Personal Liability Insurance Umbrella Policies Remain Vital Asset Protection for Doctors, Business Owners

Slide1The law, like medicine, offers few absolutes: Personal liability umbrella policies are not a “magic bullet” that either always or never works.

Despite their limits, they remain a key tool in your personal asset-protection plan and your most essential (and affordable) first line of defense.

We’ve discussed the fact that many doctors and business owners have wrongly relied on their umbrella polices to provide greater protection than they reasonably can. In a previous article I highlighted a few simple issues to consider like gaps in either the “depth” of insurance meaning the limits of the coverage as well as the “width” of the coverage, meaning how many specific exposures the policy itself actually says it covers. To follow that up, we also covered a list of the most essential types of specialty liability insurance every doctor and entrepreneurial business owner needs and that almost no umbrella policies cover.

Surprisingly, this simple and cost-effective shield is often overlooked by both physicians and their insurance agents. This gap has proven to be disastrous for numerous doctors and other successful individuals I’ve personally spoken with over many years including three families that have been informed their liability insurance limits will be inadequate to cover damages in the last 30 days alone. A simple look at U.S. government statistics on auto accidents, as just one common exposure where an umbrella policy may be essential, shows us why.

There are approximately 11 million auto accidents in the U.S. per year according to U.S. Census Bureau statistics, resulting in 40,000 fatalities. Using even the crudest average, that means there are 800 fatal car accidents in your state every year.

Not a single one of the unfortunate souls involved in this statistic ever left their home in the morning imagining that they would be involved in accident that would change the lives of all involved forever.

Given the litigious climate we live in and the actual damages that such a tragedy produces, it’s not surprising that many of these accidents result in seven-figure lawsuits. In my state of Arizona for example, three of the top ten lawsuit verdicts of 2012 were for auto accidents, all were for over $5 million. Could your family and business survive such a verdict?

In most cases the answer is no, and even those who do have an umbrella rarely have more than one to two million dollars in coverage. This does not mean it is hopeless and you should just give up (this actually is a common response). It just means you need to understand the limits of what your umbrella actually covers and for how much and take proactive measures to organize your wealth so that any exposure is limited to the scope of the policy. A simple analogy is you locking your home and setting the alarm every day despite the fact that a window could still be broken. The lesson is always “take all the steps you can.”

Key Points to Remember:

1. Umbrella policies are not magic shields against anything that might happen, no matter how much it costs.

2. They are an essential first line of defense and the most cost effective and basic first step in your asset-protection plan. In many cases a one million dollar umbrella can cost just a few hundred dollars a year.

3. They have limits that are very clearly defined by the insurance company.

4. If the personal liability umbrella, the one that’s typically related to your home and auto coverage, is what you are considering, it probably won’t cover issues not reasonably related to either of those base policies in most cases. So, for example, a dog bite that occurs at your home may be covered but a lawsuit by an employee almost certainly will not.

5. My advice to clients is buy every dollar of insurance you can reasonably afford for as many reasonably predictable risks as possible. Assume there will be a gap in the coverage at some point and be a hard target beyond the policy itself.

6. Implement an asset-protection plan that legally separates your personal and professional assets and liabilities today, while you still have right to do so. I get dozens of calls a year from people who were too busy making money to protect what it took decades to earn.

7. Don’t go on ego, “I’ve never been in an accident” or your personal assessment of what you think your risks are, “we don’t have kids who drive.” They are called “accidents” for a reason and I see as many that result from safe adult driving as I do with teens and young adults.

 

This article originally appeared in another form at www.PhysiciansPractice.com, The Nation’s Leading Practice Management Resource, where Asset Protection lawyer Ike Devji has over 100 bylines and is a regular contributor.

 

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

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.

VIDEO – How Asset Protection Works

A great simple explantion in this video by my friend and associate Douglass Lodmell:

Arizona Anti-Deficiency Overview – An Asset Protection Road-map

As we have discussed often in this forum, Asset Protection NOT just about lawsuits, it’s increasingly about any source of loss, risk or exposure to your hard earned wealth.

In some cases your assets themselves, like real estate, create the liability we are concerned about. Given the carnage in the real estate market over the last few years, especially in the Southwest, knowing what you are signing and which of your assets are affected is half the battle. Think of all the wealthy peoplel you may know that lost some or all of their assets over the last few years and the need for this education become even more clear.

