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Asset Protection Trust Jurisdictions for Physicians – Part 1, Domestic

April 16, 2013 by Leave a Comment

law and money for doctorsIn our discussion two weeks ago we introduced the Asset Protection Trust (or APT) as a tool and answered some of the most frequently asked questions regarding what it is and how it differs from the estate-planning trust many doctors already have in place. We continue our discussion of the APT this week and examine the often argued and misunderstood issue of jurisdiction, that is, the place and laws under which the trust is created that ideally control any legal action with or against it.

The Options

The most basic division between choices is simple; APTs can be on-shore or “domestic” or offshore, typically referred to as “international” or “foreign.” Look for these prefixes to indicate this elemental distinction. Both DAPTs and their offshore or international (IAPT) counterparts share some common elements:

• They are irrevocable

• They must strictly comply with all legal, formational and operational requirements imposed by a specific jurisdiction and state so in their drafting

• They have trustees appointed to mange the trust and its assets

• Some require that the assets seeking legal protection are actually located within the jurisdiction and that an approved local agent, trustee or authority is appointed

• They must be set up and funded in advance of any claim or specific liability you want them to be effective against

• Neither structure is secret or tax free, despite what’s promised

• Both are usually ineffective against a current spouse when used in a legal way

There are a number of states that have created laws that allow the formation of a domestic APT or DAPT in their jurisdictions. This number has grown over the last few years due to consumer demand and the states’ realizations that they can generate significant fees as part of being in the trust business.

Among the most popular of the DAPT jurisdictions are Nevada, Montana, Delaware, and Wyoming but there are many others that have similar statutes. Experienced planners have strong opinions about which jurisdictions are best and why and should be able to explain the benefits and how they can effectively apply to you and your assets well beyond just, “Because we are in state X”.  

These trusts are typically less expensive than their offshore counterparts but are as yet untested on any wide scale and rely on the hope that, for instance, a judge in California with jurisdiction over a California defendant will refrain from trying to grab that defendant’s assets in Nevada because Nevada says they are in a special trust. This also unfortunately flies in the face of “full faith and credit” which essentially states that a judgment in any state is good and enforceable against a defendant and their asset in every other state. Large numbers of DAPTS have been established over the last few years in various jurisdictions by planners of widely varying skill for clients with questionable timing.

I’m a strong believer that “bad facts make bad law” and given the number of bad fact-planning cases that have been executed in the last few years, I feel it is likely that you will see many of these structures pierced. Although these cases should be judged individually on their merits, human nature makes it more likely that they will begin to be viewed as a group by the courts and either generally upheld or viewed as ineffective. Until that drama plays out I advise not be in the legal equivalent of a clinical trial.

Consumers must be wary of who they chose to work with for both DAPT and offshore-based planning. There are significant ramifications for making transfers to these kinds of vehicles including tax, estate, and fraudulent conveyance issues that you must understand or have counsel that does. Many recent entrants to the asset-protection business are applying form documents without a full understanding of their use and how it will affect your future defense, control, and use of those assets. Get personalized help from an experienced attorney who can help make sure that you are following the letter of the law to get any and every possible benefit the trust may provide.

Our next discussion on this issue will turn to the use of offshore asset protection trusts by doctors and the myths surrounding IAPT planning and its effectiveness.

 This article was originally written for and published by www.PhysiciansPractice.Com, The Nation’s Leading Practice Mgmt. Resource, where Mr. Devji is also a regular contributor.

Filed Under: Asset Protection, asset protection trusts, chiropractors, DAPT, dentists, doctor sued, Doctors, Domestic Asset Protection Trusts, FINANCIAL ISSUES FOR DOCTORS, financial literacy, HEALTH CARE LAW, Ike Devji, Legal Strategies, Medical Practice Management, physicians, recession survival, trusts, Wealth Transfer Strategies Tagged With: , , , , , , , , ,

Tax Scams: I.R.S Dirty Dozen Targets Doctors and Business Owners

March 25, 2013 by Leave a Comment

 BUSINESS AND MEDICAL PRACTICE OWNER LAIBILITY

With fewer than 60 days until tax time the annual 11th-hour tax planning rush by doctors is in full swing. The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter. “Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen,” IRS Commissioner Doug Shulman said recently. “Scam artists will tempt people in-person, online, and by e-mail with misleading promises about lost refunds and free money.” In other words, be wary of these scams:

 

 

Identity Theft

The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund. An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized. 

