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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: , , , , , , , ,

Asset Protection for Medical Practice Receivables

April 17, 2012 By Leave a Comment

A common recurring question I get from high-income practice owners and executives centers on the best techniques to protect a medical practice’s income after the individual physicians’ personal assets are well secured.

The marketing for these strategies peaks around tax time and at year end when promoters are aware that doctors are especially sensitive to tax planning issues. Income protection strategies, typically referred to as “accounts receivable financing” and in similar terms do have a place and value for those that are financially qualified, but the strategy is not for everyone and must be a carefully determined fit for your income, expenses, and long-term plans. Just because it’s theoretically a good idea does not mean it’s a good idea for you, no matter what the salesman says. This is not advice specific to you. Ever.

First, please understand that this is an insurance-based strategy, so if you are one of many doctors that automatically recoils at the mere mention of the “I” word it may not be attractive to you. If that is the case, I’d suggest taking a deep breath and taking a look at the previous articles on life insurance I have shared in this forum, then revisiting this discussion.

Why Is Life Insurance Involved?
Because the economic efficiency is based in part upon the cash value, death benefit, and tax-free growth the law provides to life insurance in certain forms. It just happens to be a good tool for the job.

Who Qualifies?
I have examined and implemented variations of the strategy for a variety of physician and business owner clients in various specialties. Although the qualifications vary slightly between providers, here’s a basic outline of what I usually see:
• Insurable physician in relatively good health
• Has a net worth of $2 million to $3 million plus, minimum
• Has a history of generating at least one million dollars in production annually for at least three years in a row
• Good credit
• Can contribute to and maintain a plan for at least 10 years
• Wants additional retirement income
• Wants additional death benefit for family and estate planning or at least has capacity for additional insurance

How Does It Protect My Income?
You take a large (typically million dollar plus) loan from one of several specialized commercial lenders familiar with complex financial strategies for high-income professionals. That loan is guaranteed by your practice, which makes a formal “collateral assignment” of your practice’s future income. This in essence “equity strips” the future income so that a recorded first position creditor, the lender, has first right to that income to pay back what you borrowed, much like the mortgage on your home being secured against the home itself.

What If I Die During The Plan?
The bank takes what you owe them and pays your family the rest from the insurance policy. For example, if you have a $4 million death benefit and die owing the bank $1 million, they pay off the loan and give your family the $3 million balance.

Where Does The Money I Am Borrowing Go?
It goes into a (gasp!) life insurance policy in large, lump installments. Remember, the lender is making a speculative loan and taking the risk of you earning as much and working as hard as you did the previous years. They don’t just hand you the money and let you spend it as you please, lose it, or want it taken by another creditor. The insurance policy itself becomes additional collateral and the bank is collateralized by the cash value, receivables, and the death benefit in most cases, making them “triple collateralized” against your death, insolvency or other creditors.

What Are The Loan Costs?
It varies, and interest rate exposure is significant in making a decision on a strategy like this. Sometimes the loan is a floating rate, typically LIBOR-based and in others it is fixed at a higher, but more predictable interest rate. You are responsible for the monthly interest on the loan for 10 years to 20 years, or as long as you wish to have the protection of the lien over your receivables.

How Is It Paid Off?
You pay it back by dying, or from the last period of receivables, and end up with a large, well-funded life insurance policy and in some cases, a significant source of retirement income in the form of payments from the cash value of your policy for many years, tax free.

Is it deductible?

Some promoters advise that the interest payments are deductible – my tax experts say it is not. Assume it isn’t and factor that into your costs carefully. Plans ignoring the “Rule of Three.” Many of the top tax advisors I work with around the country agree that the Rule of Three is a simple lay-person test and red flag for independent verification of the legality of any given tax plan. It’s amazingly simple; if you are promised that contributions are deductible, growth is tax free and distributions or withdrawals are tax free, tread very lightly. Many plans can offer two of the above three in some combination, but we rarely see all three together.

Filed Under: Asset Protection, dentists, doctor sued, Doctors, FINANCIAL ISSUES FOR DOCTORS, Ike Devji, malpractice, medical practice mangement, physicians Tagged With: , , , , , , , , ,

Shelf Corporations, Nevada, Wyoming and other Asset Protection FAILS

September 12, 2011 By Leave a Comment

 

“Many times when these corporations or LLC’s are sold, the buyer is told that simply because the entity was formed and registered a few years ago, it has more value because it’s an ‘aged’ corporation,” said Ellsworth. “Buyers are sometimes told that the aged nature of the entity makes it more valuable for things like getting a line of credit, or just general credibility. It does not, and so that’s a serious misrepresentation.”

 

I love the quote above from officials from the state of Nevada. Nevada’s fraud problem, especially as related to asset protection and corporation sales is finally being addressed in a very real way, in fact they have a whole new “task force” out looking for people misusing the the state’s laws to commit fraud or sell bogus legal planing under false pretenses.