This article summarizes Arizona’s mortgage deficiency protections for residential property owners. It provides a description of the foreclosure process, real estate security instruments, and the types of properties and loans that may qualify for deficiency protection.

 

Attorney Gregory Hague, Phoenix

It was authored by attorney Gregory Hague, who’s name you may recognize from his many successful years in the real estate business in Phoenix, Scottsdale and Paradise Valley. Greg has combined that invaluable experience with his legal practice and now handles a variety of real estate related legal issues as a partner at the Phoenix Arizona law firm of Stinson Morrison Hecker, LLP. – Ike Devji

Read Greg’s Article: http://www.jdsupra.com/post/documentViewer.aspx?fid=506b99dc-f20e-4c3b-9b63-cfe9c32e53af

Learn more about attorney Greg Hague and his firm or get his contact info here: https://www.stinson.com/GregHague/

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

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.

A Doctor’s Guide to Navigating Offshore Waters Safely – Asset Protection

A Doctor’s Guide to Navigating Offshore Waters Safely

By Ike Devji, J.D. | April 19, 2011

In the world of physicians’ legal and financial planning there is no term as simultaneously oversold, feared, and misunderstood as “offshore.” This is especially true at tax time, as all doctors and their practice managers have been bombarded by the promoters of various tax savings schemes that range in skill from “genius” to “criminal.” The legal jeopardy of using these tools the wrong way has been well illustrated by the recent crackdown on U.S. taxpayers including thousands of doctors who have been caught up and exposed by in the recent UBS scandal, as just one notable example among many.

As someone who has used these tools with doctors on a weekly basis for nearly a decade, I have seen a variety of approaches implemented with varying degrees of success. The following are core issues you must understand to use these powerful tools effectively and legally.

TAXES — All U.S. taxpayers have a duty to report any and all offshore accounts. The U.S. operates on a system of worldwide taxation, and while in certain limited cases money actually earned offshore may be tax exempt (see your CPA) it almost always carries a corresponding duty to report the income. If your primary motivation is to move money offshore and grow it free of taxes or at a lower tax rate, you are looking at the wrong strategy and creating a liability.

SECRECY — Secrecy is never part of any competently drafted offshore plan. Further, secrecy relies on the hope that you can open a “secret account” and no one will know about it and be able to reach it. It also relies on your willingness to lie about the existence of the account if you are ever asked about it in court or discovery proceedings, also known as perjury, which itself has substantial legal penalties.

TITLE — Who holds title to any offshore bank accounts is also crucial in effective use of the tool. If you hold title personally, including through a family member, or through a revocable trust in any form, assume the funds are accessible to a hostile party almost as easily as if they were located here in the U.S. From an asset protection perspective, using an irrevocable trust with an offshore third party trustee that is immune to U.S. court proceedings and a bank experienced in such matters in a protective jurisdiction is crucial.

THE BANK— Any serious offshore planning involves the use of a bank to be the custodian of funds. I advise that those seeking the protection these plans require use reputable first-world, (typically European) state-owned, and insured banks. New banking jurisdictions are emerging and there are reputable banks in most of the developed world, but few of them have experience in dealing with the issues you are likely concerned about. Further, international banks that have U.S. offices are not considered protective in any way; an experienced lawyer would simply move on the assets through a domestic branch. As an example, not only did the physicians that moved money to illegal unreported accounts through UBS commit tax fraud, they didn’t protect the money in any real way.

JURSIDICTION — Another vital issue is the jurisdiction of the account and the entities you are relying on to mange and protect it. Some offshore jurisdictions have laws and decades of history and infrastructure that specifically support the use of offshore trusts and accounts for legitimate purposes. A whole new group of jurisdictions would like to play in this arena and are aggressively promoting their laws, banks, and trust companies. While only time can sort out which of these jurisdictions are truly safe and politically and economically stable enough to trust with your life savings, I can tell you that few of us that practice primarily in this area would ever let our clients be a part of this “test.”

If you are considering offshore planning, keep these issues in mind and make sure the organization you are working with is staffed by experienced legal and accounting professionals with the resources necessary to do more than sell you a bank account and the proven infrastructure to help you achieve legitimate goals.

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.