Our litigious society puts the need for asset protection strategies at the forefront, especially for physicians and other high income earners. Whether it’s creditors, litigants or future ex-spouses, you owe it to yourself, your heirs and any other benefactors of your estate to protect the assets you have worked so hard to accumulate.
Insurance is the simplest form of asset protection. Home and auto insurance are the bare bones, absolute basic insurance, which everyone should have. Not too far removed and equally important are the following:
- Umbrella insurance, also known as excess liability insurance. Its purpose is to shelter you from excess liability that stretches beyond your basic insurance limits. Coverage typically starts at $1 million and can go north of $10 million, depending on your needs. It’s cheap – typically a few hundred dollars for the first $1 million in coverage and incrementally more cost effective as you add more.
- Malpractice insurance.
Important note: Make sure there are no gaps in your coverage. One way to avoid this is by working with one carrier, which should also afford you a multi-line discount. Also, be diligent about staying on top of your insurance. Annual reviews are prudent.
From there, look to slightly more complicated techniques to further buoy your asset protection plan.
- Prenuptial agreements. If you’re getting married for a second time, or simply getting married late in life, prenuptial agreements can protect your assets in the event of a future divorce.
- Maximize contributions to your retirement accounts. Company sponsored retirement accounts such as 401(k)s are protected from creditors under federal law. IRAs and Roth IRAs are protected – in certain cases to a lesser extent – under state law.
- Limited Liability Companies (LLCs). By putting your home in an LLC, you are protecting your personal assets and limiting the exposure of what’s in the LLC To isolate exposure, a separate LLC is advisable for each property.
- Where available (this varies from state to state), certain forms of ownership, such as tenancy by the entirety, can help protect assets from creditors and litigants.
- Asset protection trusts. Used for your heirs, charity and even to effectively manage an inheritance.
- Gifts. Removing assets from your estate before the end of your plan.
This list covers a significant amount of the asset planning that most physicians should consider. Start with the simple items, such as insurance, and build from there. An effective asset protection plan will help you sleep better and ensure that everyone who is depending on you is taken care of.