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. 

Return Preparer Fraud

Most return preparers provide honest service to their clients. Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts, or nominee entities, using debit cards, credit cards, or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities, or insurance plans for the same purpose. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requrements that need to be fulfilled.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure credits such as the Earned Income Tax Credit is a crime. 

False Form 1099 Refund Claims

In this scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Abuse of Charitable Organizations and Deductions

IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business. These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions, and facilitate money laundering and financial crimes.

Misuse of Trusts

While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

 
 
Filed Under: CEO, chiropractors, cpa, dentists, Doctors, Due Dilligence, FINANCIAL ISSUES FOR DOCTORS, financial literacy, IRS, liability, Medical Practice Management

Addressing Employee Liability Issues at Your Medical Practice or Business – 12 Month Practice Tune-up

January 18, 2013 by Leave a Comment

January 08, 2013 | Finance, Risk Management, Law & Malpractice, Staff

By Ike Devji, JD

Happy New Year and thanks for continuing into 2013 with us. In one of my last columns of 2012, I suggested that many of the complex issues we discussed together over the last few years in this forum can seem daunting when taken as a whole and that we would provide a series of guides to help you address major issues in a time- and cost-effective way. This article is the first in that series.

One of the greatest assets and largest liabilities any business faces is its employees. The average American business is five times more likely to face legal exposure by an employee than for another reason. And judgments for common complaints like sexual harassment routinely produce verdicts of $500,000. We continually see that many of the issues that arise and become adversarial or create significant legal and financial exposures for doctors result from a failure to plan and have adequate “risk management” measures in place. Risk management is the first line of defense as preventing harm or liability is almost always cheaper and easier than trying to correct it. This is also a great time to make some changes; employees expect that policies and procures are updated periodically, typically at the beginning of the year.

Issue One: Employment Manuals

A good employment policy manual, a.k.a. employee handbook, is one of the most basic and effective lines of defense and an indispensable management tool. The majority of medical practices out there have either no manual at all or worse, a form manual that is poorly drafted and fails for some reason. Many manuals in place are outdated in terms of compliance with current employment laws or have been borrowed from another doctor, sometimes in another state, and the laws around which they were drafted do not apply.

The common practice of borrowing another doctor’s manual of questionable value and simply cutting and pasting the name of your practice in to save a few dollars will almost always produce a bad result when it’s challenged. We’ve provided a specific resource and very specific tips from an expert in a previous article but a good manual will, as a minimum:
• Be drafted for your business and how it actually operates;

• Include a specific and legally enforceable conduct, confidentiality and discipline and termination policies; and

•Be specific to the current employment laws in your state.

Issue Two: EPLI Insurance

Employment Practices Liability Insurance (EPLI) is another “must have” tool. This very specific type of insurance is structured to help handle the cost of an employee lawsuit and may not only provide the costs of legal defense, which can easily be six figures on its own, but also provide some coverage in the event of a judgment. Like all insurance, its cost is based on underwriting and your past risks and exposures. The cost is very low and it will pay for itself the first time you have any need for an employment attorney in a controversy, based on my experience. In fact, in most cases a year of insurance can cost less than just a retainer required by a lawyer. Work with an insurance expert that can explain in detail the differences and gaps between different carriers and policies.

Issue Three: Workers Comp Coverage

This is another specialized area of insurance that requires professional guidance. Remember this policy is there to protect your employees from loss and injury incurred on the job, it’s also there to help avoid you and your practice for being help directly and personally liable for those losses and the financial and legal costs involved. I often see physicians trying to shop this on price alone. Don’t do that. This not only protects those who trust and work for you it also protects you by limiting their right to sue you for the harm in exchange for these benefits.

