Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)
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Executive Summary
Every practicing physician faces the risk of a lawsuit. Although many physicians mistakenly believe that they will never be sued, thousands of physicians are served with medical malpractice claims each year. To minimize the risk of personal and business assets being seized in the event of an adverse monetary judgment or settlement, physicians should consult an asset protection professional about protecting their assets. In doing so, they should avoid making the following common errors when dealing with asset protection professionals.
Mistake 1 Not Considering Asset Protection Planning
Physicians often do not realize how significant the threat of a lawsuit is. An adverse judgment or an out of court settlement can mean that personal and business assets may be seized to satisfy a liability. A high monetary judgment may result in the loss of everything the physician owns, including his or her house and life savings. An asset protection professional can advise physicians of the best way to organize their affairs before a lawsuit is threatened. Physicians should have an asset protection plan in place before their assets are in danger of being seized.
Action Step Physicians should consult with an asset protection professional as soon as possible to institute an asset protection plan.
Mistake 2 Trying to Do It Alone
Physicians should not try to structure asset protection transactions without the assistance of a qualified professional. The law regarding asset protection is complicated and easily misunderstood, and the rules relating to asset protection are different for various jurisdictions. If an asset protection plan does not comply with all of the intricacies of the law, the assets will be exposed and may be reached by creditors, leaving the physician with nothing.
Action Step Physicians should consult an experienced professional when they are ready to implement a plan for asset protection to ensure complete protection from creditors.
Mistake 3 Relying on the Internet or Do-It-Yourself Books for Advice
Many Internet websites and books on asset protection are not written by attorneys with experience in asset protection, but rather by laypersons who have not been trained to read and understand the law. Many of these websites and books downplay the importance of professionals in asset protection. In addition, the advice on personal and professional asset protection that can be found on the Internet and in books is often incorrect. Erroneous advice will lead to the use of an improper structure when developing an asset protection plan and can result in no protection at all from creditors.
Action Step Physicians should hire a qualified professional to structure their asset protection plans rather than rely on the Internet or do-it-yourself books.
Mistake 4 Using an Unlicensed or Unqualified Professional
Physicians who use an unlicensed or unqualified professional will get the same result as they would if they tried to develop an asset protection plan themselves. The law is complex and the risks are enormous if the asset protection plan is found to be illegitimate. An asset protection plan that is disregarded will result in assets being reachable by creditors. To minimize the risk of using an unlicensed or unqualified professional, physicians should ask for referrals from friends or colleagues.
Action Step Physicians should not follow the advice of an unlicensed, unqualified person when protecting their assets. They should consult a licensed professional.
Mistake 5 Not Following the Professional’s Advice
Professionals, such as attorneys, are trained to be knowledgeable in the area of asset protection. They are taught to read and interpret the law correctly. Physicians who seek qualified professionals for advice on asset protection will get the best recommendations available for their particular situation. Ignoring or not following that advice can result in assets being exposed to and seized by creditors.
Action Step Physicians who are willing to spend the time and money to get the best advice possible should be prepared to follow it.
Mistake 6 Not Disclosing All Assets
Physicians should disclose the existence of all their assets when consulting a professional about the best asset protection plan for their situation. Omitting an asset may result in an incomplete or ineffective structure, and the omitted assets will not be protected from creditors. Assets that should be included in an asset protection plan to avoid exposure to creditors include
- Business equipment, bank accounts, and vehicles
- Personal homes, bank accounts, and vehicles
- Antiques and collectibles
- Real estate
- Recreational vehicles, boats, and planes
- Securities and other financial instruments
- Royalties, patents, and copyrights
Action Step For the best asset protection plan, physicians should disclose all their assets to the professional they hire to structure their asset protection plan.
Mistake 7 Failing to Disclose a Lawsuit, Threatened or Actual
Physicians should disclose all potential and actual lawsuits to their asset protection professional. It is still possible to protect assets after a lawsuit has been instituted. By disclosing all actual or threatened lawsuits, the physician will give the asset protection professional a chance to assess all options regarding asset protection and institute the appropriate plan under the circumstances. By failing to disclose actual or threatened lawsuits, the plan put into place by the asset protection professional may end up being ineffective. An ineffective asset protection plan may result in exposed assets being seized by creditors.
Action Step Physicians should disclose all potential and actual lawsuits to their asset protection professional before the development of an asset protection plan.
Mistake 8 Waiting Until It’s Too Late
Physicians should not wait until the court has entered a judgment or a creditor has secured a garnishment on their assets. At that point, it may be too late to protect assets from being seized. To prevent the loss of assets to creditors, physicians should consult with a professional before any action is taken by creditors to seize assets.
Action Step Physicians should consult an asset protection professional as soon as possible to develop an asset protection plan.
Mistake 9 Expecting to Save Taxes
Physicians may expect that a benefit of asset protection is to save taxes. While there are legitimate ways to save taxes and insulate assets simultaneously, the main goal of an asset protection plan is to shield assets from the reach of creditors. Physicians should talk to an experienced tax professional about how to validly reduce their tax liability.
Action Step Physicians should not rely on asset protection structures to necessarily reduce their tax liability. They should talk to an experienced professional today about ways to protect their assets and concurrently reduce any potential tax liability.
Mistake 10 Not Keeping the Asset Protection Plan Current
Physicians who use an experienced professional to implement their initial asset protection plan will ensure that their plan conforms at the outset to U.S. law. Laws change, however, and a strategy that was effective when executed may become obsolete, exposing assets to creditors. Some plans may need to be updated occasionally to guarantee continued compliance with the law and to ensure the most effective asset protection possible. As a physician’s financial and personal situation changes, it is necessary to keep the asset protection professional apprised of the changes so that modifications to the asset protection plan can be instituted, as necessary.
Action Step Physicians should consult periodically with their qualified asset protection professional to ensure that their asset protection plan is up to date.
Conclusion
Physicians who consult an asset protection professional to avoid these mistakes will have an asset protection plan that fully protects their assets from creditors.
Additional Resources
- R. Mintz, Asset Protection for Physicians and High-Risk Business Owners (Francis O’Brien & Sons, 1999)
- W. Reed, Bulletproof Asset Protection (Five Corners Publications, 2000)
Written by:
James J. Everett, Esq.
Peer reviewed by:
Rex C. Leung, Esq.