Physician Bankruptcy Filings On The Rise

Doctors are being pushed into bankruptcy with increasing frequency as reported in this CNN article. Surprisingly, bankruptcy attorneys have noted that malpractice judgments are not a direct cause of the increase in physician bankruptcy filings. The ever escalating price of malpractice premiums does, however, seem to be a factor.

Asset Protection Planning Can Actually Reduce the Cost of Operating a Medical Practice

As unlikely as it may seem, doctors can actually reduce the cost of operating their practices by simply spending the one-time cost of developing an asset protection plan. While that cost is significant (often north of $20,000), the plan serves twin purposes that will save physicians money in the long run. First, an asset protection plan will serve to protect your wealth and keep you at the investment helm. In comparison to tools like whole life insurance, asset protection is superior because the fees are straightforward, and there is never any sort of penalty or need to jump through hoops if you ever want to remove your cash from the plan (though few of my clients ever want or need to pull money out their plans).

Second, when doctors have asset protection, there is less of a need for malpractice insurance.

The Need for Malpractice Insurance is Inversely Proportional To The Existence of Asset Protection

Think about the reasons for carrying malpractice insurance. For one, it covers the cost of legal defense in the event that you’re ever sued. Malpractice insurance also provides plaintiffs with a pot of readily available money from which to draw in the event that they succeed in their malpractice claim. That’s a huge incentive . . . FOR SOMEONE TO SUE YOU!

I spoke with a seasoned malpractice defense attorney two weeks ago. He said something along the lines of this: “In 20 years of practice as a malpractice defense attorney, I’ve never seen a doctor without malpractice insurance get sued.” The inverse must be true as well: Only physicians with malpractice insurance are likely to get sued.

You can effectively protect your personal wealth through the use of an offshore asset protection trust coupled with a family limited liability company. You don’t need malpractice insurance for protection. What you might neet it for is to pay the cost of a legal defense. I always recommend at least a minimal amount of malpractice insurance, if only to cover the cost of legal fees in the even that you are ever the victim of a lawsuit.

Asset Protection Can Increase Your Profitability

Do the math. Reduced malpractice premiums over the course of your career can really add up to a huge savings, and with reductions in insurance reimbursements, patient cash outlays, and the ever increasing cost of doing business as a physician, asset protection may be just the cost savings that helps you achieve banner profits.

Asset Protection Articles

Using Debt As A Shield

By Michael Wayne Patton

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The best way to think about asset protection is as a comprehensive strategy that protects you and your wealth from many angles. Trusts, family limited partnerships, LLCs, life insurance, and retirement plans are all tools that we use to fortify wealth and pass it on to loved ones with the smallest tax burden possible, but in many cases the way in which these tools are used is just as important as the tools themselves.

Not many people think of debt as a good thing, but in the world of asset protection, debt can be extremely useful as a tool and as a strategy, especially if you have any significant portion of your net worth tied up in real estate (or in some cases even stocks or bonds). Think about it like this: cash is easy to protect, because we can safely move it out of the U.S. and beyond the reach of U.S. creditors and courts. The same is true of other hard assets like precious metal, art, collectible cars, etc.

Real estate, on the other hand, is where it is. It can’t be moved and is therefore always subject to the jurisdiction of the court system where it is located. So even if real property is inside your asset protection plan (where it should be), a judge can simply decide to ignore the protections around it.

Equity Stripping

This is where debt comes in. Property that is encumbered by a mortgage at a high loan to value ratio is not very attractive to creditors. One way to protect the value of property is simply to carry a note on it, but that option doesn’t appeal to everyone. Luckily there’s an alternative.

So long as real property is inside of an asset protection plan at the time when a creditor’s cause of action or grievance arises, the equity in the real property can be “stripped” out and protected within the planning. This means that the property can be protected by debt after a lawsuit is filed against you, and the loan proceeds are likewise protected. It is a very sophisticated strategy that I’ve used to help people save real estate ranging from Hawaiian homes to commercial property.

If you’re interested to learn more about asset protection planning, please feel free to contact directly at (850) 803-1166. Just say that you were referred by the Florida Healthcare Law Firm, and I will waive my customary $279 consultation fee.

