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Asset Protection Trust Jurisdictions For Doctors Part 2: Going Offshore

April 22, 2013 by Leave a Comment

OFFSHORE TRUSTSLast week marked the second chapter of our discussion of asset protection trusts for doctors, with a look some basic issues of jurisdiction, that is, what geographic location’s set of laws control the trust. For those who want a potentially higher degree of security with a longer track record, offshore tools like international asset protection trusts (IAPTs) are often attractive. 

 

Although painted in a negative light in recent popular lore because of issues with large numbers of tax evaders (many of who are American doctors) the defensive value of the IAPT remains intact. The simple mistake made by most of the people you read about having trouble with offshore accounts can be reduced to simply failing to report the accounts as the law requires. You do have a well-established right to have offshore bank accounts and trusts and the event of moving money to a foreign bank account owned by a trust or held personally as we covered in our previous article on offshore finance is typically not taxable in and of itself. 

A large number of successful American doctors set up this kind of defensive planning in the first place because they lack full confidence in the often inconsistent and subjective nature of the American court system and are unwilling to remain exposed to any claim or lawsuit that may come along, regardless of its validity and amount. One of the questions that I’ve asked clients pondering the domestic vs. foreign asset protection trust question is this: If you feel you that ensuring your life’s efforts against the above mentioned exposures in the U.S. court system is a good idea, does it make sense to rely on that very same system’s laws and subjective judgment in the planning you implement against it? While opinions and tactics vary widely among planners not all of those strong opinions are backed by actual long-term experience; make sure the answers you are getting actually are.

There are many international jurisdictions to choose from when creating an IAPT ranging from familiar Caribbean islands to Belize, Jersey, The Isle of Mann and the Cook Islands, one of my personal favorites. Some jurisdictions (especially many of the romanticized Caribbean ones) are now too close and connected to the United States to provide the full value of an offshore trust structure and others may be too remote, politically unstable or under-developed to provide many westerners comfort. This author’s personal experience with several thousand of these structures has been to use a remote but well-established protective jurisdiction staffed by top international banks and trust companies that controls assets housed in first-world, European-state-owned and insured banks. These provide superior solvency risk and political stability.  Banks such as these provide the many layers of protection and part of the system of checks and balances so important when moving your assets.

Once assets are moved, the “investment advisor” to the trust can allocate the trust’s assets to nearly any imaginable conventional investment and a few you can’t participate in directly as an individual U.S. citizen. In addition to the basic legitimate business purposes of wealth preservation and estate planning, the IAPT is also gaining popularity with those who have concerns about having their entire investment portfolio here in the United States. Currency stability as well as social political and economic variables have prompted more Americans than ever before to investigate these options over the last five years.

The costs and legal formalities, as well as the history and legal protection afforded, vary widely between jurisdictions, so it’s important to work with an experienced planner that has full range of required support resources like banks, trust companies, protectors, and investment advisors. As always, timing is key, so looking at these tools after an exposure has occurred dramatically reduces their effectiveness and legality.  In this limited forum we can’t possibly cover every detail, so get personalized professional legal help when examining this important asset protection strategy or any other.

 

 
Filed Under: APT, Asset Protection, asset protection trusts, business legal planning, closely held business, DAPT, doctor sued, Doctors, IAPT, Ike Devji, lawyers, Legal Strategies, offshore, offshore banking, offshore trusts, Wealth Transfer Strategies Tagged With: , , , , , , , , , , , ,

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: , , , , , , , , ,

Medical Practice Liability Insurance Tune Up: The First Line of Defense

March 19, 2013 by Leave a Comment
law and money for doctorsWe’ve previously detailed both the most common fatal flaws in physicians’ asset-protection planning and the reasons insurance alone is inadequate to protect doctors. Those issues aside, insurance against known and recurring exposures is always the essential first line of defense.
 
