Asset Protection Advice for Single Physicians

I received a phone call from a client last week. In an attempt to save money, he was contemplating reducing his malpractice insurance coverage from $1 million/$3 million to $250,000/$750,000. However, he was worried about the increased exposure of his personal assets to creditors following this move. 

We discussed the unfortunate fact that a very powerful means of asset protection in our state (Florida), holding assets “As Tenants by the Entireties” between husband and wife, was not available to him because he was unmarried.

We reviewed the options open to him and to other “singles,” whether unmarried, divorced, or widowed. I gave him, and I give you, the strong disclaimer that I am not an attorney, and not legally able to dispense legal advice. I was, however, able to discuss this issue generally with my client. I strongly encourage anyone interested in this subject to meet with a competent asset-protection specialist, usually an estate planning attorney.

We discussed that this physician's qualified retirement plan at work was safe from creditors based on federal law. In Florida and many other states, IRAs are also generally protected from business creditors. Rollover IRAs (and $1 million in a traditional IRA) are protected even in bankruptcy.

I argued that maximizing contributions to both this physician's qualified plan and non-deductible contributions to his IRA, made good sense for retirement and tax issues, in addition to their attractive asset protection features.

He asked about life insurance and annuities, and we discussed that these are a safe asset protection category in most states. He was concerned that money he put into insurance or annuities would become much less available to him for other needs, a point well taken.

Although this physician doesn’t own a home, we noted that Florida has very strong protection of one’s homestead from creditors, and that he might consider putting some assets there. I did tell him that other states are not nearly as generous with homestead allowances, and that he should consider where he might be living in the future. I have seen it argued elsewhere that paying off a mortgage with liquid assets is one way to safely “encumber” personal holdings in the face of a lawsuit, but told the client to consult a specialty attorney on this.

After reviewing all these ways to protect himself, the physician asked about family limited partnerships (FLP), limited liability companies (LLC), and offshore asset trusts. I again cautioned that I could not give competent legal advice, but that I had been reading many opinions by asset protection gurus.

It appears that some judges are beginning to “pierce” the protective structures of the FLPs and LLCs, especially when they are made up by a single “member,” or when they appear to have no other legitimate purpose other than as an asset protection device.

There has been the suggestion that such structures with some other additional “purpose” involving other members of the family (FLP) or additional “members” (LLC) might continue to be a good asset protection tool.

Our discussion on offshore asset protection trusts concluded with the agreement that, properly structured, they can be a powerful but complex and expensive tool, and that he’d use this as a last resort.

Overall, our conversation was fruitful, and he decided to review the issues with his attorney.  I wished him luck, and we both looked forward to the day when the concern of losing his assets wouldn’t be one of the major worries of a physician.