 

Asset Protection Articles

What OJ Simpson Can Teach Us About Domestic Asset Protection

OJ Simpson made a lot of mistakes, but one thing he did right was put good asset protection planning in place. In fact, OJ played the asset protection game to near perfection, and he didn’t even use an offshore asset protection trust. We can all learn a little something from the asset protection tools that OJ used for protection from lawsuits. Though Simpson more or less “lucked” into his asset protection plan, with the help of an asset protection attorney, you can implement an asset protection strategy that’s even more effective than OJ Simpson’s.

Federal Asset Protection

OJ Simpson began his NFL career playing for the Buffalo Bills. As part of his compensation, OJ received an NFL defined benefit retirement plan, which was in place for the duration of his professional football career. Fast forward thirty years to 1999. By 1999 OJ had been acquitted of double homicide by a “jury of his peers.” The bad news was that in 1997 the Brown and Goldman families had won a $33.5 million dollar civil judgment against Simpson. See Rufo v. Simpson, 103 Cal. Rptr. 2d 492, 497 (Cal. Ct. App. 2001).  Despite losing the civil case, Simpson’s defined benefit retirement plan (valued at more than $4 million) was “off limits.” In other words, the judge presiding over the civil case ruled that OJ’s retirement plan could not be used as a source of proceeds to satisfy the judgment won by the Brown and Goldman families.

The Employee Retirement Security Act (“ERISA”) includes an asset protection fail-safe mechanism that ensures employees receive the benefits promised to them by their employers. See 29 U.S.C.A. § 206 (1974). This federal asset protection feature prevents creditors from satisfying judgments out of certain ERISA qualified retirement plans such as pensions, defined benefit plans, profit sharing plans, and 401(k) plans.

Plans falling outside of ERISA (e.g. IRAs, Roth IRAs, Life Insurance Cash Value, Annuities, etc.) are only protected to the extent provided by the state in which a judgment debtor resides, and to this end some states are much better than others. For example, Florida asset protection laws provide for 100% protection of IRA accounts, cash value of life insurance, and annuities. California, on the other hand, only provides protection to the extent reasonably necessary for support.

Florida Asset Protection

By 1999, Simpson had also availed himself of Florida’s strong homestead protection laws. Under Florida law at the time, any domiciled resident of Florida could take advantage of an unlimited homestead exemption. That simply meant Simpson’s home could not be touched by the Brown or Goldman families, though following the collapse of WorldCom (and the fact that many WorldCom execs had used their fraudulently obtained funds to build huge Florida mansions), the Florida legislature carved out some “securities fraud” exceptions to the homestead exemption.

Additionally, in 2005 Congress altered the application of state homestead exemptions within the context of bankruptcy proceedings. However, many states still offer very good protection against creditors outside of bankruptcy. Whether or not you qualify for that protection is a function of the state law where you are domiciled.

OJ Only Used Domestic Asset Protection

Not all asset protection strategies involve offshore trusts, but they do all require adequate planning. A qualified asset protection attorney can help you determine how best to prepare for an unknown future. And a failure to plan is one mistake that none of us can afford to make.

Click Here to Download a Guide on Protection of Retirement Plans.

Asset Protection Articles

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Asset Protection: What You Must Know

If you have questions about asset protection, please call me, Wayne Patton, directly at (877) 727-1092 . . . .

The New American Dream

There is a New American Dream spreading across the nation. Achieving this dream has nothing to do with education, hard work, ingenuity, or taking smart risks. No, the New American Dream is based on a sense of entitlement or a feeling that one is a victim, and the road to achieving this dream is paved with lawsuits.

If you are a medical professional, an entrepreneur, or a business owner with employees, you are at risk of being targeted in a lawsuit. The more successful you are, the higher your risk. So how can you protect assets from lawsuits?

Two Systems of Asset Protection

Like the tax code, there is a system of asset protection for the informed, and there is a different system for the uninformed. The informed system of asset protection begins by asking “Which of my assets are in need of protection?” and “What do I want out of my assets?”

To answer the first question, you need to do an analysis of your assets to determine (i) which ones are actually assets (i.e. which ones have enough equity to make them worth protecting), and (ii) which ones are not already protected as exempt assets (e.g. homesteads in Florida and Texas have automatic asset protection).

