First, Do No Harm

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Protecting Assets

One common financial disaster that can result in a significant loss of assets is a civil lawsuit. Lessons #5 and #6 will offer almost two dozen specific solutions to help mitigate litigation risks. Though malpractice lawsuits are a significant risk for physicians in today’s society, they do not pose the most significant risk to one’s wealth if proper insurance is in place.
This Lesson will explore those additional—and more devastating—financial disasters that must be addressed if you wish to achieve and maintain wealth. These risks include both health-related and financial events. More specifically, this section of the book will teach you how to:
· Protect your family from an unexpected death
· Keep paying your bills even if you can’t work due to disability
· Handle long-term care expenses before they arise
· Make sure you don’t run out of money in retirement
· Avoid healthcare and insurance threats
· Avoid employment threats
· Obtain insurance to protect against business and personal risks

post 7Protecting Your Family From an Unexpected Death
The emotional distress caused by the premature death of a loved one cannot be exaggerated. Long before the psychological scars begin to heal, financial devastation for surviving family members may begin. If proper planning is not undertaken, the value of the medical practice, which could be a saleable asset to help the family, may be lost.
There are various obstacles to successful financial planning in the case of unforeseen death simply because none of us knows when our time will come. The 2003 National Safety Council’s study on deaths (http://www.nsc.org/lrs/statinfo/odds.htm) and the 1999 US Census Bureau’s Statistical Abstract of the United States, which surveyed the year 1997, reported the following statistics in regard to unforeseen death types:
· There is a 1 in 24 chance (4.17%) that you will ultimately die from a stroke
· There is a 4% chance you will die from an accident or the adverse effects of one
When you add these two risks together, you can see that approximately 1 in 12 people will die from an unforeseen risk. In addition, a number of people will find out they are terminally ill and their families will not be able to purchase personal life insurance to help them manage the financial burden created when they pass away.
Another obstacle to successful financial planning in the case of unforeseen death is that most people don’t enjoy contemplating, let alone discussing, the death of a family member. As a result, few families are financially or emotionally prepared for this traumatic event.
In this chapter, we will discuss two financial losses that can occur at the time of death:
· Loss of income
· Loss of an estate (via estate taxes and probate costs)
Physicians and their families can use particular insurance planning strategies to efficiently manage the risks which often result from the premature death of a family member. In addition, proper legal documentation must be created to allow for efficient handling of financial matters at death—including offering the executor of the estate the legal power to effectuate a transfer prior to the estate going through probate. If there are unnecessary delays in this process, the patients will seek another practitioner, thus diminishing the value of the practice further. This chapter aims to teach you how to protect wealth from the death of a patriarch or matriarch. Let’s explore how this can be done.

Income Protection
A key to successful planning is an ability to put one’s fear of death aside and focus on the financial impact a death may have on a family. The first financial impact of death, especially for younger families, is the lost income. Once a father or mother has passed away, they obviously will not earn any more income. If the family hasn’t met all of its saving goals (most don’t until they are well into their fifties), there will be a significant financial strain from the death. The key to maintaining wealth is making sure that no financial catastrophe wipes out the family. To show you how significant this loss of income can be, consider the following.
The present value of twenty years of lost income for the Average American family (with $45,000 of annual income) is approximately $636,000. That means that, at the time of death, the family would be in the same financial situation if they had 20 years of income OR had a lump sum of $636,000.
For the family of a physician who earns $300,000 per year, the present value of twenty years of lost income is over $4,200,000. For the family of a very successful specialist who earns $1,000,000 per year, the present value of 20 years of lost income is $14 million. The simple estimate implies that a family needs approximately 14 times the annual income of the breadwinner to replace twenty years of lost income. If you have a younger breadwinner or a breadwinner who just intends to work 30 more years, the multiple used to approximate the present value of future income is 18 times one year’s income.
What these examples illustrate is that a family needs life insurance in the amount of at least 14 times the annual income of each wage earner just to keep them on track to meet their financial goals (assuming that their current earnings were keeping them on track before the death). Also, this estimate assumes no adjustment for inflation. Over twenty to twenty five years, the value of a dollar is reduced by 50%. For that reason, you could estimate that a family needs between 14 and 28 times one year’s after-tax salary to replace twenty years of income. Do you have enough life insurance to protect your family and leave them in a position to meet their goals if you were to die?
In addition to lost income, the practice asset will be lost if proper estate planning doesn’t establish a trustee with a power of sale. This is the best possible option since More