Issue Four: The Human Factor

As carefully as we plan, there is one exposure that’s very hard to prevent: the human factor. Always keep in mind that you are responsible for the workplace and the specific human interactions of the people in it, including employees, contractors, vendors, and even owners and partners. Intentional conduct or gross negligence are almost always going to cause you trouble and cost you money. Make this the year that you identify and fix specific behavior issues that create these liabilities or terminate those that cause exposure if they refuse to conform. Your business is at stake.

This article originally appeared at www.PhysiciansPractice.com and is used here with permission. Asset Protection only attorney Ike Devji has 10 years of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to physicians and other professionals nationally.

Filed Under: business legal planning, chiropractors, dentists, doctor sued, Doctors, Employment law, FINANCIAL ISSUES FOR DOCTORS, HEALTH CARE LAW, Leadership & Management, liability, medical practice mangement Tagged With: , , , , , , , ,

Start-Ups: When Does Liability for Your Business or Medical Practice Begin? – Asset Protection

July 9, 2012 by Leave a Comment

The many discussions we have shared here have largely centered on asset protection and other legal and financial issues faced by physicians and business owners. The bulk of those discussions assumed that you own or run a business or medical practice. Due to the growing availability of financial and legal education resources available to business owners, doctors and practice managers and the increasingly demanding and onerous nature of the medical business I’m seeing something encouraging as an attorney: Doctors are starting to get serous about the business side of their practices.

I’m increasingly working with not only the seasoned practice owner or physician with a substantial and hard-earned net worth we’ve always worked with, but also young doctors ready to start their own practices and ready to learn and implement strategies that will help them build their practice and family wealth in a predictable way. This discussion could easily fill a book, but we will begin here and help you identify key issues and questions to help get you started on you way or consider issues that need to be refined in your existing practice.

Step One: Understand When and Where Your Legal Liability Begins

In most cases it starts before you even open the doors. Make sure you have a good handle on your personal overhead and existing debt obligations when creating your business plan and projecting start-up capital costs. Remember that you have bills to pay yourself and you must be able to meet both your business and personal overhead commitments for an extended period of time while your insurance contracting and billing cycles get ramped up. Many experts advise planning for 90 days to 120 days for revenue to actually begin cycling back to your practice at start up.

Understand clearly the nature of the debt you are incurring and what you are signing, whether for real estate or for a start-up credit line in some form. If buying real estate with partners make sure that the debt obligation is limited to your proportional ownership, and that you are not “jointly and severally liable” for the entire amount of the debt in one big pool. As an example, if you are going to own only 25 percent of the legal entity that owns the building, make sure you are only personally guaranteeing 25 percent of the debt. Likewise, if collateral is required for such financing, make sure the collateral you contribute is similarly structured as well; don’t provide an asset or full claim to an asset that has a value greater than your fractional ownership of the debt.

Relying on any promises or agreements not explicitly in the written agreement between the borrower and the bank is fatal. Even if you have a written agreement with your partners or in your partnership’s operating agreement that says you share debt and liability as owners, the bank will almost never be party to that agreement or bound by it in any way. They will collect on the obligation to the letter of the law and the contract in the event of a default. Consult with independent counsel that represents you only, do not rely on the representations of the attorney that works for your “group” if joining a new practice or starting a new one with partners. That attorney has a client and it is the corporation itself (or worse, their buddy who hired them) in most cases, not you.

Use your attorney’s counsel to determine the exact dollar amount of your personal guaranty liability. If you are married, consider this number carefully and make sure you understand the nature of the effect of this debt on your spouse and whether it affects your community property. Never “bet the farm” without checking with your husband or wife. Wherever possible we also advise language that specifies the debt is the sole responsibility of the physician or practice owner spouse.

Finally, figure out what assets you have that are currently exposed. This number can almost always be reduced and there are basic asset protection measuresthat can be part of nearly everyone’s legal planning regardless of net worth.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. Another version of this article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

 

Filed Under: Asset Protection, business legal planning, business survival, chiropractors, closely held business, commercial real estate, dentists, Doctors, family business, financing, Ike Devji, liability, medical practice mangement, physicians, start-ups, startup, venture capital Tagged With: , , , , , , , , , ,

A Physician’s Start-Up Guide: Picking the Best Real Estate for Your Medical Practice

May 30, 2012 by Leave a Comment

Buying the perfect building for your medical practice requires you to consider much more than “location, location, location.” 

