Physician asset protection mistakes are more common than you might think.
Because they dedicate their careers to helping others, physicians often put their financial well-being on the back burner. That means events like malpractice lawsuits, unexpected business closures, or even personal liability can threaten your financial stability.
Let’s go over some of the exposures I see most often from our physician clients at Deerfield Financial Advisors and how to avoid them.
Insufficient Liability Insurance
Mistake: Many physicians underestimate the potential liability risks associated with their profession. Having inadequate malpractice insurance or not having enough umbrella liability insurance can leave assets vulnerable. Many facilities offer malpractice protection for their physicians, but it is important to closely examine the extent of coverage your employer provides.
Answer: The smartest way to avoid this vulnerability is to consult with a professional who can recommend the appropriate amount of coverage, including possibly adding your own coverage to supplement that provided by your employer or facility. By assessing your risk profile, they’ll be able to suggest the necessary amount of insurance you need to guard both your practice and your personal assets.
Failing to Separate Personal and Business Assets
Mistake: Mixing personal and business assets can expose you to risks. Using the same bank accounts or credit cards for both personal and professional expenses creates a gray area and makes it harder to shield your personal assets in case of a threat against your practice.
Answer: Establishing separate legal entities like corporations or limited liability companies (LLCs) for your practice can help safeguard your personal assets from business-related liabilities. In addition, maintaining separate accounts for your professional and personal finances is essential.
Neglecting Estate Planning
Mistake: Not having a thorough estate plan can lead to problems in asset distribution and potentially expose your assets to probate and taxation in the event of your death.
Answer: As a physician, you should have a will, a trust, and powers of attorney in place to help shield your assets and prevent them from probate, taxation, and potential distribution against your wishes.
Ignoring Asset Titling and Ownership
Mistake: How property is titled and owned can directly impact physician asset protection. By not choosing proper titling and business entity/structure, you’re leaving your practice open to potential lawsuits.
Answer: To help preserve your assets, they must be properly titled. For example, if you’re married, having your automobile titled in both names can make it more likely that your vehicle is included in any future judgment against your practice. You can help shield your assets with your IRAs as well, but they must also be properly titled.
Failing to Optimize Retirement Accounts
Mistake: Retirement accounts like 401(k)s and IRAs often have significant physician asset protections. By not contributing the full amount to these accounts or considering additional supplemental retirement accounts, you’re leaving a larger portion of your assets vulnerable to potential claims, risking your financial stability in case of a malpractice lawsuit or unexpected business closure.
Answer: Utilize the valuable asset protection capabilities of qualified retirement accounts by contributing the full amount on a yearly basis. In addition to shielding these assets from lawsuits, retirement accounts can also defend your assets against hefty tax burdens. This powerful asset protection combination can potentially be a crucial tool for building a solid nest egg.
Making Personal Financial Promises
Mistake: Making personal financial promises for practice-related loans or contracts can expose your assets to risk. Additionally, it’s possible that the loan won’t be considered a legitimate business expense and therefore incur tax penalties.
Answer: If you must make a personal finance promise, you can help safeguard against threats to your assets by carefully evaluating and negotiating the terms. Here are some suggestions:
- Create a formal loan agreement that spells out all of the terms and circumstances, such as the interest rate, the timetable for repayment, and any collateral requirements.
- Charge interest at a market rate to identify the loan as a genuine business transaction rather than a camouflaged contribution to the practice.
- Keep accurate records of the loan, such as the agreement, payment history, and any supporting papers.
Bottom Line
A smart way to avoid the asset protection mistakes discussed in this article is to seek professional wealth management advice. No matter where you are on your journey, Deerfield Financial Advisors can help.
Our unique Wealthwhile℠ approach to financial planning is a strategic plan connecting your resources and your priorities so you can focus on your most worthwhile passions. We know that wealth is about so much more than status and material things; it’s about pursuing your financial independence and aspiring to meaningfully enrich the lives of others in your community or beyond. Wealthwhile℠ Planning maps your journey forward.
Ready to get in touch? Reach out to our team by calling (317) 644-7701 or emailing mroop@deerfieldfa.com.
About Matt
Matt Roop is Wealth Manager and Shareholder at Deerfield Financial Advisors, a fee-only financial advisory and wealth management firm with offices in Indianapolis and Chicago. In his role, Matt acts as a personal “chief financial officer” for his clients, overseeing every facet of their financial landscapes, orchestrating strategies to grow their wealth, and enhancing their financial clarity. Catering to the distinct needs of lawyers, engineers, and business owners, he empowers them to embrace their passions and lead their optimal lives. Matt conveys a depth of experience and a calm demeanor that clients find reassuring and soothing, and he loves providing peace and confidence around their financial future.
Matt received a Bachelor of Science from Indiana University and a Master of Business Administration (MBA) from George Washington University. He is a NAPFA Registered Financial Advisor and holds the CERTIFIED FINANCIAL PLANNER™ and Certified Exit Planning Advisor (CEPA) designations. Committed to staying at the forefront of his field, he is actively involved with the Exit Planning Institute, National Association of Personal Financial Advisors, and the Estate Planning Council of Indianapolis. Since 1997, Matt has been involved in the investment and wealth management realm, with experience at Charles Schwab & Co., Inc., as well as a boutique Indianapolis-based independent advisory firm and a brief stint at his family’s closely held business.
Outside the professional realm, Matt serves his Indianapolis community by volunteering for Meals on Wheels of Hamilton County and is on the Executive Leadership Team for the Indiana Alzheimer’s Association’s Walk to End Alzheimer’s. He is dedicated to financial stewardship and continuous growth, with an unyielding commitment to enhancing the lives of both his clients and his community. Matt and his wife, Kimberly, reside in Carmel, IN, with their four children, who are all pursuing their college dreams. When he’s not working, he enjoys traveling, reading, and spending time at his lake house in southern Indiana with family. To learn more about Matt, connect with him on LinkedIn.
