Don’t Allow a Lawsuit to Sabotage Years of Hard Work: How to Secure Your Wealth

Per the American Medical Association, roughly a third of all doctors will encounter a malpractice lawsuit, with just under 2 percent facing one annually. Although many of these claims are considered trivial, the possible effect on a physician’s financial security is substantial enough to merit careful consideration of asset protection techniques. Here’s how you can shield your well-earned wealth.

Frequent Asset Protection Myths

1. Side Job Income:
A typical misconception is that malpractice insurance as a hospital staff member provides complete protection for personal assets. This might hold true if the lawsuit pertains to your role in a hospital, but if you are independently moonlighting or operating your own practice, personal assets could be at risk unless insurance policies are appropriately designed. Recognizing who is acknowledged as the provider of care is essential, especially if you are compensated as a 1099 contractor instead of receiving a W-2 from your employer.

2. Trusts:
Basic estate planning trusts such as living, family, and revocable trusts do not afford substantial asset protection. These trusts arrange assets for beneficiaries but do not eliminate them from your control. A tactical approach, such as naming a trust to maintain confidentiality, may assist in masking asset visibility but does not directly safeguard against creditors.

Ways to Safeguard Assets

1. Malpractice Insurance:
Physicians need to distinguish between claims-made and occurrence malpractice insurance policies. A claims-made policy covers claims made during the policy duration, even if they arise post-policy expiration, providing more extensive protection. In contrast, occurrence policies necessitate a tail policy for any events that arise after the policy period. Knowing the coverage parameters of your various working arrangements is critical to avoid inadvertent exposure.

2. Umbrella Insurance:
Incorporating an umbrella insurance policy broadens liability coverage across a range of personal lawsuit situations. While often linked to auto accident coverage, umbrella policies encompass various liabilities, including defamation, legal expenses, court fees, and certain medical costs. Generally offering between $1 million and $5 million in coverage, they serve as a cost-effective initial defense, especially for high-earning professionals.

3. LLCs and PLLCs:
Creating an LLC (or a PLLC for healthcare professionals) establishes a separation between personal liabilities and business assets. When properly structured, this legally distinguishes personal and business actions, safeguarding personal assets from business-related liabilities. However, sustaining this distinction requires treating the LLC as separate, without mingling personal and business finances.

4. Creditor-Protected Assets:
Different states provide varying degrees of protection for assets like employer-sponsored retirement plans and personal homes. Understanding your state’s regulations can strengthen your asset protection strategy. Prioritize investments in protected asset categories according to your state’s laws to shield as much of your wealth as feasible.

5. Asset Protection Trusts:
For those desiring comprehensive protection, asset protection trusts deliver strong security by transferring assets out of personal ownership. These irrevocable trusts prevent assets from being challenged in court as they are no longer under your control. While effective, they limit access to the trust’s advantages for the creator’s lifetime.

Act Early:
Efficient asset protection necessitates prompt action. It is crucial to implement these strategies well ahead of any legal disputes. By proactively integrating asset protection into your financial plan, you ensure that if a lawsuit does arise, your wealth stays protected.

Paul Morton is a certified financial planner.