You probably know that the practice of medicine is a profession fraught with the risk of liability. The risk is not limited to medical malpractice lawsuits! It’s the entire scope of business risk, including employment-related issues, negligent or dishonest business partners and employees, contractual obligations, and personal liabilities. Unfortunately, in our litigious society, physicians are a frequent target.
Below are three liability planning tips for physicians to protect their hard-earned money.
Tip #1 – Insurance is Always the First Line of Defense Against Liability
Liability insurance is the first line of defense against a claim. Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments. Types of insurance you should strongly consider are:
- Homeowner’s insurance
- Property and casualty insurance
- Excess liability insurance (also known as “umbrella” insurance)
- Automobile and other vehicle (motorcycle, boat, airplane) insurance
- General business insurance
- Professional liability insurance
- Directors and officers (“key man”) insurance
- Disability insurance
- Long term care insurance
Note also that various life insurance products can be used as wealth replacement in the event that something happens to you, if you would like to be sure your family has enough money to live comfortably.
Tip #2 – State Exemptions Protect a Variety of Personal Assets from Lawsuits
Each state has a set of laws and/or constitutional provisions that partially or completely exempt certain types of assets owned by residents from the claims of creditors. These laws vary widely from state to state! Florida has excellent asset protection laws. In general, the following types of assets may be protected from a judgment entered against you under applicable state law:
- Primary residence (referred to as “homestead” protection in some states)
- Qualified retirement plans (401Ks, profit sharing plans, money purchase plans, IRAs)
- Life insurance (cash value)
- Property co-owned with a spouse as “tenants by the entirety” (only available to married couples; and may only apply to real estate, not personal property, in some states)
- Prepaid college plans
- Section 529 plans
- Disability insurance payments
- Social Security benefits
Tip #3 – Business Entities Protect Business and Personal Assets from Lawsuits
Business entities include partnerships, professional associations, limited liability companies, and corporations. Physicians who are business owners must take affirmative steps to mitigate the risks and liabilities associated with owning a business, and real estate investors need to mitigate the risks and liabilities associated with owning real estate. Typically, protecting business assets is accomplished by the use of one or more business entities and/or irrevocable trusts. The right structure for your enterprise should take into consideration asset protection, income tax minimization, estate tax minimization, retirement funding, and business succession planning.
Business entities can also be an effective tool for protecting your personal assets from lawsuits. In many states, in addition to the protections offered by incorporating, a limited partnership or a limited liability company may protect personal assets from the creditors of an owner. In many cases, the personal creditors of an owner cannot step into the owner’s shoes and take over the business. Instead, the creditor is limited to a “charging order” which only gives the creditor the rights of an assignee. In general, this means a creditor cannot force a distribution of money from the entity, although the funds may be reachable by a creditor once they are distributed.
Final Advice for Protecting Your Assets
Liability insurance, exemption planning, and business entity planning should be used together to create a multi-layered liability protection plan. I am experienced with helping physicians, professionals, business owners, board members, real estate investors, and retirees create and—just as important—maintain a comprehensive liability protection plan. Please call my office or click here and fill out the form if you’d like to make sure you have the right protection in place.