The Physicians Guide to Asset Protection
It’s not uncommon to see litigation against a physician or medical practice. Those who have failed to act on the matter of asset protection before a suit is initiated could be at great financial risk.
As you start to consider selling your medical practice, it’s an opportune time to look at your business structure, your assets, and your investments. If you’re planning to retire soon, you don’t want a lawsuit to take a chunk of your hard-earned savings.
Business Structures and Asset Protection
Many physicians are under the misguided assumption that creating a professional corporation like a limited liability corporation (LLC) will solve all their problems as far as protecting their personal assets from creditors and judgements. However, this isn’t always a certainty, say business advisors like Andrew Rogerson in Sacramento. A better strategy for physicians is to structure their assets in a manner that gives them protection from litigation and creditors, as well as tax savings and also fits with their estate planning.
It’s important to seek advice from professionals who understand and work with California-specific laws. State asset protection may laws vary. However, there are some general ideas that can help provide a protective structure no matter where a physician is practicing medicine.
Retirement Accounts. These accounts can typically shield assets from creditors and lawsuits. A 401(k) or IRA also can offer a tax advantage as funds in these accounts increase in value.
In California, some retirement accounts are protected, like 401ks and profit-sharing plans, but others, such as IRAs, are more susceptible to judgment creditors. Their ability to access a doctor’s retirement account in California depends on the type of retirement account and the amount of money in it (California law allows an individual to exempt the amounts of his or her IRA and other non-ERISA accounts that are “necessary for the support” of the person and his or her dependents at retirement).
Federal law prohibits judgment creditors from tapping into money in a pension plan that was created under the Employee Retirement Income Security Act (ERISA). To be protected against creditors, an ERISA account must be either a qualified retirement plan or an employee welfare benefit plan covered by ERISA. ERISA-qualified pension plans and benefit plans covered by ERISA include:
- 401(K) accounts;
- Pensions and profit-sharing plans;
- Group health and life insurance plans;
- Dental and vision plans; and
- HRAs, HSAs, and accidental death or disability benefits.
You also should look at how California treats SEP IRAs, which are retirement accounts designed for small business owners like doctors.
Trusts. Some states have what are called asset protection trusts. This includes Alaska, Delaware, Rhode Island, and Nevada—where even out-of-state residents can open a trust. These trusts can be used for real estate, life insurance policies, cash, and securities, offering a great deal of protection from creditors.
Annuities and Life Insurance Policies. These are another way to protect assets; however, these must be established far in advance of a claim. A doctor has the opportunity (like the rest of us) to purchase a fixed or variable annuity. These products require a lump sum at the time of creation, but then provide a steady flow of income. And longevity annuities can start these payments later in life to supplement long-term care if required. Although annuities can be a great source of income in retirement, they’re subject to fees and other rules that can make them more expensive, and they’re not exempt from income tax.
Many Steps to Sell a Medical Practice
The market in California for buying and selling medical practices has been extremely active so far in 2017. If you are looking to sell, you should work with an experienced business broker to be certain that the sale of your practices makes sense for your future needs.
Andrew specializes in helping business owners sell their business including a Medical Practice and its many steps. Not every deal is a good one, and you need to be sure that the transaction is a good fit for you. Andrew will guide you through the process and help you avoid key mistakes throughout this process.
Click this link if you would like a one page summary of the “Many Steps to Sell a Medical Practice”.