Asset Protectionby Scott Einiger, Esq.
Asset Protection-It’s all about the PLAN
If you would like more information about this topic or any other topic contact Scott Einiger
Fear of litigation and rising verdicts is cause for concern for any individual interested in protecting substantial business or personal assets. Physicians and dentists are certainly two groups targeted for litigation because of the large damage potential if a mal-occurrence should arise during treatment. As well, physicians and dentists remain personally liable for their professional negligence even if they incorporate their professional practice.
The risk of personal financial exposure for any business such as physicians or dentists is relatively small for risks that are carefully assessed and planned for. Medical or Dental Malpractice almost never causes asset depletion (as most practitioners have obtained adequate malpractice and excess insurance coverage to limit their personal exposure). Unforeseen and non protected exposures are much more likely to result in large out of pocket expenditures that can cause the greatest financial loss. Planning is Key!
Physicians and Dentists can expend substantial defense costs related to matters where no insurance coverage has been obtained. Areas including work related employment disputes, licensure investigations and insurance carrier refund demands are a few examples of areas that have resulted in large out of pocket expenditures for our professional business owners.
Last year in New York there were approximately 6000 licensure investigations brought against physicians many of whom did not have adequate insurance to cover the cost of the investigation. In the event that you are targeted and go through the full investigatory process, (including a licensure hearing), a licensee could literally spend hundreds of thousands of dollars in legal costs to defend against such charges that could affect their professional license. As well, most providers do not have insurance coverage to defend against claims made by commercial insurance carriers who seek refunds relating to coding disputes for medical services rendered. Refunds sought can go back six years and can accrue into hundreds of thousands of dollars as carriers allege the same mistake was made over and over through extrapolation. In both of these areas, clients may expend a significant portion of their savings simply because they didn’t anticipate such liability potential and purchase the requisite insurance.
That’s why a well thought out and comprehensive approach (PLANTM) to asset protection not solely limited to malpractice is critical. Professionals who wait until they are in the midst of litigation to implement an asset protection plan have lost valuable strategies that would have otherwise protected their assets.
PLAN — The P (Proactive Planning)
Being Proactive and implementing a PLAN before trouble is on the horizon is the first step to implementing an enforceable asset protection strategy. There are two primary reasons. First, the civil courts in New York have the power to set aside what is known as a fraudulent conveyance (i.e. where a transfer of assets made by a defendant or debtor occurs with the intent to subvert the plaintiff or creditor from collecting what is due). “Under fraudulent conveyance provisions of New York’s debtor and creditor law, a creditor is permitted to trace the transferor’s transactions over a period of 6 years”. In re All American Petroleum Corp., 259 B.R. 6 (2001). In this case, a Chapter 7 trustee moved the court to set aside, as alleged fraudulent conveyances, the transfer of a customer list which was made by the debtor’s president and sole shareholder to seize for himself the benefits of this list.
Reactive individuals who wait to attempt to implement an asset protection strategy when the issue has already arisen will likely be frustrated in their attempts to insulate the transferred assets since the courts can void such transfers.
Second, if a person is sued or is about to be sued and attempts to purchase insurance coverage, the insurance carrier will likely disclaim any such responsibility to cover that event (as a preexisting condition).
So being Proactive (PLAN'” well in advance of trouble) is critical first step to proper implementation of an effective asset protection strategy. Often times, clients spend so much time growing their businesses and net worth, they lose sight of the need to protect their growing assets. Starting early provides time to create a strategy to insulate assets from creditors.
PLAN – The L (Less/Liability)
Protecting against Loss requires anticipating the most likely Liability exposures that an individual or business may be prone to. It can involve a business asset and/or personal liability exposure that has grave consequences. As an example, an automobile accident can be devastating financially whether the accident occurred during business hours or occurred on the weekend at a family outing if not adequately anticipated. Either of which can cause grave financial hardship to the individual and his/her family if proper insurance and planning was not in place.
In assessing a person’s liability loss potential one must give thought to both the personal as well as the business exposures. Evaluating the individual’s totality of assets accrued in personal and business, as well as how those assets are currently being held is therefore critical. So the L in PLANTM stands for Liability Loss potential. Assessing an individual’s assets is the critical next step to create the strategies needed to properly protect against Loss and potential Liability.
PLAN – The A (Asset Assessment)
The asset protection strategies an individual can implement range from common sense simple solutions (putting assets in separate corporations) to implementation of the most sophisticated and expensive strategies (off shore trusts).
Asset Assessment is key in implementing strategies that are practical and always will depend on the individual’s goals and evaluating the Assets involved. Knowing the client and where they are in there career stage is critical to implementing a cost effective practical asset protection strategy solution. Doing an assessment of assets acquired and by a general knowledge of your states rules about what assets can be legitimately insulated and what other states provide with regard to asset protection is important for anyone interested in creating a comprehensive approach to asset protection. As an example, a primary residence in New York receives a $10,000 exemption of value from creditors whereas a domicile in Florida would receive unlimited protection from a creditor attaching that asset. However a New York resident if marred and holding the real estate in a joint tenancy with their spouse can prevent a creditor from attaching that asset until sale.
PLAN – The N (Nothing)
Business owners and individuals who have acquired substantial assets typically spend a great deal of time acquiring these assets and very little time planning how to protect them… sometimes until it’s too late. In order to effectively create an asset protection strategy that will insulate your growing assets being proactive, understanding the liability potential and assessing your particular assets is critical to avoid devastating loss that can result in your being left with nothing.