The second question–“What do I want out of my assets?”–might seem a little bit confusing, but most of my clients boil it down to a few things:

  1. Control of the assets. Ability to decide what, when, where, and how assets are used.
  2. Legacy, or the right to designate where assets go when you die.
  3. Leverage, or the ability to sell, transfer, or mortgage assets and turn them into cash today.

Notice that “legal title” isn’t on the list. Asset protection is about separating control and use of assets from legal title to the assets. That way, if you get sued personally, your assets are off limits, since the legal system can only take assets from you if you hold legal title. The legal system cannot take away your right to control and use assets. 

The Key To Protecting Wealth

Asset Protection Trusts are designed to give you maximum use and control of your assets while separating legal title from your potential legal exposure. It is the ultimate form of diversification and wealth protection, and the good news is that your assets can, for the most part, stay right here in the United States and remain under your full control.

If you would like to learn more about setting up an asset protection strategy, please call me today at (877) 727-1092 or email me directly at Wayne [“at”] mwpatton.com.

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Asset Protection And The New American Dream

The New American Dream

In case you haven’t noticed, there is a New American Dream. This dream isn’t the one instilled in us by our parents and grandparents. It isn’t what Nathaniel Hawthorne was likely talking about when he wrote that “Families are always rising and falling in America,” even though this dream does enrich some at the expense of others. The New American Dream isn’t a reward for educated risk-takers who use ingenuity and elbow grease to carve success for themselves.

Nor is this New American Dream rooted on the Puritan ethic embodied in Captain John Smith’s “He who does not work, will not eat.” It isn’t based on ingenuity or “working smarter” either.

No, the New American Dream is an insidious epidemic. It’s a free ride for the people who achieve it, but the toll exacted from the people who pay for this dream–the families that are “falling in America”–is enormous. The new American Dream is to become wealthy by lawsuit. The idea is to take from those who have achieved and give to those who are “victims.”

Does that sound ridiculous? Well, it should sound ridiculous. I certainly think it’s ridiculous, but no matter what any of us think, no matter how strongly we subscribe to traditional notions of achieving success, we must out of necessity act to protect ourselves against lawsuits. To really understand the need for protection against this New American Dream–the need to protect your assets against lawsuits–you need to understand the mentality of people who file lawsuits and the strategies pursued by the attorneys they hire.

What Does It Take to Achieve The New American Dream?

Not much. You and I know that self-development takes hard work, discipline, and dedication. Sadly, the reason so many people pursue the New American Dream is that it’s easy. Doesn’t it seem that more and more people are just interested in getting by these days? Many people are happy just to survive while leaving all the hard work to someone else. These people aren’t interested in self-development or growth. They have a sense of entitlement or a belief that they are victims. There are a lot of these people, up to 47% of the U.S. population if you take Mitt Romney’s word for it (recently named Quote of the Year for 2012 by Yale University), though the issue isn’t political at all.

Within this group, there is a certain subset that follow the New American Dream by looking for lawsuit windfalls.

All one needs is a sense of entitlement or the idea that a wrong has occurred and a target to sue. We all know that you can’t turn on the television or drive five miles on practically any major road without having a personal injury attorney advertisement tell us precisely that: “YOU have been wronged, and YOU are entitled . . . .”

After that, the task is simple. Sit back, let the plaintiffs’ lawyers do their thing, and collect a judgment or settlement.

Asset Protection For The Informed

Like most things in life, there is more than one solution to this problem. One idea is to reform the legal system in various ways. For example, we could institute a “loser pays” rule and eliminate contingency fees (e.g. attorneys who take a percentage of winnings in lieu of fees). Of course, since legislative bodies can’t seem to agree on anything these days, the idea of reform does little to protect your wealth today, and the powerful trial lawyers lobby works hard to make sure that meaningful legal reform never occurs.

So what can you do?

I believe there are two basic systems of asset protection. There is one system for the uninformed which says “just carry insurance,” and there is a completely different system for informed people who have been taught about wealth preservation and asset protection by virtue of coming from multi-generational wealth.

The good news is that you don’t have to be ultra-wealthy in order to take advantage of the “informed system” of asset protection.

Does Insurance Offer Asset Protection?

