1. Form a Professional Corporation
Professional Corporations do not offer professional liability asset protection. They do not protect you if you remove the wrong kidney. However, they can still provide protection from business liability, employees, etc.
As an example, one unincorporated medical practice sent a secretary to pick up lunch for the group. When pulling out of the driveway, the employee hit a local jogger. The supreme court affirmed a $2.1 million judgment against the group of physicians. If the business was incorporated, the corporation could have shielded the doctors from employee liability.
Do you practice in more than one location? Then, the medical practices should be split up into multiple corporations. When someone files a lawsuit against one location, the lawsuit may not directly impact the other location. As such, you can separate liability of one office from that of another.
We also recommend setting up an entirely separate company (an LLC) to hold medical equipment. Your operating professional corporations lease the equipment from your LLC. That way, when someone sues your practice he/she has few, if any, assets to seize.
2. Set Up an Asset Protection Trust
The asset protection trust is the strongest protective tool available. Asset protection trusts offer the most protection of any asset protection vehicle and can judgement proof your financial picture. When someone sues you personally, the assets in the trust are separate from you as a person. Thus, whatever you hold in the trust is secure from the lawsuit and resultant judgment.
The strongest asset protection trusts are international. Assets in the USA are under the jurisdiction of local judges. On the other hand, offshore trustees are not subject to local court orders. The jurisdictional trusts that offer the strongest statutes and case law history are the Cook Islands Trust and Nevis Trust. The funds do not need to be in these jurisdictions. They can be in any jurisdiction in the world that offers a financial safe haven. This includes Switzerland, Luxembourg and Liechtenstein, three of the safest banking jurisdictions in the world.
3. Transfer Dangerous Assets to Separate LLCs
Transfer assets that could cause legal liability — such as a commercial building, a boat, and a rental house — to separate LLCs. These LLCs should normally all be owned by the Family Limited Partnership. An investment account is unlikely to trip and injure someone, so it can be safely held in the Family Limited Partnership. Limited liability companies protect in two ways. First they can protect the owners (called members) when someone sues the business. Second, when someone sues a member, there are provisions in the law to protect that member’s interest and the assets inside. So, the law can prevent a judgment creditor from taking one’s ownership in the LLC. Plus, the creditor will not be able to easily touch the assets inside of the company.
There are three states that offer asset protection to single member LLCs. That is, Delaware, Nevada, and Wyoming. We like Wyoming best because of the low annual renewal fees. So, if a client live outside of these states, we will often establish a Wyoming LLC. Then we file foreign qualification papers so it can do business in the state where our client needs to operate.
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4. Protecting Liquid Assets and Real Estate
Liquid assets such as investment accounts should be held in a Family Limited Partnership. Do not mix safe and dangerous assets. Do not hold a stock portfolio and real estate in the same LLC. When a tenant slips and falls and sues, you do not want them to have access to a nice, juicy mutual fund. Moreover, hold dangerous assets, such as income property and vehicles in separate LLCs. That way, there is less of a chance of legal cross-contamination.
In some states, you can add additional privacy measures to your LLC for enhanced protection. For, example, we offer the Wyoming office program. With this service we provide a Wyoming address. Plus you will have a shared Wyoming telephone number that we answer, “Corporate offices, how may I help you?” In addition, we provide Nominee Service where you own and control the company but our names appear in the public records. We can both help with the required LLC formalities, plus shield your association with the company from prying eyes. The less a contingent fee attorney is able to find, the less likely he or she is likely to accept a case against you.
5. Protecting Your Personal Residence
A medical professional’s most valuable possession is most often his or her home. So, how does a medical doctor or dentist protect this valuable asset? We do this through privacy of ownership and equity stripping.
For privacy of ownership, we put the home into a land trust. A land trust is a document that allows you to own your home but keeps that ownership out of the public records. Thus, we set up the land trust and transfer ownership into the trust. The Garn St. Germain Depository Institutions Act does let a mortgage lender stop you from moving your home into a trust. You do not need their permission to do so; that is, as long as it consists of four or fewer dwelling units. A house in a trust is just as easy to sell as one that is not in a trust.
Next, we strip the equity. First, we set up an LLC that you own privately. Then, we record home equity lines of credit (HELOCs) against your home and other real estate. The HELOCs are payable to your privately owned LLC. When the “bad thing” happens and you you see that someone might obtain a judgment against you we take step two. We have an offshore institution buy that mortgage and place the proceeds into your offshore trust.
Just like before this transaction, you will not be able to run off with the cash. That would be too risky for the offshore lender. You will be able to touch the cash if you sell the property or refinance it. What you now have is a financial statement that you can show the judge to indicate that a third party purchased the loan. You have effectively stripped the equity from your domestic real estate.
6. Offshore Asset Protection
Local real estate properties, and bank accounts for that matter, are under the jurisdiction of local judges. You may put your home or bank account in a fancy trust, but it may not impress the judge down the street. He or she can still issue court orders for you to turn over your home or cash to your legal enemies. So, by taking the equity and placing the resultant proceeds and other liquid assets beyond the reach of the courts, you effectively tied their hands.
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