As you’ve seen in this column before, it is unreasonable to think that we can adequately insure against any and every possible loss or liability to an unlimited amount, but we can catch some of the big and predictable ones. Below is basic list to consider, along with an expert, which can explain the details and gaps common to many policies.

1. Adequate liability and loss coverage. It’s important to not only insure your physical facility for liability but also for loss and in an amount that adequately covers the structure, its replacement, the improvements you’ve made, and the fixtures and equipment at actual replacement value. Work with a reputable company that has national claims service offices, which can be held accountable under bad faith jeopardy and that is experienced in insuring businesses like yours.

2. Employment practices liability insurance. We’ve covered the issue of employment and the significant exposure it creates for every medical practice with employees in several articles in the past. It remains the number one exposure most practices face and sexual harassment awards average over $500K.

3. Data breach insurance. Make sure you are protected against the loss, theft, or intentional misuse of patient financial and HIPAA-protected information. Be careful about the use of mobile devices, laptops, and tablets and make sure they are covered as well. Have demonstrable security policies in place and enforce them; in some cases liability is based on your proactive efforts, or a lack of them.

4. Directors and officers insurance, a.k.a. D&O. We’ve covered this in detail recently; many physicians, practice managers and executives face severe civil and even criminal liability for their decisions, acts and omissions. Make sure those that have such responsibility are adequately insured against this additional professional liability.

5. Workers’ compensation insurance. This provides coverage for an employee who has suffered an injury or illness resulting from job-related duties. Coverage includes medical and rehabilitation costs and lost wages for employees injured on the job. The law in most states requires some form of workers’ compensation insurance and this protects the employer by limiting an employees right to sue for further damages.

6. RAC audit insurance. Any business that bills Medicare, Medicaid, or a private health-care provider should be prepared to be audited and have payments denied or classified as over-payments at some point. Defending against such an audit and the ensuing manpower demands the massive record production can create is stressful and expensive. There is coverage available to handle the various costs and exposures involved.

This list is no complete but is a good start in examining the adequacy of your risk management plan. As this week’s column is devoted to the practice itself, I’ll save a discussion of the personal coverage so crucial to practice owners themselves for a future column.

Be aware, however, that life, disability, and long-term care insurance are increasingly vital parts of doctors’ planning that need to be implemented in a tactical way and are often an extension of the practice’s own risk management and continuation plan.

 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. He works with a national client base from his office in Phoenix, Arizona. His legal practice is devoted solely to asset protection and wealth preservation.
Filed Under: Asset Protection, business legal planning, business survival, dentists, Director and Officer Liability, doctor sued, Doctors, Employment law, FINANCIAL ISSUES FOR DOCTORS, financial literacy, liability, liability insurance, Medical Practice Management, physicians, risk management Tagged With: , , , , , , , , , , , , ,

Fatal Flaws in Doctors’ Asset Protection Planning

January 7, 2013 by Leave a Comment

During my practice with a client base of thousands of doctors I have seen the best and the worst of asset protection planning available to the American public as well as the most common flaws evident in both self-directed planning and plans executed by “professionals” who do not practice primarily in this area.

Below is the first part of a short summary of “fatal flaws” to keep in mind when addressing this crucial issue. Please bear in mind that information in forums like this is not specific to you, is written in the broadest terms and is never a substitute for consulting with an experienced professional:

1. FAILING TO ACT (Timing) — Asset Protection is best analogized to “net worth insurance” and like insurance you have the best, most effective and legally supportable options available to you when you implement the planning before a crisis exists. Transfer of assets into plans after you have specific exposures is costly, ineffective, and some cases illegal (fraudulent conveyance). The best time to act is always now and every day that passes makes your planning stronger.

2. THINKING YOU’RE NOT RICH ENOUGH — A sin I see committed on a weekly basis, often by professionals like lawyers, CPAs, and financial advisors. Advisors often tell clients that they are not rich enough to do any planning and that that they should have a net worth north of $5 million or even $10 million to consider it. Nothing could be further from the truth, especially if you are in the “fall” of your earning career. All you have is important to you and there are precautions that can be taken at any net worth level. When should you start? There are many simple ways to analyze this but here is an easy one, answer these questions:

• If you lost what you have today, or some significant portion of it, are you at an age, earning level, and financial condition that will allow you to maintain your family’s goals and expenses?

