If you work in the medical industry, you probably already know that the practice of medicine is one fraught with the risk of liability. Although medical malpractice claims are serious and can be scary, they are only one risk. Medical professionals must also consider the entire scope of risk from being in business including employment related issues, business partners, contractual obligations and personal liabilities. While these risks are not unique to physicians, they are a frequent target due to our increasingly litigious society.
Because of this, we have compiled our top three liability planning tips for physicians to protect their practice and personal assets.
Tip #1 – Insurance is Always the First Line of Defense Against Liability
Liability insurance is the first line of defense against a claim. Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments. Types of insurance you should consider are:
- Homeowner’s insurance
- Property and casualty insurance
- Excess liability insurance (also known as “umbrella” insurance)
- Automobile and other vehicle (motorcycle, boat, airplane) insurance
- General business insurance
- Professional liability insurance
- Directors and officers insurance
Tip #2 – State Exemptions Protect a Variety of Personal Assets from Lawsuits
Each state has a set of laws and/or constitutional provisions that partially or completely exempt certain types of assets owned by residents from the claims of creditors. While these laws vary widely from state to state, in general, the following types of assets may be protected from a judgment entered against you under applicable state law:
- Primary residence (referred to as “homestead” protection in some states)
- Qualified retirement plans (401Ks, profit sharing plans, money purchase plans, IRAs)
- Life insurance (cash value)
- Property co-owned with a spouse as “tenants by the entirety” (only available to married couples; and may only apply to real estate, not personal property, in some states)
- Prepaid college plans
- Section 529 plans
- Disability insurance payments
- Social Security benefits
Tip #3 – Business Entities Protect Business and Personal Assets from Lawsuits
Business entities include partnerships, limited liability companies, and corporations. Physicians who are business owners need to mitigate the risks and liabilities associated with owning a business through the use of one or more entities. The right structure for your enterprise should take into consideration asset protection, income taxes, estate planning, retirement funding, and business succession goals.
Business entities can also be an effective tool for protecting your personal assets from lawsuits. In many states, in addition to the protections offered by incorporating, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner. In many cases, the personal creditors of an owner cannot step into the owner’s shoes and take over the business. Instead, the creditor is limited to a “charging order” which only gives the creditor the rights of an assignee. In general, this limits the creditor to receiving distributions from the entity if and when they are made.
Final Advice for Protecting Your Assets
Liability insurance, exemption planning, and business entities should be used together to create a multi-layered liability protection plan. Our firm is experienced with helping physicians, professionals, business owners, board members, real estate investors, and retirees create and—just as important—maintain a comprehensive liability protection plan. Reach out to us if you want to make sure you have the right protection in place.