This is part one of a before and after look at one doctor's asset protection planning. The case study shows just how vulnerable most successful physicians are and how easy a fix can be.
Two commonly overlooked areas of most doctors' legal and financial planning is their asset protection and risk management planning. As money comes in and doctors move from debt to the surplus and profit phases of their careers, issues like tax, investment, and estate planning will most often get addressed. Unfortunately, protecting that accumulated wealth, its sources, and reducing predictable risks are often overlooked. Now, let's get to the case study. As a note, all non-material details have been changed to protect the client.
Before – "Letting It Ride"
Bill and Preeti Deutsch are a two-physician couple who have been married for several decades and have two children. Bill owns his medical practice with two partners and brings home just over $1million a year, while Preeti brings home about $325,000 annually from her hospital based specialty practice. The couple recently sold their home and purchased a new, bigger home for $1.8 million, having put about $600,000 down and financed the rest. The couple also owns a share of the LLC that owns Bill's office building. The LLC has a positive cashflow from the rent received from the practice and two other tenants as well as shares in a separate S-corp. that owns an ambulatory surgery center (ASC) they invested $200,000 in, which produces a significant monthly income.
Bill and Preeti have significant (and legally creditor-protected) retirement savings in qualified plans (IRA/401K/529) and another $750,000 in a combination of investment accounts, CDs, some precious metals, etc. The couple also has three cars and a mediocre thirteen-year-old estate plan they got free from a financial advisor they used to work with.
After – "A Life Well Planned"
•A new estate plan. A review of their existing estate plan, in the form of an revocable living trust revealed several different problems, not the least of which was that the plan had never been funded with most key assets. The estate plan was out of date in terms of their actual assets and wealth, didn't explicitly include their youngest child, and listed specific people as both guardians and trustees that were no longer acceptable choices for a variety of reasons. The estate plan was updated to reflect all these needs and was funded with appropriate assets after I carefully explained to the couple that the trust provided no asset protection during their lifetime and was their required "death plan," not a "life plan" to help them manage and protect assets during their lives.
•Insurance updates all around. It was discovered that they had only $500,000 in personal liability coverage on their home and automobiles, despite having three drivers (including a teenager) in the home all driving daily, this was increased by adding a $2 million personal liability "umbrella" policy that also covers any exposure at their home. Bill's practice was better protected by adding a full suite of specialty insurance products to protect the practice and its owners from data breaches, employment lawsuits, RAC audits, and executive liability among other issues, all with seven figure limits. The total cost for the business coverage amounted to $14,000 per year, which the partners initially refused to consider. As an attorney I don't sell insurance, so my only interest in their coverage was a duty give my best advice based on my experience with doctors nationwide.
I explained that the annual premiums protected them from five or more common exposures they were currently unprotected against for over a million dollars each and that the out of pocket legal fees to defend themselves from any one of those claims could easily be six figures on their own. If uninsured, they'd still have the full liability of a lawsuit judgment itself and the retainer payment a top law firm would require on any one of these issues could be as much as the total premium. The partners eventually agreed that this provided a vital first line of defense and put all the coverage required in place.
In our next installment, we will continue to examine the changes that were made to this physician couple's asset protection plan that resulted in millions of dollars in increased protection for their assets.