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The conclusion of a physician couples' risk management overhaul sees them become millions of dollars safer.
Asset protection for doctors takes many forms. In this conclusion of a four-part series we review how a physician couple's assets and family became millions of dollars safer.
We started our journey with Bill and Preeti Deutsch, whose names were changed for the sake of privacy, a successful two-physician couple with a wide variety of both business and personal risks and assets including the following:
•$1.3 million in combined annual professional income.
•$600,000 in home equity.
•1/3 interest in medical office building LLC, equity $250,000 + rental income.
•S-Corp. shares for ASC worth $200,000 that produce income distributions.
•$350,000 in qualified retirement plan assets.
•$750,000 in non-qualified assets.
In addition to a sorely needed estate plan update, the couple also got an insurance update. Their personal liability insurance on their home, auto, and children was increased by $2 million with the addition of an umbrella policy. Likewise, the business liability insurance coverage at Bill's practice was increased by millions of dollars and expanded to include dangerous uncovered exposures like Data Breach, EPLI, D&O, and RAC Audit insurance, plus increases in their general liability coverage and the addition of a commercial umbrella.
As Bill and his partners are also common owners in both the ASC and the building LLC, they were able to share coverage between these businesses, providing a cost savings and vital layers of protection to those two other businesses as well. Total increase in street level insurance protection: $7 million.
In part two of our doctor's asset protection make over we saw the doctors increase their old life insurance coverage from a combined and soon to lapse $2.5 million to a combined $7.5million in total death benefit. This would be more likely to actually meet their family's expenses and cash flow needs if Bill, who produces the vast majority of their annual income, was to pass away. This also provided additional options for Preeti's own estate plan as well as additional wealth for her children in the event of her death.
The advisor they worked with took a sophisticated approach to their needs, using a combination of term and whole-life insurance policies of different structures that provided some additional benefits like cash accumulations, potential income and creditor protection.
The couple both increased their disability insurance coverage limits so that it would help meet their actual fixed monthly personal expenses and Bill and his partners implemented both "key-person" coverage and disability overhead expense insurance to protect their valuable practice's solvency in the event of the death or incapacity of a partner.
In part three of our case study we examined some fact specific legal tools that were implemented to protect the largely exposed personal assets outlined above, in addition to the update of their estate plan in the form of a revocable living trust.
•Their personal residence was transferred to an irrevocable trust protecting $500 million in home equity.
•Their $750,000 in non-qualified savings and investments was moved to a limited partnership that also replaced them as the member, or owner, of the $250,000 equity R.E. LLC, which now safely receives the previously exposed rental income.
•Their $200,000 in ASC S-Corp. shares were moved into an LLC owned by the irrevocable trust which now safely receives the ASC income that was previously exposed.
•Combined result of these tools is $1.7 million in exposed personal assets and six figures in recurring annual passive income are now predictably protected and linked to the family’s estate plan.
•A custom drafted state specific employment manual was implemented and the practice's old buy-sell agreement between the partners was finally updated to their current numbers and funded with insurance as required.
As you can see from this summary, it took a little time, effort and expense (as well as the work of several different professionals) to get this done in a proper and holistic way. It should also be noted that any plan that only addresses one of these issues will leave you exposed in other areas. While this can't be a substitute for your own fact specific review with qualified counsel, perhaps it can be a starting point to examine some of these planning issues in your own personal and professional life, while you still have the greatest number of legal options available.