• Do you have assets that would be difficult or impossible to replace given your age, health, and economic conditions?

• Are you financially and legally prepared for a lawsuit that is either uncovered by liability insurance or which often produces verdicts above the limit you are carrying?

If you’re not comfortable with your answers, it’s time to take responsibility and action for your financial future.

3. RELYING ON YOUR TRADITIONAL ESTATE PLANNING — “I’ve got this covered, I think. I have my home, cars, and investments all titled in my trust.” This is something we hear often. The layperson usually feels that a transfer of these assets to a vehicle like an estate planning trust, like a Revocable Living Trust, is effective asset protection; it’s not. The first word in the trust is “revocable” and in most cases a judge will simply order you to revoke the trust and tender the assets for a judgment. That is death planning. What has been done about your life planning and the exposures you face every day practicing your profession, driving a car, having children (some driving your car), or having employees…?

4. TOO MANY EGGS IN ONE BASKET— Others implement a good tool like an LLC as a barrier between themselves and their investments, but fail to adequately segregate and subdivide assets so that they are protected from the owner and each other. A common example is the case of the property owner who has single LLC that is legally and financially responsible for a wide variety of properties that have different levels of liability, equity, and use. If you call and say you have $5,000 to 10,000 down on four new short sale properties in a single LLC, it’s probably OK, because your total exposure is theoretically limited to $20,000 to $40,000, the value of the LLC’s assets. On the other hand, if you call and say that you have seven pieces of real estate with a total equity position of six or seven figures, some paid for, some all debt, including a triplex, a lot, and a commercial strip mall, I’m going to start sweating on your behalf. Why? Because any exposure at a new, zero equity property could wipe out your entire portfolio of paid for or partially paid for properties. Assets must be divided based on use and equity as well as into the right kind of legal vehicle, among many other factors.

5. SQUARE PEG, ROUND HOLE — USING THE WRONG TOOL — Certain vehicles have great use for specific business functions supported by statute, tax law, and case history. You and your planner must have a good handle on these issues and know what pros and cons each entity presents, what the effect on your liquidity will be, and what it will take to maintain and support that stated business purpose as a start (Starting to see the detail required?). One good example is the common misuse of Family Limited Partnerships (FLP) to own the client’s personal residence. What is the legitimate business purpose of using a vehicle that is most often created for “family investment management and wealth transfer” to own the house you personally live in? If you’re not paying commercially reasonable rent, you don’t have one. The plaintiffs (or worse, the IRS) will successfully argue that you are using the FLP as personal piggy bank that is not legally distinct and immune from your personal assets and liabilities.

6. DRAGGING LIABILITY INTO YOUR PLAN — Similarly, we often see dangerous articles of personal property like your personal vehicles moved into this structure or others like an LLC or S-Corp. that is your primary business, or equally dangerous, into an entity like an FLP that is holding safe and attractive assets like cash, stocks, bonds, and other liquid assets. Think about it, if you lease or own your vehicle through your business, you have linked the most dangerous thing you likely do on a daily basis, drive a car, and linked it to either the source of your wealth, your business, or in the case of your FLP, the place you keep your wealth.