Asset Protection Myths

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Asset Protection For Doctors

Every day, we speak to Doctors about how they can achieve the protection they desire in order to maintain their wealth. In these conversations, we hear many common myths. Perhaps you too hold some of these false beliefs. Five common myths are:
· “My assets are owned jointly with my spouse, so I’m okay.”
· “My assets are owned by my spouse, so I’m okay.”
· “I am insured, so I’m covered.”
· “I can just give assets away if I get into trouble.”
· “My Living Trust (or Family Trust) provides asset protection.”
These myths are dangerous because they lull the individual or family into a false sense of financial security. This, in turn, may prevent the Doctor from taking necessary steps to truly protect the assets. Let’s examine each of these common myths and dispel them.

Myth #1: “My Assets Are Owned Jointly With My Spouse, So I’m Okay.”
Most Doctors hold their homes and other property in joint ownership. Unfortunately, this ownership structure provides little asset protection in both community and non-community property states.
In community property states, like California, community assets will be exposed to community debts regardless of title. Community debts include any debt that arises during marriage as the result of an act that helped the community. Certainly, any claims resulting from a medical practice, income-producing asset (rental real estate) or auto accident would be included.
Even in non-community property states, joint property is typically at least 50% vulnerable to the claims against either spouse. Therefore, in most states, at least 50% of such property will be vulnerable—and all of the other problems associated with joint property still exist in non-community property states.

Myth #2: “My Assets Are Owned By My Spouse, So I’m Okay.”
One of the most common misconceptions about asset protection is that assets in your spouse’s name cannot be touched. We cannot tell you how many Doctors have come to us with their assets in the name of one spouse and assumed that those assets were protected from claims against the other. This often happens when one spouse has significant exposure as a Doctor and one does not.
Unfortunately, simply transferring title of an asset to the non-vulnerable spouse does not protect the asset. The creditor is often able to seize assets owned by the spouse of the debtor by proving that the income or funds of the debtor were used to purchase the asset. To determine if the asset is reversible, three questions can be asked:
· Whose income was used to purchase the asset?
· Has the vulnerable spouse used the asset at any time?
· Does this spouse have any control over the asset?
If the answer is “yes” to any of these questions, then the creditor can be paid from these assets.
California allows a debt incurred during the marriage to be recovered from any community property. According to California Family Code §910(a), “the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.”
Said another way, if assets constitute community property, it is irrelevant that community property assets are titled in the name of one spouse. The creditor can attach all of the community property, even if only one spouse is the debtor and even if the debt arose prior to marriage. Because each spouse has a coextensive ownership interest in community property, creditors of either spouse can reach all community property of the two spouses.

Myth #3: 1 Am Insured, So I’m Covered.”Gentleman Checking His Asset Protection
While we strongly advocate insurance as a first line of defense, an insurance policy is 50 pages long for a reason. Within those numerous pages there are a variety of exclusions and limitations that most people never take the time to read, let alone understand. Even if you do have insurance and the policy does cover the risk in question, there are still risks of underinsurance, strict liability, and bankruptcy of the insurance company. In any of these cases, you could be left with the sole financial responsibility for the loss. Lastly, with losses that fall within the plan’s coverage limits, you still may see your future premiums go up significantly.

Myth #4: 1 Can Just Give Assets Away If I Get Into Trouble.”
Another common misconception of asset protection is that you can simply give away or transfer your assets if you ever get sued. If this were the case, you could just hide your assets when necessary. You wouldn’t need an asset protection specialist. You would only need a shovel and some good map-making skills so you could find your buried treasure later.
In recognizing the potential for people to attempt to give away their assets if they get into trouble, there are laws prohibiting fraudulent transfers (or fraudulent conveyances). In a nutshell, if you make an asset transfer after an incident takes place (whether you knew about the pending lawsuit or not), the judge has the right to rule the transfer a fraudulent conveyance and order the asset to be returned to the transferor, thereby subjecting the assets to the claims of the creditor.
If you have been sued or suspect that you may be sued, there are other ways you can protect yourself. Typically, reactive last minute strategies are not very effective and may be much more expensive than the highly successful strategies that can be implemented when there are no creditors lurking.

Myth #5: “My Living Trust (Or Family Trust) Provides Asset Protection.”
There have been countless instances where clients have come to us with the impression that their revocable Living Trust provides asset protection. While you are alive, this is simply not true. Revocable Trust assets are fully attachable by any creditor as the trust is a grantor trust. Later in this Lesson you will read about Irrevocable More