In our first two discussions on starting a new practice we’ve examined both the fine points of doctors’ serious liability for debt involved with buying a building or financing a medical practice start-up and common issues physicians must consider when buying an existing practice to call their own. In this piece are issues to consider when buying a commercial investment property and the right way to think of the building you may buy to house your practice.

First, Decide if You Actually Do Need to Own a Building
This may sound basic, but don’t assume you need to own a building at all, especially if your practice does not require it. The owner of an existing medical practice may own both the practice you are buying and the building it currently sits in, but that doesn’t automatically mean the sale is required to be structured for both.

Leasing from the seller (or just continuing assuming or renewing the existing lease if the practice owner does not own the building) will often drastically reduce your debt and increase your chances at getting startup capital; you may have more luck getting one loan than two. Leasing may also allow you to upsize or downsize your physical facility more easily to adjust to the actual financial performance and needs of your business as well as other issues outside your control like demographics and traffic patterns. Once you’ve made a commitment, assumed the liability for the debt, and made improvements it becomes more difficult to leave when you should.

Treat it Like an Investment
It’s tempting to treat the purchase of a medical office building like something personal complete with the emotions you’d let influence the purchase of a home; don’t do that here. You are buying a “commercial investment property” as much as a place to run your business.

Consider factors like the ability to expand or sublease as well as an exit strategy. Would you want to be a tenant or own the building if you were not operating your specific practice there? If you did want or need to sell the building, would it be easy to sell or lease to someone else? Could it be anything other than a medical building or serve some more profitable use in the future? These are all questions that an experienced commercial realtor can help you answer in addition to the basics of finding the listing and providing relevant comps on nearby sales and leases. When you look at those comps, make sure they are within the last 12 to 18 months, as comps outside that range don’t reflect the current value or the effect the economy has had on the actual value due to the recession. The fact that the seller paid twice what you may be offering five years ago at the peak of the market is the risk he took when he invested. Keep that in mind and stick to your number so the investment makes sense for you.

Get the Building a Full Physical
An inspection is standard to many purchases, but given current economic conditions you may be buying a building that is sold as is from a bank or bankruptcy trustee. If that is the case you have substantially more risk as many of your inspection rights and contingency-based protections common to a home purchase contract may not exist or protect you as well. It’s also important to note that if you are buying from a distressed seller, even one with a successful practice, they may often have ignored maintenance issues that will mature into expenses for you. Invest generously in the required due diligence on the property; don’t save $1,500 when you are assuming six or seven figures in debt. I see this kind of bad math done by doctors all the time.

The seller and the commissioned salespeople will talk about an appraisal and a buyer’s inspection. Professionally inspect issues like mold, environmental liability, cost segregation studies, property tax studies, roof and electrical inspections (if unique to your building, i.e. not an office condo with shared infrastructure), and even consider confirming the boundaries of the property. We’ve seen cases where the purchaser of a property got sued and had to correct at huge expense an encroachment on a neighboring property as the innocent buyer of a condition not disclosed by the seller.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: chiropractors, closely held business, dentists, Doctors, Due Dilligence, FINANCIAL ISSUES FOR DOCTORS, financial literacy, real estate investing, start-ups Tagged With: , , , ,

The Physician’s (and Business Owner’s) Simple Asset Protection Self-Exam

May 9, 2012 by Leave a Comment

Several readers have contacted me with a similar question after reading many of the discussions featured here. Though phrased in different ways, the question is essentially this: How can I quickly figure out what I have exposed at any given time? I’ve provided a simple start to answering this question for you below. It will help identify issues that need attention and help provide a hard number on your current exposure.

 

Do the Math

 

Start with your home. If your home is in your name or the name of your revocable living trust, take the current value of your home and subtract what you owe on it. Then take that number and subtract the homestead value protected in your state (This number varies from state to state from as high as “unlimited” to almost nothing, make sure you know what your state’s current dollar value is and if your home qualifies or not). The difference is the equity value in your home exposed to your creditors. Assuming that your home value is at least stable, this number gets bigger with every payment and improvement you make. If you have more than one home in your personal name subtract current value from any loan due on the home, but don’t subtract homestead, you only get it on the primary residence.

