Several readers have contacted me with a similar question after reading many of the discussions featured here. Though phrased in different ways, the question is essentially this: How can I quickly figure out what I have exposed at any given time? I’ve provided a simple start to answering this question for you below. It will help identify issues that need attention and help provide a hard number on your current exposure.
Do the Math
Start with your home. If your home is in your name or the name of your revocable living trust, take the current value of your home and subtract what you owe on it. Then take that number and subtract the homestead value protected in your state (This number varies from state to state from as high as “unlimited” to almost nothing, make sure you know what your state's current dollar value is and if your home qualifies or not). The difference is the equity value in your home exposed to your creditors. Assuming that your home value is at least stable, this number gets bigger with every payment and improvement you make. If you have more than one home in your personal name subtract current value from any loan due on the home, but don’t subtract homestead, you only get it on the primary residence.
Then count the money. Assume for the purposes of this simple analysis that assets in “qualified” or tax deferred plans like IRAs and 401K-type plans are protected. Add up the approximate value of your cash, savings, CDs, bonds, securities, and all other negotiable investments held in your own name or in the name of your revocable living trust and don’t forget to include any distributions or income they produce. This number is the value of the liquid assets exposed to your creditors.
Have any toys like boats, planes, or classic cars? Add that number into the mix along with value of you and your spouse’s jewelry and any special collections of personal property like coins, art, antiques, or guns.
If you own your practice, determine the amount of cash on hand. If the exposure is practice-related, assume it’s all collectible. Remember that a patient-related exposure will name both you and the practice, the corporation is not just a shield. It and its assets are also a target. Do not forget the practice’s outstanding receivables; your creditors are happy to wait for them as well.
If you have investment real estate like lots, rentals, or a commercial building in your own name, in the name of your revocable living trust or an LLC you own all of, add that equity number in as well along with any income it produces.
For most physicians, this relatively simple calculation can comprise much of the wealth they have amassed and are concerned about having to replace for their family. Now that we have at least a ballpark understanding of your current “number" — the WHAT — let’s look at some the factors that threaten it the WHY.
Common Asset Protection Risk Factors for Physicians
• Do you and or any family members drive a vehicle?
• Do you have employees?
• Do you have a professional malpractice exposure?
• Do you have a legal responsibility to protect medical and financial data?
• Are you married and do you have assets not protected by a pre-nuptial agreement?
• Do you have a current tax obligation?
• Do you have children?
• Do you own a business?
• Are you a board member, officer, or director of a corporation?
• Do you have hobbies or engage in activities like hunting, flying, boating, etc?
• Do you have partners whose actions create joint and several liabilities for you?
• Do you have personal guarantees on real estate or for business loans?
• Do you have tail liability for professional services performed in the past?
• Have you made specific legal or financial representations that others have relied upon in a business context?
• What kind and what dollar amount of insurance and legal planning have you implemented against these exposures?
This list is simple and by no means complete, but it helps explain the detail and variety of issues and exposures involved in preserving the assets you have at risk. Knowledge is power, so use the links above to continue your exploration and act on these issues before an exposure threatens, while the widest and most effective array of options can be implemented to protect your success.
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