Asset Protection Strategies for the High Risk Professional (Part 1 of 3)
Posted: June 25, 2018
How can high-risk professionals like medical professionals, lawyers, engineers and business owners help protect themselves and their families from potential unknown creditors? Below is a brief list of asset protection strategies that can be implemented relatively easily.
The first and best line of defense is adequate liability insurance. Good liability insurance not only provides a means to pay money damages but may also cover legal fees to defend a claim. However, liability insurance has a cap and usually does not cover intentional acts. It is therefore recommended not to rely solely on insurance.
Retirement Plan Contributions
Under federal law, 401(k)s and IRA are generally protected from creditors. Maximizing your contributions to these accounts is an easy way to help protect your assets.
Life Insurance Trusts
This strategy requires a bit more work but serves as a means to protect assets from creditors while also removing assets from your estate for estate tax purposes. Under this approach, a trust is set up to own a life insurance policy on the life of the person creating the trust (the “grantor”). The grantor makes annual gifts to the trust, the trust uses the gifts to pay the premiums, and upon the death of the grantor, the trust distributes the proceeds to the beneficiaries per the terms of the trust. So long as the establishment and administration of the trust is completed correctly, creditors will not be able to access the life insurance policy.
Move Non-Residential Property into an LLC
If you own a business and also own the building your business occupies, then it might be worth transferring the building into a separate LLC. Your business would then lease the building from the LLC. The LLC helps to protect the building from your creditors and the creditors of your operating business because it is not owned by you or your operating business. However, to maximize the effectiveness of this strategy, you should not be the sole member of the LLC.
Incorporate as a Professional Medical Corporation
If you are an independent contracting physician who practices in a group or with other physicians, it might be worth incorporating yourself as a professional corporation (PC). A PC may allow you to shield yourself from the malpractice of other physicians. Please note, however, that this strategy won’t protect you from your own malpractice or negligence.
It's never too early to start planning, but sometimes it can be too late. It is very important to start your planning before creditor claims arise. Please let us know if you have any questions about how to engage in such planning. We would be pleased to be of assistance.