THIS IS GOOD! 

Why? Because it helps eliminate fraud and misrepresentation by lawyers and non-lawyer “mills” that sell these things with no regulation or consequence and stops the misuse of legal tools by crooks that want you and I to pay their share of taxes, avoid the law and use shell corporations for fraudulent conveyance, the number one requested use.

Q: I thought you always say “old and cold” is better and that you love aged corporations and other entities?

A: I do, but that’s because corporations that you have owned, run, and have properly funded and maintained for some period of time are typically strong, have records and can illustrate business purpose and usage  – THIS MEANS THE LEGAL PROTECTION WORKS.

This is different from the use of a shelf corporation, an old entity that someone recorded somewhere and that has typically been just barely funded and operated if at all by a third party who often promises to pass it to you “in secret”.

THIS SOLVES NO PROBLEMS FOR MOST PEOPLE - as they are typically funded too late, so  even if the corporation itself is old, your assets being inside it is not, and if you are being sold this as a solution to an existing exposure you are still committing FRAUD.

Thanks, Ike Devji

 See the Article here:

Nevada Securities Division Issues Cease and Desist to Wyoming Company

http://www.nevadanewsbureau.com/2011/09/10/nevada-securities-division-issues-cease-and-desist-to-wyoming-company/

Filed Under: abusive tax schemes, Asset Protection, business legal planning, fraud, malpractice, Nevada, scams, secret bank accounts, shelf corporations, taxation, Uncategorized Tagged With: , , , , , , , ,

The Double Edged Sword of Doctors’ Affluence – Asset Protection

May 19, 2011 By 1 Comment

Two recent articles caught my attention and brought into focus many of the topics I write about and address through planning for Physicians across the country.

The first was a nationally published article on the highest paying jobs in the United States that ran in various incarnations in a variety of news sources. That article listed a number of professions and the average income from each of those professions. The second article was local, but is of the type published in every major metropolitan city in the United Sates, the real estate report on the “Most Expensive Homes Sold”, in this case in the Phoenix-metro area.

What both lists had in common was a large number of doctors. In the first instance, by profession or specialty, and perhaps worse, in the second case, by name, location and the exact price paid for a series of painstakingly detailed and photographed seven figure homes in some of the city’s most desirable neighborhoods. As I casually perused the list I was pleased to see the name of a client, then a friend and finally a relative. Being an Asset Protection attorney however, that pleasure quickly turned to concern over how those homes had been purchased, the degree of unforeseen exposure and the level of detail disclosed.

Of the three, only my client had purchased the home through an appropriate legal structure, in this case an irrevocable trust, as opposed to the revocable living trusts that the majority of the families on the list had used, doubtless unaware that their, “Stunning 8.950 square foot Mediterranean with custom finishes and imported marble, etc, etc.” was completely exposed to a lawsuit or most other liabilities.  A few others had used LLCs and my experience from years of practice told me that many of those LLCs were thinly purposed single-member LLCs that likely lacked defensible, legitimate business purpose, especially if the LLC owned a home that functioned as a personal residence. Put another way, only a couple of the 20 people on the list had appropriate counsel and training or had put enough “tactical” thought into how they approached the preservation of this asset that in many cases was listed for the public as a “cash sale” and how that asset could be breached.

I completely defend your and your family’s right to buy and own anything you want and enjoy the fruits of your labors and education; in fact I do it for a living.  However, wealth is finite and fragile and must be nurtured as carefully and proactively as possible. This is especially true in tough economic times like we now face. Doctors must understand that merely being skilled at your profession, being right or being careful is not enough and that they carry the burden of perceived wealth, which itself draws both good and bad attention. That perception is acutely increased by the visibility of your wealth in many cases, intentionally or unintentionally displayed by your zip code, your vehicle, and in other details right down to your watch and the vacation pictures in your office.

Patterns of success emerge among those who are good at both making money and those who are good at keeping it; two very distinct skill sets. What costs more of your time and money; replacing ten or twenty years of earnings or making the time and allocating the resources to protect your life’s work and all that you have yet to earn?

-        You have a high level of professional and personal liability and statistically face multiple lawsuits during your career;

-        As an American doctor you are among the highest income earners and highest net worth individuals in the world, even you feel like “just a working person”. Know your value on the lawsuit food-chain;

-        Act and think in a way that is tactical, that is forward looking and defensive, or even better, preventative;

-        Be conscious of the visibility of your wealth and the reactions it creates. Stealth wealth is typically longer term;

You have the legal power and resources to implement planning that can protect the majority of your life’s work in a safe, legal way. Choose to be protected

This article originally appeared at www.PhysiciansPractice.com the nation’s leading practice management resource, where Ike Devji is regular contributor. It is reprinted here with permission.  See it in its original context here: http://www.physicianspractice.com/blog/content/article/1462168/1862596#

Filed Under: Asset Protection, chiropractors, dentists, doctor sued, Doctors, FINANCIAL ISSUES FOR DOCTORS, lawsuit awards, liability, liability insurance, malpractice, medical practice mangement, physicians Tagged With: , , , , , , ,

Florida Court: Insurer of Physician is not obligated to indemnify based on business liability policy’s professional services exclusion

February 3, 2010 By Leave a Comment

The District Court of Appeal of the State of Florida (the “Appeals Court”) recently affirmed the trial court’s determination that a doctor’s business owner insurer was not obligated to indemnify the doctor for a wrongful death suit that resulted, in part, from the mis-filing of laboratory results by the doctor’s assistant, although it did have a duty to defend.

