Doctors are paying more attention to building and retaining personal wealth than ever before. Understanding some core legal concepts about protecting assets and managing risks is a key part of that education.
Physicians are facing heightened pressure to succeed personally as compensation changes and new healthcare business models, expenses, and regulation make it harder to build and pass on wealth. Doctors are increasingly using social media to ask questions and find answers and service providers, with some even taking the reins and starting their own blogs and podcasts. Doctor Money Matters*,The Whitecoat Investor, and Physician on Fire are three top examples of the new “by doctors for doctors” resources available. While the increased focus on understanding what you are buying, what it costs, and how a certain investment strategy works is vital to getting rich, too many physicians are still overlooking some key tactical legal concepts about keeping the wealth they are building.
1. Timing is everything.
Whether you are building your wealth as a new physician or are fortunate enough to have worked, saved, and planned yourself into a position where you have a significant accumulation of wealth, the only time you can protect it all is today, under blue skies, before it is threatened. This means being proactive about everything from having all the right business and personal insurance to legal structures that can hold your non-retirement (non-qualified) savings and even estate planning and life insurance adequate to protect your family. Remedial action is almost always more expensive, less likely to succeed, and, in many cases, illegal (fraud).
2. Protect your wealth against all your risks, not just malpractice.
I routinely speak with doctors who get blindsided by risks outside the scope of their traditional professional malpractice risk. We have devoted many of our discussions to this area and have covered areas of liability ranging from your children to employee lawsuits, real estate related liability, and even firearms. You are a “whole” person with exposures as a parent, business owner, investor, etc., and failing to view and protect yourself holistically will nearly always leave you open to avoidable losses.
3. Take some money home and put it in a “safe.”
Many businesses, including medical practices, are built to scale because their owners are willing to sacrifice short term gratification for long term success and assets. The same is true of wealth building itself. Doctors take what they need to live and put the rest back in the business, which is undoubtedly smart but can go too far. Some also wrongly believe they are somehow “avoiding taxes” and that “it’s safer in the company than in my own name.” Others fear being undercapitalized and unprepared for expenses and surprises. If you are someone who is doing what other won’t today so you can do what they can’t in the future,your plan should include a disciplined allocation to personal savings in a protected legal “safe” for several reasons. Do you know what my lawyer friends gleefully call a medical practice with six or seven figures in excess cash? A great Defendant. Keep the following points in mind.
- Having all (or too much of) your savings in any one investment allocation, including just in your business, is usually a bad idea.
- Those assets are exposed to all your practice’s many liabilities, from the obvious malpractice claims, to employment law issues, RAC audits, and even a data breach.
- You can take out excess cash above your required operating reserve and make it legally distinct from your personal and professional liability.
- If your practice needs to be capitalized, your “safe” can always lend it back with interest and can even be a secured creditor just like a bank or any other third party.
4. Protect income streams like any other asset.
I’ve been thrilled to see doctors multiply their income streams by investing in other businesses. However, many of these doctors personally (or through their estate planning trust) own the LLCs and other business entities that are producing this income, leaving the income streams these investments produce exposed to all of their personal and professional risks. Use a “safe” as described above for this purpose as well.
We just scratched the surface of some vital issues that each merit feature length treatment. We will return to related issues again soon.
*Full Disclosure, I have personally been a guest on this physician’s podcast.
Attorney Ike Devji has practiced in the areas of asset protection, risk management, and wealth preservation law exclusively for the last 15 years. He helps protect a national client base with over $5 billion in personal assets that includes several thousand physicians and is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter.