Your Money: You’re Not an ‘Average American’

Most people tend to think of themselves as “average” in many ways, and physicians are no exception. But consider the financial position of the average American, and see how you stack up.

According to the U.S. Census Bureau, the average American family earns less than $45,000 a year. That translates to an income tax liability of less than 12 percent. The average American family will never be worth more than $1 million. In fact, fewer than 2 percent of all families will ever incur an estate-tax liability.

In addition, the average American is an employee, not an employer. As a result, most Americans will never be sued for their work-related activities. Therefore, there is no need to address protection from creditors and lawsuits.

Does the situation above describe your circumstances? Of course not.

As writers of books and articles on financial topics, we regularly interact with publishers and hosts of radio and television programs. Along the way, we’ve learned something very troubling: Radio and television stations, book and magazine publishers, and Internet content editors are looking for material suitable for their “average” audience members. They tell us they fear alienating these audience members by including content that might be appropriate only for those with higher incomes.

What does this mean for you?

It means the financial and legal advice you get from television, radio, newspapers, and the Internet does not apply to your situation.

By heeding such advice, you are like the patient who trusts his own self-diagnosis from a 10-minute search on WebMD. Though the information he finds there may be appropriate for many situations, it is surely no substitute for seeing a licensed physician.

Indeed, for certain situations, it isn’t enough to see even the finest primary-care physician - the patient should see a specialist for the best possible advice. If you recommend that patients see a specialist for their health problems, why don’t you take your own advice when it comes to your specialized financial and legal concerns?

With this column, we begin a four-part series, running in each issue of Physicians Practice through February 2007, explaining some of the high-end financial planning techniques that are probably not appropriate for the average American - but are appropriate for higher-net-worth individuals such as yourself. We’ll discuss major risks that physicians in particular face - and suggestions on how to address them.

Don’t expect your friends or colleagues - or even your financial advisers, in many cases - to be very well versed in the techniques in our articles. They are appropriate for less than 1 percent of the population. It’s OK if they sound strange to you at first. They should. Once you embrace that you are different and you require different planning from most of your neighbors, you’ll be on your way to financial freedom.

You carry risks others don’t

In addition to the medical malpractice risks that should be covered in part by insurance, you carry other risks that were never addressed in your medical training. These are what we call “business risks.” You are not only a practicing physician; you may also be an employer, a leaseholder, or a landlord as well. You must deal with state and federal rules and regulations (like Medicare and HIPAA). You have employees whose actions can lead to lawsuits. You have partners who can file lawsuits that can wipe out your business assets. This makes you different.

Here’s what we suggest:

• Incorporate your practice. Do not listen to any adviser who tells you it isn’t necessary to incorporate your business. Though the corporation does not protect your personal assets from medical malpractice actions, it does protect you from the legal entanglements, both medical and nonmedical, of your partners or employees. Is it worth approximately $1,000 to $2,000 per year in additional state fees and tax preparation to remove that risk? That’s up to you to decide, but it seems an easy call to us. Further, there are tax benefits available through a corporation that cannot be realized by a sole proprietor or general partnership.

• Never own assets in your own name or jointly with your spouse. We know that this is the most common ownership structure for real estate and bank accounts. This is OK for 90 percent of Americans. But not for you. You carry potential lawsuit risk, probate fee liability, and estate-tax risk. If you don’t want to lose your assets to lawsuits or leave your children with unnecessary probate fees or estate-tax liabilities, you need to consider alternative ownership structures. There are many ways to protect your wealth while maintaining control over and access to your assets and eliminating probate fees and reducing estate taxes. We discuss these at length in “Wealth Protection, MD: The Ultimate Financial Guide for 21st Century Physicians.”

In the November/December issue, we’ll discuss why you should steer clear of retirement plans that are perfectly appropriate for average Americans.

Christopher R. Jarvis, MBA, is a lecturer and author of “Wealth Protection, MD.” He is also a cofounder of The Wealth Protection Alliance, a nationwide network of elite independent financial advisory firms whose goal is to help clients build and preserve their wealth. Charles P. KinCannon, JD, LLM, is a certified wealth consultant with the Heritage Institute and provides sophisticated business planning to physicians around the country. They can be reached at 800 554 7233 or via editor@physicianspractice.com.

This article originally appeared in the October 2006 issue of Physicians Practice.