Being in a high income, high risk field I often think of asset protection. The lawsuit may not come from medical work, but from an auto accident or someone slipping on my front step. All of these can lead to suits, and as a high income earner we all have a target on our back. The last thing I want to do is work hard to save money to then have it taken away by one law suit. There are of course many ways to protect your assets and they should all be put into place.
For one, having a good malpractice insurance as a physician is key. Hopefully your group has paid for your insurance and it has adequate coverage for potential lawsuits. In some states there is a maximum limit to the amount that can be paid out for a malpractice claim. Make sure that your malpractice covers you up to the maximum.
Tail coverage is another way to protect your assets. If you leave your job on May 1st, and receive a lawsuit on May 2nd for care provided back in February, then tail coverage will cover that claim. If you do not have tail coverage, then you are SOL (S+++ out of luck).
This to me is a crazy concept. I always assumed that coverage was coverage. If I had malpractice insurance in February but get sued in May after leaving my job that I would still have coverage. This is not the case and tail insurance is very important. I cannot underestimate the importance of tail coverage. I know 2 people who left their jobs and then had suits claimed. In most places, patients have up to 1 year from the day of care to file a suit. So keep yourself covered.
Having a good auto insurance (for that unfortunate auto accident you may have) is a must for any high earner. I have a friend who was driving. His car was hit and went into the sidewalk hitting a pedestrian. The car driver that caused the accident had no insurance, and so the pedestrian sued my friend. It went to court and was dropped, but without good auto insurance he would have been stuck paying the attorney fees. The other option is to not have a car! Radical yes, but if you live in a town with good public transportation it is definitely worth considering.
Make sure you have a policy that covers any medical expenses to people damaged working on your home. You should always make sure the people you hire have their own insurance, but in the off chance something happens and they sue you, your insurance will kick in.
Most people think of the auto insurance, but forget about the umbrella policy. For just a few hundred dollars a year, you can typically get coverage for one or two million. This is coverage on top of the unlikely instance that your auto insurance (or home insurance) does not cover all of the financial obligations of a lawsuit.
Asset protection outside of insurance
So you have all of the insurance policies in line to protect your assets. What else can you do for security?
Some assets are protected by law. For instance, retirement accounts such as your 401K can not be pilfered in a lawsuit.
Additionally, most jointly owned homes are protected to an extant. The laws vary by state, but at least a portion of your home is protected. This is called a Homestead exemption and typically is for a specified amount of money. In California this is between $50,000 and $150,000. Some states, like Massachusetts, proved $300,000 in protection.
You could also place your assets under your spouse’s name if they are in a lower risk field. Sure she or he could run off with all of your cash, but what is the likelihood of that (hopefully low).
There are illegal ways to protect your assets, like starting an offshore account and place all of the assets in a shell company. Also probably not the most legal or good citizen thing to do.
Then there is the other legal ways to protect assets. Placing them in LLC’s or Trusts (discussed here and here) to protect them. We placed our house into a Trust which provides some legal protection in case I get sued for some major bucks.
Debt paydown as asset protection?
Another consideration is debt pay down as a means to asset protection. I have thought about this alot. My debt is owed. I will pay my creditors and the likelihood of me ever defaulting is very low. Plus, thanks to the government, your gambling debts and credit card debts will be wiped away in bankruptcy but not your student loan debt.
So we have established that I will be paying off all of my debts (luckily now that is just my student loans and mortgage as I was able to pay off all my other consumer debt). For the upcoming future, why not use the debt pay down as another form of asset protection. If I pay off $100,000 in student loans and then get sued for $MILLIONS and I have not adequately insured or protected my assets, that is $100K less that the lawyers can’t get. If that money was sitting in a taxable account (say a Vanguard Index Fund), then it is available to the creditors and lawyers.
Now the likelihood of all of this is low, but still some food for thought. It may be worth while paying down debt before placing tons of money into taxable accounts. This is different than your 401ks, 403(b)s, and other protected retirement assets.
Does it make math sense as far as gaining 4-6% with investments versus the 3% my loans are worth? No. Does it give me peace of mind and let me know that is money that will go to a cause I determine in the unlikely chance I get sued for a lot of money? Yes!
So take it or leave it, but what do you think of debt pay down as a form of asset protection?
Also published on Medium.