7. RELYING ON GIFTING TO RELATIVES (SEE ALSO FAILING TO ACT) — Transferring all of your assets to your spouse and/or children, especially after something has happened, will not protect your assets from a lawsuit and simply opens up another Pandora’s Box. There are thousands of lawsuits filed daily due to employment grievances, “slip and fall,” and auto accidents. Consider this scenario: Let’s suppose that you transfer all of your assets to your 18-year-old son who causes an auto accident. Several other cars are involved in the accident and several injuries are incurred. Chances are high that the other parties will come looking for the driver with the deepest pockets. If your son “owns” your house and business, a sympathetic jury will undoubtedly take the possession away from your son in order to teach him a lesson for his reckless driving. The same holds true for spouses, parents, and even friends. Also, gifting is limited to about $13,500 annually, per spouse, per donee. Gifts over that amount must be documented with a gift tax return. Failing to do so will result in you having to answer the question: “Are you lying now re: the date and validity of this transfer or did you cheat the IRS?” This is a bad place to be in a time of need.

8. USING UNPROVEN, POORLY STRUCTURED TOOLS OR SCAMS LIKE “FRIENDLY LIENS” — Another common scam I see is promoters of LLC mills setting up LLCs that you or a friendly party own and then having that entity record a “lien” against some valuable asset, typically real estate. While validly recorded and executed liens do have great deterrent power against creditors, they have to be backed by a real exchange of value. So if your brother-in-law owns a Nevada LLC that holds a lien on your home for most of its value, there should have been some exchange or “consideration” roughly equal to the amount of the lien. “Your sister has a $300,000 lien against the $400,000 home you live in? Uh, OK…then where’s the record of the $300,000 she gave you, as a bank would have in a real home equity loan? She didn’t give you anything in return? Great, we’ll take the house.”

This article just scratches the surface of what you need to consider when evaluating your exposures, asset protection planning, and the countless options available. Act today, seek experienced counsel, and keep looking for more light and information that will help you and your family keep and enjoy the fruits of your labors. Remember, it’s not just what you make; it’s also what you keep!
 

Asset Protection only attorney Ike Devji has ten 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. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com 

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. This was originally published in Jan, 2011 and is the kind of material Ike has taught for a decade as an expert speaker and educator for medical groups.

Filed Under: Asset Protection, Asset Protection Fraud and Failures, dentists, doctor sued, Doctors, Ike Devji, medical practice mangement, physicians Tagged With: , , , , , ,

Is a Captive Insurance Company a Fit for Your Business or Medical Practice?

August 1, 2012 by Leave a Comment
In our two previous discussions we introduced the general concept of a captive insurance company (captive) as well as specific qualifying questions to help doctors pick a good captive administrator. This week we examine some key issues that can help determine if your specific medical practice is at the point where a captive may create a benefit. Like most legal and financial strategies it is more important to determine if it is a fit for you and your specific needs, numbers, and fact pattern as it is to determine if it is “a good idea” in general.

Basic Qualifiers

1. Do we have risk that legitimately needs additional coverage? The core concept is that of a liability insurance company. As such, the determination that your practice has substantial and recurring risk that requires high cost, third-party insurance is the first step and the justifiable core business purpose of the endeavor. In most cases captive providers will examine both existing identified risks and coverage and will include additional issues that would benefit the practice and its owners. Common examples include key man insurance, directors and officer’s coverage, various health benefits, errors and omissions, gaps, and countless other sources of risk that must be addressed with any competent asset protection plan.

2. Are we willing and able to pay for the costs of set up and administration every year? A captive is a real, living breathing insurance company subject to all insurance company regulations. This requires specialized skill and knowledge to set up and run it in a way that is compliant with both insurance regulations and stringent IRS guidelines. Costs for captive creation of the size and complexity appropriate for most medical practices range from $20,000 for a “segregated cell” captive to over $100,000 and recurring annual fees can easily equal that based on the provider. That’s in addition to the annual contribution of $500,000+ most entry-level captive owners make in premium payments.

3. Are we most motivated by risk planning or tax savings? Of course we all want both, but most experts in this area agree that that primary motivator should be the ability to more cost effectively manage your existing risk coverage and any gaps, not a tax savings. In fact, attorney Jay Adkisson, a nationally known Newport Beach, Calif., attorney and expert on captive insurance who literally “wrote the book” on captives (Adkisson’s “Captive Insurance Companies”) suggested an addition to the list of qualifying questions to ask a captive promoter I provided last week; “If a client told you that the only reason that they really needed the captive for was to save taxes, will you form the captive? If they say ‘yes’ to that, run.”