 

Then count the money. Assume for the purposes of this simple analysis that assets in “qualified” or tax deferred plans like IRAs and 401K-type plans are protected. Add up the approximate value of your cash, savings, CDs, bonds, securities, and all other negotiable investments held in your own name or in the name of your revocable living trust and don’t forget to include any distributions or income they produce. This number is the value of the liquid assets exposed to your creditors.

 

Have any toys like boats, planes, or classic cars? Add that number into the mix along with value of you and your spouse’s jewelry and any special collections of personal property like coins, art, antiques, or guns.

 

If you own your practice, determine the amount of cash on hand. If the exposure is practice-related, assume it’s all collectible. Remember that a patient-related exposure will name both you and the practice, the corporation is not just a shield. It and its assets are also a target. Do not forget the practice’s outstanding receivables; your creditors are happy to wait for them as well.

 

If you have investment real estate like lots, rentals, or a commercial building in your own name, in the name of your revocable living trust or an LLC you own all of, add that equity number in as well along with any income it produces.

 

For most physicians, this relatively simple calculation can comprise much of the wealth they have amassed and are concerned about having to replace for their family. Now that we have at least a ballpark understanding of your current “number” — the WHAT — let’s look at some the factors that threaten it the WHY.

 

Common Asset Protection Risk Factors for Physicians

 

• Do you and or any family members drive a vehicle?
• Do you have employees?
• Do you have a professional malpractice exposure?
• Do you have a legal responsibility to protect medical and financial data?
• Are you married and do you have assets not protected by a pre-nuptial agreement?
• Do you have a current tax obligation?
• Do you have children?
• Do you own a business?
• Are you a board member, officer, or director of a corporation?
• Do you have hobbies or engage in activities like hunting, flying, boating, etc?
• Do you have partners whose actions create joint and several liabilities for you?
• Do you have personal guarantees on real estate or for business loans?
• Do you have tail liability for professional services performed in the past?
• Have you made specific legal or financial representations that others have relied upon in a business context?
• What kind and what dollar amount of insurance and legal planning have you implemented against these exposures?

 

This list is simple and by no means complete, but it helps explain the detail and variety of issues and exposures involved in preserving the assets you have at risk. Knowledge is power, so use the links above to continue your exploration and act on these issues before an exposure threatens, while the widest and most effective array of options can be implemented to protect your success.

 

 

 

Filed Under: Asset Protection, business legal planning, chiropractors, dentists, doctor sued, Doctors, FINANCIAL ISSUES FOR DOCTORS, financial literacy, liability, malpractice, medical practice mangement Tagged With: , , , , , , , ,

The Physician and Business Owner’s Guide to Selecting a Lawyer

April 5, 2012 by Leave a Comment

We’ve covered many issues affecting doctors and their business and legal needs, specific exposures, and even some of the team members required to run a medical business. Hopefully this discussion has allowed you to identify areas in your own practice where you should be asking the right questions and seeking the guidance of experts.

Today we’ll provide some basic tips to help doctors pick the best legal help:


1. Work with an actual lawyer: It sounds obvious, but many “planners” implementing legal planning are not attorneys at all. While there certainly are specific instances where document preparers and other kinds of planners can execute or record certain basic legal instruments, it must be remembered that such a relationship is unprotected by any attorney-client privilege and is discoverable with a simple subpoena, which will unearth all e-mails and other communications and work product.

As such, any business that requires confidentiality respected by the courts must be executed by a licensed attorney. Furthermore, reliance on the advice or actions of such a person subjects you to full liability for any actions they take on your behalf and they typically are not subject to any real professional liability for the outcome. A simple way to check is the bar association website of nearly every state. Most of these websites typically allow you to search your attorney by name and see if she is in good standing or has any pending disciplinary issues.

2. Don’t JUST shop on price (and know what the fees include): Remember that in many cases working with an experienced professional that is well-versed in a specific area of the law will be more efficient even if he or she bills more per hour. Specialized, experienced professionals have a running familiarity with the law and controlling cases as well as the other experienced players in the particular field of law in which they practice.

