinely speak to physicians that are un-insured or under-insured for both loss and liability related to their homes, cars, real estate investments and other non-practice risks. Many of them contact me after an exposure, when options to protect their assets are limited, less predictable and in some cases, even illegal. A personal umbrella policy of at least $1MM is the bare minimum, ideally higher.
Not adequately insuring all business risks
Medical practices require specific, high limit commercial liability insurance that goes far beyond their medical malpractice and general liability coverage. This coverage protects you against employment liability, data breaches, managerial malpractice and a variety of other business risks your med-mal policy does not cover.
Relying on insurance alone
Insurance is a vital line of defense but will always be limited in the scope of what it covers and excludes and the dollar limit to which it can be covered. Assume there will be a gap in coverage and have a back-up plan that limits your exposure.
Leaving income streams exposed
Actively earned income streams are difficult to fully protect but passive income from real estate investments, interests in other businesses and personally held investments can much more predictable and tied to the eventual control of your estate plan. These income streams should be paid directedly to an entity that is legally distinct from your unrelated personal and professional liability, like a limited partnership, trust or other appropriate family holding company, instead of to you personally.
Mixing assets and liabilities
Some physicians continue to hold too many assets personally or mix assets that can affect each other in a single holding entity like an LLC (too many eggs in one basket). Common examples include not separating a medical building from the medical practice inside it, over-funding LLCs with too many pieces of property and mixing safe, passive assets like investment accounts with dangerous ones, like rental properties.
Holding assets personally
Assets held personally are available for all your personal and professional liability and may not be linked to the control of your estate plan. Long term assets should be held in the right legal entity that makes them legally distinct from your personal and professional liability.
DIY strategies and amateur planners
Giving assets to relatives like a spouse or sibling, using “sham” liens recorded without a real exchange of value, and using LLCs as a magic bullet are common examples of strategies that will fail. It can be even worse however, when strategies include frivolous arguments, tax evasion, fraud and perjury. Not only will those strategies probably fail, but they also create additional legal jeopardy.
Failing to use the right tools
A revocable living trust, as one common example, is great estate planning tool but will not provide creditor protection during your life. An LLC is a great business tool but typically won’t protect the home you live in or your personal vehicles because it lacks legitimate business purpose.
Asset protection planning is most effective when implemented as preventative medicine and should be implemented with the help of experienced experts that can diagnose your specific exposures and prescribe tools and risk management measures specific to your facts.