Adkisson further explained that when captives are designed and marketed specifically for tax savings they often fail the essential business purpose tests established by the IRS, especially when they are too aggressive about the large premiums and overly aggressive risk provisions they include. Specific examples of this kind of “sham” insurance include types of risk not reasonable, customary or necessary in your business and location, (Adkisson mentioned tidal wave insurance in the Midwest as a specific example) as well as paying premiums far above any commercially reasonable rate corresponding to the costs of the insurance, which negates any reasonable economic purpose according to the IRS.

This list is by no means complete, but provides a good start to understanding the basic qualifications and reasonable expectations you should have in mind when determining the fit of a captive for you medical business. Next week, we will conclude our look at captives with answers to some frequently asked questions including basic qualifiers on “cell captives” for those who can’t make annual contributions of $500,000 or more and further advice from Jay Adkisson on the best captive jurisdictions.

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, captive insurance company, closely held business, doctor sued, Doctors, FINANCIAL ISSUES FOR DOCTORS, financial literacy, Legal Strategies, liability, liability insurance, malpractice, medical practice mangement, tax deductions, taxation, taxes, Wealth Transfer Strategies Tagged With: , , , , , , , , , ,

Questions to ask Captive Insurance Provider – Asset Protection – Due Dilligence

August 1, 2012 by Leave a Comment

We continue last week’s look at captive insurance companies as an asset protection, risk management, and wealth accumulation vehicle for physicians by providing some basic due diligence questions. I am frequently called upon by clients to provide an opinion or sit in on a call or meeting with a prospective captive provider. Sometimes I am familiar with the specific provider and their work and reputation; more often I am not and have to ask some basic questions to help the client understand the details and the actual experience of the provider.

In one case, I was on a conference call with five people and the client and my questions revealed that the “provider” sourced by the financial advisor was an ex-employee of a larger group that had branched out on his own, had one secretary, and had to date never completed a captive by himself (Yikes!). These are some of the questions I ask or provide to help vet the right professional provider for this exceptionally technical and compliance heavy strategy.

1. Is our relationship bound by attorney client privilege? Not required, per se, but a good idea.

2. How many captives have you personally created?

3. How long have you been creating captives? Experience counts here; if they’ve done a few that are all very new, we don’t really know how they held up yet.

4. Do you have E&O or professional malpractice coverage that covers our relationship?

5. How old is the oldest captive you have created? See number three above.

6. What is the first-year, set-up cost of establishing a captive?

7. What are the recurring annual maintenance costs?

8. Are your services “turn-key” or will I need to pay outside counsel for issues like accounting and compliance? If yes, ask if they have specific resources they work with, and what their fees are as well, then qualify those resources the same way.

9. How many of your captives have been audited?

10. Of those how many have been “no change” required after the audit?

11. Does our contractual relationship include the cost of defending and responding to the audit?

12. Can you provide client/professional references?

13. How many years should I expect/plan to maintain the structure?

14. How can I collapse or wind my captive down if I need to?

15. What are the costs involved in doing so?

16. What is your normal exit strategy for captive owners?

17. What jurisdictions do you set up captives in?

18. What are the advantages of those jurisdictions over others?

19. What are all the additional risks the captive can insure me against?

This list is by no means complete, but it should give you a good start on two important issues; determining the qualifications of your provider and the costs and benefits they are bringing you. As with any complex legal and financial strategy, the question should always be, “Is this the right strategy for me?”

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, captive insurance company, Due Dilligence, FINANCIAL ISSUES FOR DOCTORS, financial literacy, liability, liability insurance 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: , , , ,

Doctors Pleading To Misdemeanors for Heath Care Fraud – Fight or Settle?