This “reach” and “network” is an asset to their clients and will often allow them to get things done in a more cost-efficient way than their less-experienced and lower-billing counterparts. In some cases fixed-fee billing may be appropriate. Make sure you understand what those fees include and what kind of ongoing support and access the planner provides to his clients if required; many hide huge fees on the back end to lure you in up front. Be wary of any ongoing fees involved to use the planning in addition to what it costs to just set up. Ask specific questions about accounting, compliance and tax status and reporting burdens.

3. Ask specific qualifying questions: With a few narrow exceptions, lawyers can list just about any practice area they want to on their websites and say they “do it.” That does not necessarily represent their training and experience in that area of law.

Look carefully at their professional biographies for experience specific to your particular legal issue. Ask direct questions about the amount of time they have been practicing in that specific area, what the outcomes have been and how many cases they have personally been involved with. Depending on the issues at hand ask about the kind of people they work for, their average net worth, and if discussing an area of specific concern to doctors or their professional liability (i.e. HIPAA, Medicare, privacy, records), ask how many physicians or medical practices they have done this type of work for.

This is obviously a doctor-specific question but an important one if you are a physician or the advisor of a physician doing due diligence on their behalf. In my experience with a client base that includes thousands of doctors, we have learned that medical professionals of all types have unique needs and specific technical and legal exposures that only get more onerous as their success grows.

4. Ask for professional recommendations: This can be tricky for lawyers, especially those who practice in sensitive fields where clients value their privacy (such as asset protection), as opposed to possibly less-sensitive fields (such as real estate). Most attorneys should be able to provide at least a couple of professional references that can speak specifically to their experience in this field or from related professionals outside their own firm that refer clients to them for this specific service.

Consider these issues a starting point in your search and check with your existing advisors. They may have access to qualified counsel outside their area of expertise if they regularly serve people like you.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: chiropractors, dentists, doctor sued, Doctors, FINANCIAL ISSUES FOR DOCTORS, lawyers, medical practice mangement Tagged With: , , , , , ,

D.I.Y. Asset Protection Strategies Every Physician and Business Owner Can Implement

February 6, 2012 by 1 Comment

Many of the issues and case studies we have discussed on physician asset protection planning in the age of decreased earnings and unlimited liability may seem daunting and complex. Fortunately, not all the moves you can make require a great deal of time and expertise to address. Here are some small simple issues that every physician can act on by themselves today with little or no cost as a first step to being free from fear.

Do something today.
The number one most important rule of asset protection is that timing is king. Think of it like insurance, which is effective only when implemented in advance of the exposure.

Buy more insurance.
We talked about why insurance alone is not adequate protection in the past, but it is and always should be your first line of defense. Have both personal and professional policies at maximum reasonably affordable limits and then have general liability umbrellas on both. The cost of both umbrellas is typically less than the cost of retaining defense counsel on even a single small exposure.

Maximize your “incidental” asset protection.
Every state has limits on the baseline assets it protects for your family by law, often found in your state’s bankruptcy statues. Make sure you maximize the assets you have in each of these protected categories where practical. These protections are based in the law of your state and are typically supported by a great deal of precedent and case law.

Common protected assets include:

Life Insurance: Understand your state’s protection for the cash value of life insurance. It’s something you likely have, need or want, regardless of whether you enjoy paying for it or not. Given the high allocation to cash most physicians have right now because of instability in the stock and real estate markets this is an increasingly important issue. Make sure that your polices are owned and have named beneficiaries that are protected by statute. For instance, Arizona protects life insurance cash values to full cash value, but only if owned by an individual and when the owner’s dependents are beneficiaries. This small detail dictates whether the money is safe or not.

Homestead: Every state has a “homestead” provision of some type that dictates how much of your equity is protected from creditors including bankruptcy, an increasing concern for physicians. Make sure you know your state’s limits and how much of your home’s equity is exposed or how much “room” you have to bank money up in your home. Be aware of how you hold title and the specific requirements most states impose to get this legal protection. Doing it wrong could cost you your home.

