Physicians and other healthcare providers recognize the inherent risks of their profession, including legal and financial exposure to claims of medical malpractice. However, this professional liability is merely the tip of the iceberg when considering the legal minefield all professionals must navigate when operating a business, employing staff, owning property and even driving a vehicle. In our highly litigious society, individuals seeking to safeguard their wealth from these perils must take the time to carefully structure their assets within the proper legal framework and in advance of any claims against them.
A well-thought-out asset protection plan can help professionals avoid losing the wealth they worked hard to create. The first line of defense is a medical malpractice insurance policy and an umbrella policy to cover gaps in personal auto and home insurance limitations. Next, consider funding qualified retirement plans, annuities, a cash value life insurance policy and a 529 college savings plan to shield your assets from creditors’ claims. These account types incorporated into your asset protection plan are easy to set up and convenient for you to use in retirement. In all circumstances, the asset protection strategies you select should align with your overall needs and goals while factoring in gift and estate tax considerations.
Special attention also should be paid to how you title ownership of your property, especially if you are married. Titling property jointly with your spouse as “tenants by the entireties” versus “joint tenants with right of survivorship” may offer some level of protection from creditors, specifically in Florida. Your financial planner and estate attorney can help title your assets appropriately for your unique situation.
Whether you own your practice or are an independent contractor providing services to a healthcare facility, you must consider the legal structure of your business entity and the protections it can provide to you. For example, as its name implies, a limited liability company (LLC) can provide limited liability protection to its members in the following manner.
Members receive “internal protection” from the liabilities generated by the LLC-owned property. Therefore, if an individual falls on your rental property and sues for damages, the LLC members are not personally liable for the plaintiff’s economic loss. Instead, plaintiffs may only pursue the assets owned by the LLC. This internal protection applies to single-member LLCs and multi-member LLCs formed by two or more people.
Secondly, under most state laws, LLC members receive “external protection” that protects the LLC’s assets from the personal liabilities of its individual members (excluding judgments involving claims of medical malpractice.) However, this protection applies only to entities structured as multi-member LLCs.
Using the example above, consider that one member in a multi-member LLC runs a red light and causes an accident that injures another party. The LLC’s rental property and other assets are protected from any legal judgment, and the members’ interests in the LLC are also protected should the third party file suit against the members individually. The plaintiff’s only potential remedy is to issue a charging order against the individual LLC member and attach a claim to the distributions the member receives from the LLC. Since there are strategies to structure an LLC as a multi-member to benefit from this second layer of creditor protection, you should consult your legal, tax and financial planning advisors. Asset-protection planning is most effective and provides you with the most options when it is undertaken before a hint of creditor issues arises.
About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Sean Deviney, CFP®*, is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
Posted on November 20, 2024