Three Liability Planning Tips for Physicians

As you know, the practice of medicine is a profession fraught with the risk of liability.  Aside from medical malpractice claims, physicians need to protect themselves from employment-related issues, careless business partners and employees, contractual obligations, and personal liabilities. 

 

This topic outlines three liability planning tips for physicians:

 

#1

A Solid Insurance Portfolio is the First Line of Defense Against Liability

Liability insurance is the first shield physicians must use to protect themselves. It provides a source of funds to pay legal fees as well as settlements or judgments.

 

Types of insurance physicians should have in place include but not limited to:

 

  • Homeowner’s insurance

  • Property and casualty insurance

  • Excess liability insurance (“umbrella” insurance)

  • Automobile and other vehicles (motorcycle, boat, airplane) insurance

  • General business insurance

  • Professional liability insurance

  • Directors and officers insurance

#2

State Exemptions Protect a Variety of Personal Assets From Lawsuits

Each state has a set of laws and/or constitutional provisions that partially or completely exempt certain types of assets owned by residents from the claims of creditors. While these laws vary widely from state to state, in general in California, the following types of assets may be protected from judgments entered against physicians under applicable state law:

 

  • Qualified retirement plans (401k)s, profit sharing plans, money purchase plans, IRAs)

  • Life insurance (To Certain Extend)

  • Annuities

  • Wages

  • Prepaid college plans

  • Section 529 plans

  • Disability insurance payments

  • Social Security benefits

 
 

#3

Business Entities Protect Business and Personal Assets From Lawsuits

Business entities include partnerships, limited liability companies, and corporations; however, in California, only one entity type is available, Professional Corporation.  With that said, Physicians can create other entity types to protect other assets of the business such as equipment.    

 

Physicians who own their practice need to mitigate the risks and liabilities associated with owning a business (just like any other business owner) through the use of one or more business entities.   

 

Business entities can be an effective tool for protecting a physician’s personal assets from lawsuits. In many states, in addition to the protections offered by incorporating, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner. Further, the personal creditors of an owner cannot step into the owner’s shoes and take over the business. Instead, in California like many states, the creditor’s only remedy is a “charging order” which limits the creditor to receive distributions from the entity if and when they are made, but can not participate in management. This protection is only available to a well-drafted operating agreement; many of the shelf or premade documentation does not include this protection.

 

An added benefit of using a limited partnership or limited liability company to protect a physician’s personal assets is the leverage that can be created for gifting and wealth transfer planning through the use of valuation discounts. With a properly structured limited liability entity, assets held within the entity will be entitled to a discounted valuation for tax purposes.

 

Discounts can range from 20% to over 50% and allow the physician to gift entity interests for cents on the dollar and at a reduced use of the lifetime gift tax exemption.

Final Advice for Helping Physicians Protect Their Assets

Physicians are constant targets for lawsuits both professionally and personally because they are perceived to have “deep pockets.” 

 

We are experienced with helping physicians create effective, multilayered asset protection plans. Please call us with questions about this type of planning and to arrange liability protection consultations. 

Nehoray & Drake llp - Estate Planning Attorney

Check

Our upcoming events

Get Free Consultation
Do you have a trust?

Request a Free Case Review

No Cost, No Obligation

Let's talk

The information contained in this website is provided for informational purposes only, and should not be construed as legal advice on any matter.

The transmission and receipt of information contained on this Website, in whole or in part, or communication with Nehoray & Drake via the Internet or e-mail through this website does not constitute or create a lawyer-client relationship between us and any recipient. You should not send us any confidential information in response to this webpage. Such responses will not create a lawyer-client relationship, and whatever you disclose to us will not be privileged or confidential unless we have agreed to act as your legal counsel and you have executed a written engagement agreement with Nehoray & Drake. The material on this website may not reflect the most current legal developments. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this site to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.