Home > Blog > Financial Planning > Asset Protection for Physicians: Benefits, Laws & Strategies to Know

Asset Protection for Physicians: Benefits, Laws & Strategies to Know

physician asset protection

If you’re a doctor, dentist, surgeon, veterinarian, chiropractor, nurse practitioner, or other health care provider, you may wonder about physician asset protection and how you can protect yourself if your assets come under threat.

Let’s take a look at the definition of asset protection, asset protection basics for doctors (including in your state), the benefits of asset protection, and strategies for protecting your assets. 

We’ll help you get an idea of the pitfalls and solutions and help you summon the right resources for asset protection yourself.

What is asset protection?

Asset protection can involve any number of strategies to help you guard your wealth against taxes and other losses, including the seizure of your personal finances due to liability (malpractice). Leaving your assets exposed can endanger both your personal and professional life, so it deserves some attention. 

More than one in three physicians (34%) have experienced a malpractice lawsuit filed against them at some point in their careers, says a trend report through the American Medical Association (AMA). It’s also worth noting that the plaintiffs usually do not win their cases, according to another AMA report.

In most cases, it deserves years of careful attention, which means that you’ll likely need to have regular meetings with an accountant, financial advisor, or other professional to discuss a combination of tax savings, estate planning, and investment strategy techniques to protect your assets. 

Asset protection basics for doctors

A well-structured asset plan can offer the best chance of asset protection, but first, it’s important to understand that no asset plan can completely cover everything you own. In addition, it’s also important to recognize that there are no step-by-step instructions for achieving complete asset protection. Asset protection varies for everyone, depending on the nature of their practices, family circumstances, tax situation, actual assets held, and more.

However, you might want to map out several goals, which might include:

  • Discouraging litigation
  • Easing operation and fund application
  • Accessing tax benefits
  • Protecting family assets

Planning to fly solo and dive into your own asset protection plan? Just as you likely would never entertain the idea of doctoring yourself or giving yourself your own dental checkup, it’s a good idea to think twice about trying to achieve complete asset protection on your own (even if you are a financial advisor and a lawyer in addition to a physician). Asset protection strategies for doctors deserve outside scrutiny. A team of professionals can help you protect yourself in the event of malpractice or other asset threats.

Benefits of asset protection

There are multiple benefits of asset protection, including limiting what creditors can take, making it less likely to have a large judgment against you. As a physician, you also gain the psychological benefit of knowing you have protection and that you have safeguarded yourself against legal threats.

Asset protection law varies highly by state

In order to fully understand asset protection, it’s important to understand your state laws. Various investment accounts fall under federal exemptions, including IRAs, 529 plans and education savings accounts, HSAs, and nonqualified retirement plans like 401(k)s, 403(b)s, and cash balance/defined benefit plans. Homestead exemptions, annuities, and life insurance also carry a certain amount of protection. It’s a good idea to have an idea of how all of your assets can be protected. 

Here’s another example: The burden of proof for malpractice laws varies from state to state. Some states have more stringent laws than others. What is the burden of proof, exactly? The burden of proof means the patient must prove that medical care failed to meet certain standards and resulted in other complications for the patient. 

Some states also have damage limit caps, which means there are caps on damage in a lawsuit. Right now, 11 states cap damages in general tort or personal injury cases: Alaska, Colorado, Hawaii, Idaho, Kansas, Maryland, Mississippi, Ohio, Oklahoma, Oregon, and Tennessee. At an individual state level, Colorado has two types of medical malpractice damage caps: a cap on noneconomic damages and a “total” cap for both economic and non-economic damages.

Asset protection strategies for physicians

Getting the right insurance gives you your first line of defense as asset protection for physicians. It’s vitally important to get the right asset protection and to recognize that you might get sued or have some kind of legal judgment exacted against you. Malpractice covers fees from judgments, your defense, expert witness costs, settlement costs, and legal fees.

If you’re not sure what you need, talk to your colleagues to make sure you have the right amount of insurance. At the same time, try as hard as you can to minimize the chances of getting wrapped up in a malpractice case situation. You can also protect yourself, particularly if you have your own practice, by practicing the following:

  • Avoiding fraudulent transfers
  • Establishing a business to protect your assets
  • Keeping business and personal finances separate
  • Titling your assets
  • Giving away money as an asset protection strategy

Professionals may also give you other ideas, such as establishing limited liability corporations (LLCs), family limited partnerships, or other ideas for asset protection strategies for doctors: 

  • Limited liability companies (LLCs): LLCs may offer cheap asset protection. LLCs have asset protection provisions that prevent creditors from seizing your assets and also separate your personal assets from your business assets. Put simply, lawsuits or liabilities can’t seize your personal assets. 
  • Family limited partnerships: Family limited partnerships may even be better than LLCs. Family partnerships create a limited liability entity. The parents are the initial owners of these family partnerships and gift ownership (usually nonvoting, non-control interests) to children or grandchildren. Ultimately, gifting, trusts, and spousal transfers take the assets out of your name. It’s a good idea to look at all the ramifications of these types of options. 
  • Equity stripping: Equity stripping may also help protect more assets. Equity stripping reduces the equity you have in a property, which can help you avoid creditors.

Ultimately, asset protection for doctors can mean that you tap into a wide variety of physician asset protection strategies. One of the best ways to get an idea of how to cover yourself with a comprehensive asset protection plan is to talk to other physicians in your field or a trusted professional that you already work with. They can point you in the right direction.