Doctors have several unique characteristics that require specialized asset protection planning. First, doctors cannot take advantage of the corporate shield that protects other business owners from the liabilities of their business. In all fifty states, doctors are personally liable for malpractice claims regardless of whether their practice is operated within a corporation. Second, malpractice insurance for many doctors is prohibitively expensive. Many doctors choose to underinsure or even go without malpractice insurance due to the outrageous expense. Third, a doctor’s most valuable assets often consist of accounts receivable and future earnings which are more difficult to protect than a current asset.
Because doctors have unique needs, they need a unique solution. The best solution for a doctor consists of the following entities: (1) a professional corporation (taxed as an S corporation) to operate the medical practice, (2) a 541 Trust™to remove assets from the doctor’s personal ownership, (3) a Delaware LLC that is owned by the 541 Trust to own cash and other investments, and (4) an effective equity stripping plan that allows the Delaware LLC to put an enforceable lien on the doctor’s home, accounts receivable and other assets which are personally held by the doctor. If you would like a diagram and detailed explanation of this plan, send me an email at email@example.com.
The purpose of the professional corporation is to save money on employment taxes and keep the employees and other non-malpractice liabilities separate from the doctor and his assets. The purpose of the 541 Trust is to remove assets from the doctor’s personal ownership so they cannot be discovered or attached in a lawsuit or other legal proceeding. The purpose of the Delaware LLC is to own and manage cash or other liquid assets. The purpose of the equity stripping plan is to ensure that the doctor’s home and accounts receivable cannot be attached by a third party.
This plan is simple to implement, easy to maintain, and impervious to attack if it is implemented in advance of a problem. However, individual circumstances require individual plan design and this site should not be construed to create an attorney-client relationship or provide legal advice for any particular situation. If you would like to discuss your situation, please give me a call.