May 15, 2012 by Leave a Comment

We are in the golden age of health care fraud prosecution as means of revenue and income protection by both the government and insurance companies. Doctors are increasingly  in a position where they need to make a decision to fight or settle, regardless of the veracity of the claim or the actual intent involved. This article sheds light on some of the issues at stake and the need for exceptionally qualified counsel on these issues.  – Ike

 

 

In his informative book, “Three Felonies a Day; How The Feds Target the Innocent,”1 attorney and civil libertarian Harvey Silverglate shines a light on the federal criminal system, often focusing on prosecutions of physicians and other health providers.  His thesis is that the laws and regulations have become so numerous, vague and impossible to understand that in the hands of ambitious prosecutors, every businessman unknowingly commits at least three felonies a day.

SEE THE ARTICLE HERE:

http://newsandinsight.thomsonreuters.com/Legal/Insight/2012/05_-_May/The_pitfalls_of_pleading_to_a_misdemeanor/

Filed Under: Asset Protection, doctor sued, Doctors, FINANCIAL ISSUES FOR DOCTORS, HEALTH CARE LAW, lawyers, Legal Strategies, liability, physicians 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.

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Tax Planing Schemes Every Physician (and Business Owner) Should Avoid

February 6, 2012 by Leave a Comment

The next 60 days marks the final push to sell physicians and private business owners across the United States tax plans of both good and questionable value. Promoters of various plans are well aware of the pressures affecting your income and will make a variety of frivolous arguments that appeal to your desire to save. As always a great CPA is your first line of defense against both tax exposure itself and the risk of committing tax fraud through an overreaching plan, but there are a number of common markers that are easy to spot. 

The IRS creates an annual list of the “Dirty Dozen” tax schemes; here’s a breakdown of the top ones that affect or target doctors and business owners.

 

Remember that the higher your income, the more likely you are to face an audit and substantial civil and criminal penalties that I guarantee will exceed any short-term savings gleaned from any bad planning. This simply means that you and your team must be committed to strictly adhering to the tax code, full and accurate reporting, and being realistic about how you pay yourself and the amount of income you declare. In most cases, it is not “commercially reasonable” to pay yourself less than six figures when the average salary for specialists like you in your state is much higher but we see doctors and CPAs abuse this discretion on a regular basis.

Hiding income offshore
I use offshore tools for a variety of my clients business and asset protection purposes regularly; tax planning is not one of them.

Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts, or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities, or insurance plans. (via the IRS)

You have a well-defined legal right to have an offshore account and in our global economy even manage certain business and investment activities offshore but that income is taxable and even the mere existence of an account has a reporting requirement. Simple rule, full disclosure, and compliance mean never having to say, “I’m sorry.”

Frivolous arguments
These schemes are increasingly sophisticated in their arguments and packaging and often even include either false or off-point private letter rulings on the legality of a specific plan or letters of opinion from a “top tax law firm.” The IRS has a very specific guide to understanding those arguments.

Abusive retirement plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited, a common exposure in self-directed IRAs without professional guidance.

Disguised corporate ownership
Corporations and other legal entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number. Such entities can also be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.

While the actual list is much longer, some of the issues like identity theft exposure are applicable to the public at large. Others, including filing false or incomplete W-2s, claiming excessive fuel tax credits, and over-reporting withholding to reduce income are simply intentional tax fraud that we will assume you are not ever going to consider. Make sure you understand the nature of the methods used on your return, you are responsible for what’s on it regardless of who prepared it, and keep tight records on deductions for travel and dining.

Finally, carefully discuss the value of claiming excessive business usage for vehicles and a home office deduction with your CPA; they are common over-reaching red flags and typically of limited value.

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: abusive tax schemes, business survival, closely held business, cpa, dentists, Doctors, FINANCIAL ISSUES FOR DOCTORS, financial literacy, foreign bank accounts, Ike Devji, medical practice mangement, tax deductions, taxation, taxes Tagged With: , , , , , , ,
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