If you’re a physician, you’ve likely dedicated your life to building a successful career. After long nights in residency, you may now have ongoing responsibility for patient outcomes. Whether you’ve established your own practice or are employed by a hospital, health care system, or corporation, you may have accumulated a net worth between $2 and $5 million and want to protect your earnings.
The skilled asset protection lawyers at Landskind & Ricaforte Law Group, P.C. know that it doesn’t take much to put your life’s savings in jeopardy. A divorce, business conflict, malpractice claim, or unexpected personal liability can threaten all of your hard-earned wealth. We also know what it takes to protect it. If you’re a physician, our attorneys can advise you on strategies for legally structuring your finances to reduce risk, preserve your family wealth, and create financial stability, especially in today’s litigious society. Here, we discuss helpful financial tools New York doctors can use to protect their personal wealth from liability.
Doctors Face Special Liability Risks
Physicians often face lawsuits, even when their care has met professional standards. High income and visible assets make doctors attractive targets for the following:
- Personal injury lawsuits
- Medical malpractice claims
- Divorce conflicts
- Partnership disputes
- Real estate liabilities
While you may have malpractice insurance and other types of protection, they aren’t always sufficient on their own. A comprehensive asset protection strategy layers insurance with legal structures designed to separate personal and professional risk.
A Doctor’s First Line of Defense: Insurance
Before you pursue advanced strategies for asset protection, it’s important to ensure your insurance coverage is optimized by using the following:
Malpractice Insurance
Most doctors understand that having adequate malpractice coverage is absolutely essential. In New York, many hospitals require minimum coverage limits, but higher umbrella policies may be wise depending on specialty and exposure. You may want to evaluate the following:
- Occurrence vs. claims-made policies
- Tail coverage when changing employers
- Coverage limits relative to specialty risk
Personal Umbrella Insurance
A personal umbrella policy extends liability protection beyond home and auto policies. For physicians with significant assets, $1–5 million in umbrella coverage is often advisable. Umbrella insurance helps shield against:
- Defamation or personal injury lawsuits
- Car accidents
- Premises liability claims
Our New York attorneys can help doctors set up, review, and negotiate various types of insurance, including professional malpractice, business, and private medical insurance. Obtaining legal guidance is crucial for ensuring compliance with New York state regulations, managing risk for new practices, and addressing insurance audits
Use Business Structures to Limit Your Risk
Physicians often choose between two types of business structures to provide them with a layer of asset protection. These structures can separate high-risk operations like their medical practice from their personal assets. By using these structures, physicians can create legal compartments for specific liabilities. Two structures often used by New York medical professionals include a Professional Limited Liability Company (PLLC) or a Professional Service Corporation (PC).
Professional Limited Liability Company (PLLC)
A PLLC can provide a shield between the company’s operations and the physician’s personal assets. If a liability arises from the practice or other assets that are inside the PLLC, creditors are generally limited to pursuing the assets held within that PLLC, rather than those held personally. Key protections can include the following:
- It shields you against partner liability. That means you’re not personally responsible for the misconduct, malpractice, or negligence of another physician in the firm.
- It provides asset protection from business debts. Typically, all of your personal assets are shielded from lawsuits that are related to the business—including employee disputes or premises liability claims.
Professional Service Corporation (PC)
If you choose to form a Professional Service Corporation (PC) instead of a traditional corporation or PLLC, your personal assets are still protected in much the same way as with a PLLC. However, one of the biggest differences between the two structures is how each entity is taxed. A PLLC is treated as a pass-through entity by default. That means the company itself doesn’t pay federal income tax; instead, profits and losses are reported directly on each member’s personal tax return. This structure helps avoid the double taxation that can come with a corporation.
A PC, on the other hand, is taxed as a C-corporation by default. This means the corporation pays tax on its income, and any distributions to shareholders (usually as dividends) are taxed again on the shareholders’ personal returns.
Using Trusts to Protect Your Assets
Certain types of trusts can offer another layer of asset protection for physicians. Irrevocable trusts shift ownership of an asset and its legal title to a trust. This makes it harder for creditors or people threatening a lawsuit to target them in their claim against you.
There are many types of trusts that can help physicians protect their wealth. The general goal of all is to remove assets from the direct ownership and control of the doctor, thereby reducing visibility and vulnerability in the event of a lawsuit. Here, we discuss some of these trusts and how they can function as asset protection.
Offshore Asset Protection Trusts (OAPT)
When you establish an offshore asset protection trust (OAPT), you hold assets overseas. This is a legal trust, and when configured properly, can offer physicians several levels of protection, including the following:
- A near-total separation of your personal possessions from your trust-controlled assets
- The peace of mind that comes from knowing that your trust is outside the territorial and political jurisdiction of American courts and the U.S. government
- Pro-wealth policies that shift the burden of proof onto creditors
An OAPT can provide solid asset protection; however, it may not be the right choice for New Yorkers who need more flexibility or need to retain access to trust-controlled assets.
Spousal Lifetime Access Trust (SLAT)
For physicians who are married, a SLAT allows one spouse to create an irrevocable trust benefiting the other spouse and children. This strategy does the following:
- Moves assets out of the taxable estate
- Provides indirect access through the beneficiary spouse
- Creates a protective layer against future creditors
However, SLATS aren’t for everyone, and there are a number of things to consider if you’re thinking about establishing this type of trust, including the following:
- You have a stable marriage and believe it will remain that way. The access you retain to the assets in a SLAT flows through your beneficiary spouse. It’s important that you’re truly comfortable relying on their judgment and the relationship’s long-term stability. Assets held in the SLAT may not be retrievable in the event of divorce.
- You have suitable assets ready to fund the trust. SLATs work best if you have assets that can be cleanly and easily transferred and reliably valued. These might include cash, marketable securities, and real estate with a clear title.
- You understand the risks of a SLAT and all the tax implications.
Prenuptial and Postnuptial Agreements
Divorce is one of the most significant financial risks facing high-net-worth professionals. In New York, equitable distribution laws can expose substantial assets to division. A prenuptial agreement allows physicians to:
- Define separate vs. marital property
- Protect pre-marriage assets
- Address the future value of your practice
- Clarify spousal support expectations
For physicians already married, a postnuptial agreement may serve similar purposes.
These agreements must be:
- Voluntarily executed
- Fully disclosed
- Fair at the time of signing
When drafted properly, they can prevent years of costly litigation and preserve family wealth.