Asset protection 101: How to keep people from taking your money

By Naveed Saleh, MD, MS | Fact-checked by MDLinx staff
Published March 9, 2023

Key Takeaways

  • Without adequate asset protection, a physician’s assets could be forfeited to a creditor.

  • In most US states, irrevocable trusts, corporations, and limited liability companies offer good asset protection, as well as retirement accounts.

  • A spouse is an integral player in physician asset protection.

Physicians work hard for their paychecks. No physician wants to lose what they own to a creditor. In the case of unfortunate, unforeseen circumstances, however, it’s imperative that physicians protect their assets for the sake of themselves and their loved ones.

In an exclusive joint email interview, MDLinx spoke with Charlie Davis, an expert in estate planning and administration, tax, and business law, and Robin Pipkin, an estate planning, corporate and tax attorney. Both are partners at Poyner Spruill LLC, with offices in North Carolina.

MDLinx: What does asset protection for physicians mean? 

Poyner Spruill LLP: This means obtaining sufficient insurance and structuring asset ownership in a way that protects personal assets from future creditor claims, including malpractice claims.

The first and most important step is ensuring you are adequately insured with professional liability, property and casualty, and umbrella coverage.

MDLinx: What happens if a physician doesn’t engage in asset protection? 

Poyner Spruill LLP:  The physician’s personal assets could be reached by a creditor to satisfy the creditor’s claim against the physician.

MDLinx: What assets can be protected? 

Poyner Spruill LLP:  There are ways to protect any asset that a physician owns, including financial accounts and homes.

MDLinx: What steps can be taken to protect assets? 

Poyner Spruill LLP: The first step is to obtain adequate insurance. This includes professional malpractice insurance, property and casualty insurance, and umbrella coverage to protect beyond the limits of professional malpractice and property and casualty insurance. The next step would be to speak with an attorney to assess other strategies to offer further asset protection, including entities like limited liability companies and certain irrevocable trusts.

MDLinx: What legal entities help with asset protection? 

Poyner Spruill LLP: Limited liability companies and corporations can be used to reduce liability exposure. Certain irrevocable trusts can also be used.

It is important to speak with an attorney prior to implementing any of these strategies to ensure that they are deployed correctly and within the bounds of the applicable law. 

For example, many states do not allow irrevocable trusts for the benefit of the person establishing the trust (i.e., the grantor) to offer creditor protection to the grantor (i.e., domestic asset protection trusts), but some states do allow domestic asset protection trusts to protect against future, unknown creditors.

Both single-member and multi-member limited liability companies could be used, although single-member limited liability companies have weaknesses in this regard. A complete review of a physician’s assets and his or her objectives is necessary in order to draft a plan that is customized to the particular physician’s needs. What would work well for one physician may not be an appropriate solution for another physician depending upon ownership, type of assets, and objectives.

MDLinx: What role does a spouse play in asset protection? 

Poyner Spruill LLP: Spouses play a large part in asset protection planning. Certain assets can be owned jointly by spouses as “tenancy by entireties” property, which offers some extra creditor protection not available to individual ownership. Spouses can also be the primary beneficiary of certain irrevocable trusts established by physicians, allowing a physician’s family to benefit from assets “given away” to a trust

On the flip side, a divorcing spouse is a creditor, so an unmarried physician could consider entering into a premarital agreement before marriage to obtain some asset protection in the event of divorce.

MDLinx: Who can help a physician set up asset protection? 

Poyner Spruill LLP: Physicians should seek the advice of a competent trusts and estates attorney to guide them in the asset-protection process. A physician’s insurance advisor will also need to be involved.

MDLinx: What are some tips on asset protection? 

Poyner Spruill LLP: First, plan before there’s a problem. It may not be possible to engage in asset protection planning if a physician already has a creditor problem. Second, seek competent legal advice before executing any planning. Each state has its own nuances on how and which asset-protection planning strategies may be employed. Third, adequate insurance is the necessary first step.

MDLinx: Does asset protection vary by state? Are there any general principles that universally apply? 

Poyner Spruill LLP: Yes, each state has its own set of rules. However, there are some commonalities among the states. Irrevocable trusts, corporations, and limited liability companies offer good asset protection in most states. Many states allow some form of tenancy by entireties ownership on certain assets. Many states exempt some or all of a person’s retirement accounts (401(k)s, 403(b)s, IRAs, etc.) from the reach of a creditor.

What this means for you

With asset protection, foresight and planning are required. It’s important to have asset-protection vehicles in place before creditors come calling; after there’s an issue with creditors, it may be too late. During the asset-protection process, enlist the services of a competent trusts and estates attorney. Although asset-protection strategies vary by state, many states permit asset protection via irrevocable trusts, corporations, and limited liability companies, as well as some or all retirement accounts.

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