Yes, insurance does offer a limited form of asset protection, but it has flaws and can actually work against you. Think of the following:

  • Insurance can, in fact, encourage suits against you, because plaintiffs’ attorneys see an easy pot of money from which to collect. Asset protection, on the other hand, discourages lawsuits and creates incentives for plaintiffs to settle for pennies on the dollar, since even a victory in court doesn’t guarantee they’ll collect winnings.
  • Insurance only covers you for specified occurrences. It doesn’t cover you outside of carefully defined circumstances, so the moment you’re sued, the insurance company may stop “batting for you” and start look for reasons to deny coverage.
  • Insurance requires annual premiums, whereas asset protection is a one time investment that can last several lifetimes.

That said, I do always encourage my clients to carry a reasonable amount of insurance for the liabilities they are most likely to face. The reason is simple: Insurance companies will pay for your legal defense (though with good asset protection planning you may choose not to defend at all)! The cost of defending against a lawsuit can be absolutely mind boggling. Besides that, the existence of a policy with a reasonable (rather than the highest) coverage limit may encourage a plaintiff’s attorney to settle for the “sure thing” rather than risk going to court.

Proactive Asset Protection

Your assets are protected when you’ve taken advantage of all the legal tools available to you before a creditor claim arises or a lawsuit is filed. In many cases, if a lawsuit has been filed (or even threatened), it’s too late for asset protection.

Some asset protection is automatic. In Florida or Texas, for example, a homestead is practically always off limits. Assets that are automatically protected are called exempt assets, and we’ll talk more about them in future articles.

Another form of asset protection is debt. Yes, you read that correctly. A home valued at $1,000,000 with an outstanding mortgage of $800,000 only has $200,000 of  equity in need of protection. In other words, to adequately protect yourself, you need to understand what is and what is not an “asset.” Assets with equity are often times in need of protection (unless they are exempt assets), but many times assets are so encumbered by debt that they provide their own unique form of asset protection, even though you have full use and control of the underlying assets.

That brings up an important point. Use and control of assets, without technical legal ownership of the assets, is the key to protecting wealth.

Asset Protection Trusts

The goal of any asset protection plan should be to reduce your lawsuit profile and eliminate the possibility of creditor claims, whether from litigation, guarantees on business loans, or most other types of liabilities. Plaintiffs’ lawyers are highly attracted to wealth, so the best way to reduce your profile and ward off lawsuits is simple: Don’t own anything!

If you don’t own anything, what can your creditors take away from you? NOTHING.

This might sound absurd, but think about what you really want out of your assets:

  • Control – The ability to do what you want with those assets when you want to do it.
  • Use – What’s the point of having assets if you can’t use them?
  • Legacy – The right to designate where those assets go when you die.
  • Leverage or Liquidation – Use of the assets to purchase other assets, secure loans, or the ability to sell them outright.

If you could have all of the above but not legal title, would you lose much sleep? Probably not. My clients actually report sleeping much better at night after creating an asset protection plan!

The good news is that you can control and use your assets while shielding them from creditor claims!  The legal tool that we use to achieve this is called an asset protection trust.

If you would like to learn more about setting up an asset protection strategy, please call me today at (877) 727-1092 or email me directly at Wayne [“at”] mwpatton.com.

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Asset Protection Poker™

Asset Protection Poker - Preserve WealthIn more ways than one, asset protection planning is just like poker. A deep symmetry exists between the legal system in general and the game of poker. That’s certainly true of litigation, where lawyers have to make lots of competitive decisions with incomplete information, and it’s also especially true in the field of asset protection, where the game is focused on preserving wealth and removing any potential disadvantages from your hand before sitting down at the poker table.

Asset Protection — Public and Private Information

Just like in the game of poker (except for draw poker), there is always a certain amount of information about your assets that is publicly available or easy to figure out (e.g. the type of car you drive, the house where you live, etc.), and then there is information that isn’t so readily discernable. Asset protection planning, or in this context Asset Protection Poker™, is about adding some degree of privacy to your assets. But that’s not the whole game. Not by a longshot.

Welcome to Asset Protection Poker™

This series of blog posts is going to compare different aspects of asset protection planning to the game of poker. We are going to focus on risk management, wealth preservation, bluffing (a.k.a. deception . . . but never to a judge!), and the actual legal advantages that exist when you have an asset protection plan in place.

Of course, as a secondary goal, I hope to introduce you to the game of poker and/or help you improve your poker skills a little. Maybe one day we can even get together for a friendly game of cards one day . . . .

Asset Protection Poker

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