SEE THE WHOLE STORY HERE: http://tinyurl.com/yar5tva

Filed Under: Asset Protection, doctor sued, Ike Devji, liability, liability insurance, malpractice, medical practice mangement, physicians

How Many Lawsuits are There in the U.S. & What are They For?

September 2, 2009 By Leave a Comment

The article below has a great summary of lawsuit facts that helps shed light on what all this “lawsuit and Asset Protection fuss” is about. Your wealth is the product being sold by attorneys nationwide, choose not to let them have it and take action. – Ike Devji

(Reprinted with Permission from the SixWise.com Security & Wellness e-Newsletter www.sixwise.com)

The U.S. legal system ensures that every American who feels they have been injured or victimized is able to seek justice through the court system — clearly a noble and necessary protection. However, in recent decades the United States has earned the nickname as the most “litigious society” out there, in part due to major increases in lawsuits involving everything from hot spilled coffee to neighbors’ disputes.

The United States has more lawyers per capita than any other country.
In fact, Americans spend more on civil litigation than any other industrialized country, according to a study in the Economic Journal, and twice as much on litigation as on new automobiles.Some interesting facts:
- Over 16 million civil cases were filed in state courts in 2002.
- 79 percent of doctors report that they’ve ordered more tests than they would based only on professional judgment due to litigation fears, according to a Harris Interactive Poll.
- The American Medical Association lists 21 states as being in a “medical liability crisis.”
- 71,000 drug lawsuits have been filed in federal courts since 2001 — and have outnumbered asbestos, tobacco and auto safety lawsuits since 2002.
- 45 percent of U.S. hospitals reported that the liability crisis has caused a loss of physicians and/or reduced coverage in emergency departments..

Why the disparity? Part of the reason, according to the Economic Journal study, has to do with incentives to sue, of which Americans have plenty. While in most European legal systems the loser in a suit must pay a large portion of the winner’s legal fees, in America each party pays their own. So, simply speaking, in America there’s nothing to lose.

More Lawyers Per Capita Than Any Other Country
As of 2006, there are over 1 million lawyers in the United States, according to the American Bar Association — more per capita than any other country.
As the number of lawyers has increased, so has the number of civil claims, up 12 percent from 1993 to 2002.
In all, over 16 million civil cases were filed in state courts in 2002, according to the State Court Guide to Statistical Reporting,2003, from the National Center for State Courts. Trial lawyers earned an estimated $40 billion in lawsuit awards that same year.

What Are All These Lawsuits For?
Demand for legal services is increasing across the board, but particularly in such areas as health care, intellectual property, venture capital, energy, elder, antitrust, and environmental law.

The largest jump in lawsuits has been seen in the health care industry, where doctors have been paying significantly higher liability premiums to defend against potential litigation. While some say the increase in health care lawsuits may provide a safer environment for patients, opponents believe they are keeping patients from receiving the best care.

How do Americans Feel About the Legal System?
News about frivolous and controversial lawsuits makes headlines just about everyday. But when a 14-year-old sues her friend for losing her iPod, the music industry sues a 12-year-old for downloading music from the Internet, and lawyers are eyeing fast food companies and snack food makers as targets in potential class-action lawsuits of the future, litigation, it seems, gets taken to a new level.

Frivolous lawsuits alone are said to cost the United States $200 billion a year, according to Congressman Terry Everett, and all of these potentially unwarranted claims are having an affect on how Americans view the legal system.

According to a survey conducted by Harris Interactive, 76 percent of those surveyed feel that fear of frivolous lawsuits discourages people from performing normal activities.
Further:
- Only 16 percent trust the legal system to defend them against frivolous lawsuits.
- 54 percent do not trust the legal system.
- 67 percent strongly agree (and 27 percent somewhat agree) that there is an increasing tendency for people to threaten legal action when something goes wrong.
- 83 percent feel that the legal system makes it too easy to make invalid claims.
- 56 percent think that there are fundamental changes needed to make the civil justice system work better.

Perhaps most telling of all, most Americans surveyed (55 percent) strongly agreed (and another 32 percent somewhat agreed) that the justice system is used by many as a lottery, to start a lawsuit and see just how much they can win

Filed Under: Asset Protection, asset protection trusts, Ike Devji, lawsuit awards, malpractice, physicians, recession lawsuits