Fund Retirement Plans: Plans with heavy protection include IRAs in their many forms, ERISA-qualified plans, and defined contribution and defined benefit plans. Analyze what portion of your investment assets are long term and allocate as much as possible to those plans. While the laws and their application regarding the safety of these assets vary from state to state most are protected to about $1 million. Ask your financial advisor to explain the limits of these plans in your state. I like them because, again it’s the law and the protection is well established and typically vests quickly. As just one example, IRA contributions in some states are bankruptcy remote after as little as 120 days but remember the timing issue; you can’t establish and heavily fund these plans at the eleventh hour after getting in trouble as defensive planning. That’s known as a fraudulent conveyance or transfer and is the one exception to these laws in most jurisdictions.

Watch Your Annuities: Many doctors purchased annuities due to high guaranteed returns over the last decade. In many states the cash value of the annuities and even the proceeds may be protected. Many of those high return annuities are maturing in a much lower return environment and physicians are looking for places to put money that was earning as much as a guaranteed 7 perent and re-allocating those funds away from annuities which now have much lower returns. Make sure you exhaust your examination of the other available legally protected alternatives (including rollovers) before allocating protected assets to something that may have higher returns but which will also be exposed to a lawsuit. Make your financial advisor do the work; it is part of what they are paid for.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: Asset Protection, business legal planning, business survival, chiropractors, dentists, doctor sued, Doctors, FINANCIAL ISSUES FOR DOCTORS, financial literacy, lawsuit awards, liability, medical practice mangement, physicians Tagged With: , , , , , , ,

Real Estate Liabilities and Physicians’ Financial Solvency

January 26, 2012 by 1 Comment

As an asset protection attorney, my primary responsibility has always been helping clients identify and proactively plan against as many litigation-related exposures as possible. That planning now includes a more complete evaluation of financial and economic risks than ever before. Below is one common example that illustrates the challenges many are facing and the importance of proactively addressing and eliminating these threats.

We are seeing more and more physicians’ financial solvency threatened by the level of personal real estate related debt they are holding. Many are overleveraged into their homes and have payments that are now difficult or impossible to sustain due to combinations of financing challenges and income reductions. Many of those in this predicament purchased homes four to six years ago on interest-only loans that now cannot be easily refinanced due to unprecedented declines in the values of their homes.

 

We discussed the issue of strategic mortgage default in a previous blog post, but for those who do not qualify or who would face substantial personal liability on the loan under their state’s law, the key is to act fast and minimize your exposure by getting out of the house on a short sale or by buying down the loan enough to get the financing required. Due to the great deal of time involved in the average short sale and the issues involved in refinancing, it’s important to be aware of your cash flow and solvency requirements and be a minimum of 120 days ahead of your “crisis” moment, ideally much longer. Remember, just because you decide you are ready to try a short sale does not mean your lender will agree.

One physician client recently walked through her options with me. She wanted to refinance a short-term, interest-only mortgage but needed to make an additional capital contribution of about $100,000 to get the financing she needed. This was unthinkable to the client based on the decrease in value the home had undergone, but turned out to be a good option; here’s why.

She had personal liability exposure under their state’s law of $800,000 if she defaulted. As the family had no current protective planning in place and a clear liability under their state’s law, they would have been both homeless and looking at a solid $800,000 liability plus the costs of legal fees and interest (and the loss of the large down payment and the improvements they had made to the home over the last four years) if they defaulted. Bankruptcy would have cost them nearly an equal amount due to the value of the non-exempt assets they held.

By buying the mortgage down and obtaining manageable financing she and her husband were able to keep the house the family loved, pay the mortgage, and even get a rate several points below what they were currently paying. They were also able to transfer exposed assets (cash) into protected status by moving or converting it into home equity protected by her state’s homestead limits, important given their delicate financial position and a hedge against a future bankruptcy if ever required. Ideal? No, but certainly the lesser of a number of evils for this family.

The same kind of risk-reward analysis easily applies to commercial real estate exposure. Another physician was in a position where the $500,000 loan on their medical building was no longer sustainable. His income had dropped from nearly $500,000 in a peak year to about $150,000. After examining the personal guarantees and potential exposures, selling at $50,000 below what he owed became the clear best option. It reduced his exposure on a personal guarantee by 90+ percent, freed up cash desperately needed in the practice and at home, created a manageable $50,000 short fall he was able to negotiate payments on, and freed him to rent a more affordable space and stay in business.

