Estate Planning for Doctors
Talai Law Offices focuses on estate planning for doctors, and because we focus our practice to such individuals it does not take us days or weeks to figure out and understand what our clients needs are. We already know their concerns, and are able to provide them with a comprehensive estate plan by incorporating many different planning tools that can provide asset protection, reduction or elimination of estate taxes, and avoidance of the long and costly process of probate.
Most doctors are concerned about exposing assets to litigious patients. However, by maintaining the focus on effective estate planning these concerns can be mitigated, because asset protection is an incidental benefit of the proper estate planning.
Various Asset Protection Planning Options
Estate planning offers a level of asset protection through outright gifts, irrevocable spendthrift trust, charitable trusts, and marital trust. However, asset protection includes much more than just trusts. The followings are various techniques for asset protection:
Adequate personal and business insurance should be considered the first line of defense. Your personal insurance must be sufficient, and it shall include umbrella insurance. For your practice, ensure that commercial general liability insurance is sufficient, and that you hold umbrella insurance. Additionally, consider as much professional liability insurance as you can reasonably afford, as well as employment practice insurance. And, most importantly, make sure you read the fine print of all these policies.
Transmuting jointly held property to separate property interests often yields significant protection. Beware, however, that transfers between spouses may be considered fraudulent if not carefully planned. A professional spouse may transmute separate property or jointly held interests into separate property of the non-working spouse as long as it is not fraudulent. Nevertheless, although marital planning provides greater asset protection, it is important to note to that it could be detrimental in the event of divorce.
Setting Up A Business Entity
Creating a business entity lends protection against debts and claims. If you own everything in one company a single lawsuit can result in catastrophic loss. If assets are held in separate companies, then only the entity involved in the suit is at risk. As a result, it is important to segregate your most valuable assets, such as real estate or equipment, in separate LLCs. Additionally, it is important that you implement proper corporate governance practices, such as maintenance of LLC and corporation corporate formalities. This ensures that creditors remain unable to “pierce the corporate veil.”
LLCs for Real Property
Real property requires special protection. Tremendous liability potential exists for jointly owned real estate. Thus, placing real property in an LLC or FLP is more advantageous in terms of asset protection.
A charging order is an order by the court in favor of the creditor requiring that distributions from the LLC be made to the creditor who obtained the charging order. However, if there are no distributions from the LLC and the charging order is the exclusive remedy for the creditor, the creditor will not receive anything. Thus, this is advantageous for clients seeking greater asset protection.
There are many favorable jurisdictions for LLCs, including the following: DE, AK, SD, AZ, NV, and WY.
Domestic Asset Protection Trusts (DAPT)
Domestic asset protection trusts are favored as an asset protection tool because probate is avoided, confidentiality is maintained, and transfer of assets can be more efficient. However, in most states settlor’s creditors can reach the trust assets while the settlors are alive. Regardless, DAPTs form a significant barrier against creditors and afford significant leverage to the debtor with respect to negotiations with the creditor.
A spendthrift clause protects a beneficiary’s interest from creditors’ claims. However, these clauses are generally unenforceable for a settlor who is a beneficiary, i.e. while settlor is alive. Nevertheless, 14 states now have legislation providing spendthrift protection to a settlor-beneficiary. The recommendation remains to have significant connections with one of the 14 states to establish a DAPT in that jurisdiction.
Effective estate planning can minimize not only tax exposure but also the risk of recovery by litigating third parties. Further, focusing on estate planning can also alleviate the moral and legal dilemma of “asset protection.” Undertaking planning sooner rather than later is important because death and taxes are a certainty and, for doctors, litigation claims are nearing that threshold. Although no strategy can prevent a lawsuit, they will certainly help your chances of settlement or dismissal of a lawsuit.
Call Us Today to Schedule Your Family Wealth Planning Session