11 common physician asset protection mistakes

Failure to act. Doing nothing or failing to act under blue skies, while you do not have an existing claim, is the single biggest and most common asset protection and estate planning mistake doctors make.

Failing to know and manage all your risks, not just malpractice. Doctors are naturally concerned about professional liability and you should be but considering that your only significant risk can be financially fatal. I’ve previously provided both a list of common risks most doctors face and specific examples of non-malpractice risks to consider.

Failure to lead and manage. Many exposures are based on a failure of leadership, management or compliance. The best way to avoid a lawsuit or any other exposure is to manage behaviors that create risk by yourself or others, so you never have a problem to begin with.

Failing to adequately insure personal risks. I routinely speak to physicians that are un-insured or under-insured for both loss and liability related to their homes, cars, real estate investments, and other non-practice risks. Many of them contact me after an exposure, when options to protect their assets are limited, less predictable, and in some cases even illegal. Get an umbrella policy of at least $1MM.

Failing to adequately insure business risks. Medical practices require specific, high limit commercial liability insurance that goes far beyond their medical malpractice and general liability. This coverage protects you against employment liability, data breaches, managerial malpractice and a variety of other business risks.

Relying on insurance alone. Insurance is a vital line of defense, but will always be limited in the scope of what it covers and excludes and the dollar limit to which it can be covered. Assume there will be a gap in coverage and have a back-up plan that limits your exposure.

Failing to protect income streams. Actively earned income streams are difficult to fully protect but passive income from real estate investments, interests in other businesses, and personally held investments can much more predictable and tied to the eventual control of your estate plan. These income streams should be paid directly to an entity that is legally distinct from your unrelated personal and professional liability, like a limited partnership, trust, or other appropriate family holding company, not to you personally.

Failing to segregate assets and liabilities. Some physicians continue to hold too many assets personally or mix assets that can affect each other in a single holding entity like an LLC (too many eggs in one basket). Common examples include not separating a medical building from the medical practice inside it, over-funding LLCs with too many pieces of property and mixing safe, passive assets like investment accounts with dangerous ones, like rental properties.

Holding assets personally. Assets held personally are available for all your personal and professional liability and may not be linked to the control of your estate plan. Long term assets should be held in the right legal entity that makes them legally distinct from your personal and professional liability.

Using DIY strategies and amateur planners. Transfers of assets to relatives like a spouse or sibling, using “sham” liens recorded without a real exchange of value, and using LLCs as a magic bullet are common examples of strategies that will fail. It can be even worse however, when strategies include frivolous arguments, tax evasion, fraud and perjury. Not only will those strategies probably fail, they create additional legal Jeopardy.

Failing to use the right tools. A revocable living trust is great estate planning tool but won’t provide creditor protection during your life. An LLC is a great business tool but typically won’t protect the home you live in or your personal vehicles because it lacks legitimate business purpose.