Again, early treatment and diagnosis are the most vital keys to surviving and minimizing your loss and exposures. Part of the crisis faced by many we have talked to is that they simply waited too long to act. They were used to being successful and having high incomes and had not adequately adjusted their spending and budgets to a sustainable level in time, burning through cash reserves and even savings and protected retirement assets before they acted and when the timing left them the fewest options.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: arizona forclosure, arizona real esate, Asset Protection, Bankruptcy, chiropractors, dentists, Doctors, FINANCIAL ISSUES FOR DOCTORS, physicians, real estate investing, recession survival, Strategic Default Tagged With: , , , , , , , , , , , , ,

Computer Disposal at Your Business or Medical Practice: The Other Hazardous Material – Asset Protection

January 9, 2012 by Leave a Comment

We start 2012 by addressing something you may have already done — replaced or updated computers and other electronic equipment in your practices – and the liability it creates.

Like many other businesses, medical practices often replace or order new computer and electronic equipment at year end to generate additional expenses and deductions and to maximize efficiency going into the new year. You doubtless put a lot of thought and research into what you bought, or at least picked an expert to make those choices for you but how you dispose of the old equipment is just as vital a choice for your practice.

 

Unless you are part of a hospital or very large practice with dedicated IT officers you likely now need to safely and securely dispose of a variety of computers and related electronic devices including:
• Networked printers, faxes, scanners, etc.
• Computer servers and arrays
• Devices that combines hardware and software for a specific function, medical or administrative
• Networking equipment
• Electronic data storage devices and backups
• Desktop and laptop computers and smartphones that have been used to access or relay protected data

You’ve likely noticed that “computers” themselves were listed last, primarily because they pose the most obvious threat to the sensitive and legally onerous financial and HIPAA-protected information that virtually every medical office in the United States stores and is legally responsible for. However, the admittedly partial list of other devices that can store and transfer this data shows how much wider the exposure is and why all practices must deal with this exposure of patient data in a systematic way. As an example of just how serious the exposure can be, a simple printer can have tens of thousands of patient social security numbers and intake forms stored in its memory.

You may be asking, “Can’t we just give them or throw them away?”

No, not in most cases. You can certainly donate (and in some cases take a tax deduction for) certain peripherals after determining if they pose a storage risk or not, (things like mice, keyboards, and monitors are the most basic examples), but the computers themselves and most other devices that transfer, copy, or store data present a serious exposure to your business. Whether your computers are going to be destroyed, donated, or recycled, it’s vital that all data on the computer is wiped out as a minimal first step.

Downloadable software programs or those available at most office stores can be a first step and may already be present in your operating system or anti-virus programs. Remember that data on personal computers is not actually “erased” unless the hard drive itself is destroyed. In many cases a professional ID thief (or an average 12-year-old) will be able to retrieve the info from a wiped computer.

Here’s a simple five step outline to get you started. These steps will help mitigate your practice’s legal and financial exposures for the data, potentially facilitate the use of the equipment by a worthy charity or individual and help your practice be more green.

1. Take action now. It’s too easy to put the old equipment into a storage area that no one pays attention to or takes inventory on until something goes missing.

2. Have a plan and make someone specific responsible. Create a written chain of custody and educate the person in charge about the risks and gravity of the task at hand.

3. Keep records of how many devices you have and are destroying or donating (make a copy for the CPA including depreciated value and replacement cost) and where they went or how they were disposed of.

4. Disconnect old machines, sign all users out of them and disconnect them from your network where they are often not maintained or updated and where they may actually create a security risk.

5. Keep the equipment secured until it’s ready to be recycled or destroyed. Keep records of where it goes.

Happy New Year! Thank you for your continued readership, feedback and support.

ADDITIONAL READING:

Smartphones Partly to Blame for HIPAA Compliance Issues

http://www.mdnews.com/news/2012_01/smartphones-to-blame-for-hipaa

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: Asset Protection, business legal planning, chiropractors, dentists, doctor sued, Doctors, Ike Devji, liability, liability insurance, medical practice mangement Tagged With: , , , , , , , , , , ,
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