Are Your Assets Protected? Six Common Mistakes Made by Physicians

Almost every physician should have an appreciation of asset protection.  Malpractice liability looms large over most practices and may be an even bigger concern than all the other usual sources of legal worry.

I cannot offer any legal advice, but can share with you some mistakes I have seen families make.  Consultation with a good estate planning attorney is paramount in making sure you don’t have assets exposed to creditors.

1. Mistakes in titling assets. Perhaps the most common error I see is to have significant assets titled either in sole name or in a revocable living trust.  Neither type of ownership provides any hindrance to creditors.  In some states, ownership as “tenants by the entireties” between husband and wife provides solid protection against sole creditors (especially malpractice).  In other cases, protective vehicles such as family limited partnerships or limited liability companies may be appropriate.  Know that having your spouse own significant assets to avoid exposure to malpractice creditors in fact exposes those assets to sole or joint creditors of your spouse.  As noted above, revocable living trusts provide no asset protection.

2. Accidental general partnerships. If you and another party own something together, you are a general partner of that person(s).  You are now liable for their liabilities as well.  Any joint venture or practice with another individual(s) should be done using a structure that limits shared liability, such as an LLC or corporation.

3. Thinking that a corporate structure protects your assets.  It doesn’t.  The creditor can just take your shares. A corporation may serve to isolate liability between employees of a practice, but does little to nothing for actually protecting owned assets.

4. Sharing sources of liability. Owning a car in joint name exposes both you and your spouse to automobile accident liability.  Why not have each car owned solely by the primary driver?  Owning a snowmobile or jet ski with another family exposes you to their liabilities.  Keeping your name on the title of an adult child driver exposes you to their accident liability.

5. Not having any or enough umbrella liability insurance.  This insurance is a cheap way to share risk.  Although it will not cover malpractice or certain business risk, it covers almost all other liabilities that you might come across in life.  Most of you should have several million dollars of coverage carefully integrated with your underlying homeowner, auto, and other property/casualty coverage.

6. Owning rental property outside of a protective structure.  Why expose your personal assets to renters and their guests?

I’ve just touched the surface here.  Part of a good financial planning process is the discovery and ongoing monitoring of asset protection challenges.