By Michael Torney, CFP®, J.D., LL.M.
Lawsuits loom as an ever-present fear for physicians. According to the American Medical Association (AMA), more than one-third of physicians report being sued for malpractice. A similar study found that nearly 50% of physicians older than age 55 have been sued.
In short, even skilled physicians are likely to get sued at least once in their careers. And while the AMA notes that the majority of these claims get struck down in court, you didn’t become a physician to play with risk.
Medical lawsuits are a very real concern. You need to prepare yourself accordingly.
The Five Tenets of Asset Protection
Asset protection for physicians can be explained with covers three primary areas: insurance, lifestyle risk reduction, and state law.
1. Insurance
Naturally, professional liability insurance is one of the most important aspects of asset protection. However, not every policy may be sufficient. Ask yourself these questions as you review options:
- How much is enough? Determine the typical amount for your state and specialty, keeping in mind how much risk your specialty comes with. In one study, specialists in neurosurgery received six times as many malpractice claims over the year than pediatric specialists.
- Which type is best? Know your coverage options (occurrence vs. claims) and review any exceptions that might be noted in the fine print.
- Is my group plan enough? Your group plan might not be sufficient for your needs. Review your available coverage to see if an individual policy is necessary. And while you’re at it, check out umbrella policies offered by your other insurance providers (homeowners, auto, etc.). These low-cost options can be great ways to supplement your existing policy. Consider purchasing umbrella coverage equivalent to your net worth as a general rule of thumb. A qualified property and casualty expert can assist you in determining the proper amount of coverage for your personal circumstances.
2. Lifestyle Risk Reduction
Protecting your assets means protecting yourself—and your family. Try to reduce lifestyle-related risks that could put your wealth in jeopardy. Keep these tips in mind, particularly where insurance and legal liability are concerned:
- Avoid injury-prone purchases. Trampolines, pools, ATVs, and so on. These can be disastrous from an injury/liability standpoint. If you do have a pool, ensure that you familiarize yourself with any applicable local and state safety regulations that you are responsible for complying with, but at minimum, make sure the area is restricted with locking fences and not easily trespassed upon by those you have not invited.
- Live healthily. Hopefully, you’re already doing this, but it bears repeating. Take care of yourself as you know you should. Consider quitting smoking, drinking less alcohol, being more physically active, and maintaining a healthy diet.
- Take care of your property. You may be legally liable for injuries that occur on your property. Take some time to learn the laws in your local area to become aware of the duties you owe to guests and the maintenance your property requires. Take care of your assets and don’t get taken advantage of.
Of course, you shouldn’t get so caught up in disaster planning that you don’t enjoy yourself! You worked hard to make it this far; enjoy the fruits of your labor and take the right precautions that are appropriate for your situation.
3. State Law
The third tenet of asset protection is understanding state law as it pertains to retirement, insurance, asset distribution, and home ownership. Bankruptcy and creditor protection have different rules (the focus here being creditor protection).
- Retirement Accounts: In general, Missouri provides unlimited creditor protection for retirement accounts. See RSMo Section 513.430.1(10)(f). There is also federal creditor protection for contributions and earnings in IRAs and R cost of living this year). Even better, qualified retirement plans have no dollar cap limits on federal creditor protection.
- Home Titling: If you’re married and live in Missouri, titling your home as “tenants by the entirety” may protect your home from lawsuits where only you (and not your spouse) are named as a defendant. It does not protect your home from a judgment against both you and your spouse, but the protection provided at least helps against work-related claims.
- Annuities and Insurance: Annuities, the cash value of life insurance policies, and life insurance policy death benefits, are protected by many states in varying amounts. Check your local state law.
- Homestead Exemption: In Missouri, only $15,000 of your home is protected from creditors under the homestead exemption. Check your state for your specific homestead exemption amounts.
- TOD and POD: If either spouse is involved in an accident and if there is a car defect contributing to the accident, both spouses can be found liable in Missouri if the car is jointly titled. Discuss with your lawyer whether to put the car you drive most often in your own name and title it with a “transfer on death” designation to your spouse or trust.
- Trust Protection: In Missouri, “qualified spousal trusts” and “Missouri asset protection trusts” offer doctors enhanced asset protection as well. Discuss with your estate attorney which options might be appropriate for you.
4. Spousal Protection
Spousal protection for physicians means two things: protecting your assets during divorce and
- Divorce Protection: Primarily, you’ll want to protect your wealth and your assets in the event your relationship goes south. Divorce is very common, and high-earning physicians can have a lot to lose. Pre-nuptial and post-nuptial agreements are often used as a preventative strategy to help protect one’s assets in the event of a divorce, so keep that in mind as you plan long-term.
- Shifting Assets: One tactic that some may use to potentially limit the extent of damages they may have to pay as a result of a lawsuit is to shift assets from their name into their spouse’s. While this technique will not necessarily help avoid the occurrence of a lawsuit, it could potentially help limit the extent of damages that one would be expected to pay. Keep this strategy in mind, but be careful: You can’t usually shift assets during/after a suit, and should you divorce your spouse with assets still in his/her name, you could have a difficult time proving the assets were rightfully yours. If considering this strategy, it’s important to hire a qualified attorney to assist.
5. Advanced Asset Protection Strategies
The last aspect of asset planning in the 5-tenet approach for physicians is looking into more advanced asset protection strategies. Options like LLCs, offshore trusts, or family-limited partnership arrangements fall under this category and tend to work better for certain types of assets, such as real estate.
However, these strategies tend to be expensive and may be unnecessary. If you’re an owner of a private practice or otherwise responsible for business performance, we’d recommend consulting with a qualified advisor with respect to your asset protection and tax goals.
Keep More of What You’ve Earned
Asset protection for physicians doesn’t need to be complicated, but many physicians don’t do their due diligence in the process. And this is a big mistake when you consider everything that’s at stake. From divorce to malpractice to personal lawsuits, there’s a lot that can happen in a physician’s career—and when that day comes, you’ll likely be glad you were prepared.
Contact our team to discuss wealth management.
© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly-owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax, or legal decision. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.
