Practice Strategies
Asset Protection: Start With These Six Tried-and-True Strategies
As crucial as asset protection is, physicians cannot afford to panic and bite at the first hyped-up scheme they receive from some “asset protection specialist.” Sure, there are plenty of exotic (and expensive) strategies available to you, but Offshore Trusts, Captive Insurance Companies, Welfare Benefit Plans and Charitable Foundations should be employed only after you’ve exhausted the tried-and-true strategies at your disposal. Following is a discussion of several of these.
1) Shift assets. A creditor’s easiest pickings are land, cars, planes, brokerage accounts and bank accounts in your name alone. Thus, joint property can be unappealing to creditors since they’ll have to share it with another owner, who hasn’t been sued. Shifting assets to less-vulnerable family members (spouse, children, etc.) makes sense in many cases.
Another option is to give assets away. For example, give your children stock or your vacation home, or sign your boat over to your sister or brother. Under current rules, you can gift up to $11,000 per person, per year tax free. But the downside is obvious: Gifting leaves you with no legal control of the property.
2) Title it correctly. To protect what is often your biggest asset, throw potential creditors a curve with what is known as tenancy-by-the-entirety ownership of your home. This differs from joint tenancy in that neither spouse can convey his or her interest or force a partition of the property without the other spouse’s consent.
3) Insure it properly — Sometimes the most appropriate thing you can do is make sure an asset is properly insured. In many cases, you, as the income-earning professional, are “the asset,” so don’t ignore insurance that protects your income stream — disability, life and long-term care insurance, for example. And be sure to insure yourself against any liability arising from practice real estate you lease or own.
4) Structure ownership correctly. An effective asset protection plan seeks to disassociate you from your assets — without losing control of how those assets are used, stored or invested. In the case of the medical or dental professional, these goals are typically achieved by shifting income and assets away from the professional practice, where they are vulnerable, and toward another entity, which is privately controlled and taxed at a lower level — such as corporations, limited partnerships, LLCs, etc.
5) Put it in trust. A trust in all its many forms —A trust in all its many forms —Revocable, Irrevocable, Life Insurance, and Charitable Remainder — remains one of your best options for truly protecting your assets. By transferring ownership of your titled assets from your name to the name of your trust, you enjoy benefits that include:
- reducing estate taxes and probate expenses,
- avoiding probate delays,
- providing income for loved ones, and
- protecting your assets when long-term care is required.
6) Take advantage of an FLP.A Family Limited Partnership (FLP) is simply a limited partnership among members of a family. Typically, the partnership is formed by the older generation family members, who contribute assets to the partnership. The parents can then embark on a plan of giving limited partnership units to their children and grandchildren, while retaining the general partnership units that control the partnership.
Both general and limited partners usually share income and cash flow based on their percentage interest in the partnership. Note that an FLP is just one of many available techniques, and it should not be overused or made into a single large target. A good rule of thumb is to create a new FLP for every $2 million to $5 million in assets. This keeps the profile of each FLP lower for both creditors and any IRS audits.
For more information about our services to the healthcare industry, Contact:
Maxine Lawyer, Director of Healthcare Services at 972.448.6905.
The articles in this newsletter are general in nature and are not a substitute for accounting, legal, or other professional services. We assume no liability for the reader's reliance on this information. Before implementing any of the ideas contained in this publication, consult a professional advisor to determine whether they apply to your unique circumstances.
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