Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

A couple weeks ago I posted some general observations about asset protection planning for physicians.  While a doctor should be taking steps to protect his or her own personal assets, physicians in a private medical practice should be taking additional steps to protect the private practice itself.  Here are some items worth thinking about:

     1. Consider using multiple entities to reduce liability and possibly gain some tax benefits.

·       Use one entity for the medical practice itself.

·       Use a separate entity to hold real estate and then lease the real estate to the practice group.

·       Use another entity to hold and lease medical equipment to the practice group.

·       Depending on the size of the practice, a management holding company might be advisable in connection with the various entities.

·       Patents and any other intellectual property should also never be owned directly by the medical practice.

·       Separate entities should generally be limited liability companies because they generally provide the best asset protection and they provide flow-through tax treatment.

Formation of additional entities can obviously involve start up costs, as well as some additional costs for on-going operations. The size of a medical practice (both in terms of the number of physicians and in terms of revenue) will influence how many separate entities may be appropriate.

     2. Consider different alternatives with respect to your accounts receivable.  

·       Some private medical practices (and other health care organizations) use a separate billing company. 

·       It is sometimes advisable to pledge accounts receivable in connection with a bank loan, since a judgment creditor will be in a second (and less appealing) position to the bank.

     3.  Make sure that an agreement is in place among members of the medical group covering what happens if a physician dies, becomes disabled, retires, or otherwise leaves the practice. Despite all the concerns about malpractice liability, more physician groups experience problems in this area than with a malpractice claim that exceeds insurance limits.

All of the foregoing are of course just general observations. Each situation must be analyzed on its own. But in any event, a medical practice should periodically review its structure and operations from an asset protection standpoint.

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Last week, the Swiss banking giant UBS agreed to turn over information on American clients suspected by the IRS of using Swiss accounts for tax evasion.  On Wednesday, August 19, IRS Commissioner Douglas Shulman said that the agency is looking at other banks and intermediaries in Switzerland in addition to UBS. 

The IRS Commissioner was not kidding.  Last Thursday the Justice Department indicted a Swiss banking executive and a Swiss lawyer for selling tax evasion services to wealthy clients.  The services allegedly involved the use of Swiss accounts as part of an unlawful scheme to disguise and hide assets.  The indictment, filed in the United States District Court in Ft. Lauderdale, Florida, accuses a director of a Swiss bank as well as a Swiss lawyer with conspiracy to defraud the United States.  The men are accused of helping clients hide assets by creating the appearance that certain assets of U.S. clients belong to Swiss citizens.  The men were also accused of falsifying documents to disguise interests of United States citizens in certain offshore funds.  It appears that the Justice Department established a special task force in 2007 to focus on Swiss banks that help Americans evade taxes.  Recent actions seem to be the result of some of these investigations. 

The message from the indictments is very clear:  not only will the IRS and the Justice Department investigate large financial institutions like UBS -- but they will also be looking at smaller banks and financial institutions who may be helping U.S. citizens to unlawfully hide assets.  Lawyers who facilitate these unlawful schemes may also become targets of the IRS and the Justice Department.

Only fools and criminals participate in offshore schemes that are designed to evade U.S. income tax obligations.  Legitimate asset protection planning does not involve unlawful tax evasion.  It involves keeping assets essentially in plain sight, while lawfully minimizing taxes and taking advantages of laws that allow you to make assets more difficult for creditors to reach.

You can read more about the recent indictments as well as the Justice Department's on-going attack on Swiss banking secrecy in an August 21, 2009 article in The New York Times. 

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On Wednesday, August 19, UBS (one of Switzerland's largest banks) agreed to turn over information on more than 4,450 American clients suspected by the IRS of using Swiss accounts for tax evasion.  Due to provisions of a new tax treaty between the U.S. and Switzerland, it could be more than a year before the IRS has all the information it wants.  It is clear, however, that the IRS is stepping up its efforts against tax evaders who are using Swiss accounts in an attempt to hide assets.  You can read more about these IRS efforts in an August 20, 2009 New York Times article.

In February of 2009, UBS paid $780 million and admitted to criminal wrongdoing in selling offshore banking services that contributed to tax evasion by U.S. citizens.  And the U.S. Department of Justice has a number of criminal investigations pending against UBS clients.  Swiss bank accounts are not going to remain as secret as they once were. 

There are still valid reasons to have Swiss bank accounts.  Switzerland has traditionally provided a very stable political and economic climate.  Many of its banks have provided a very high level of personal client services and good money management.  Swiss accounts (like other offshore accounts) can certainly be part of a legitimate, lawful asset protection plan.  It may be more difficult for a creditor to reach assets in a Swiss account than in a U.S. bank account.

Recent enforcement actions by the IRS, however, are a clear reminder that you cannot use Swiss accounts (or any other offshore accounts) in order to evade U.S. tax obligations.  United States citizens are required to pay tax on income whether that income is received in the United States or abroad.  As I have discussed in other posts -- and as I will continue to emphasize -- legitimate asset protection does not involve unlawfully hiding assets in order to evade taxes.  In fact, the best asset protection plans essentially leave assets in relatively plain sight, and simply take advantage of applicable laws in order to make it more difficult for creditors to reach those assets.

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Physicians should have no hesitation whatsoever in protecting their assets to the greatest extent allowed by applicable laws.  Physicians have a greater need for asset protection planning than many other individuals simply because of the nature of their work.

If a professional baseball player consistently strikes out half of the time but gets a base hit the other half, he will likely end up in the Baseball Hall of Fame.  Doing well every other time at bat would be outstanding.  A professional basketball coach would be ecstatic if one of his players missed only one of twenty foul shots.  The player will not lose his house to a creditor if he misses a foul shot every now and then.  Things are very different, however, for a surgeon.  A surgeon can perform flawlessly in thousands of operations over a thirty year period.  Yet a single mistake in a single operation may result in a catastrophic judgment that could place at risk all the assets he or she has ever accumulated.  Physicians therefore need to take full advantage of all reasonable, lawful asset protection opportunities.

A physician should carry a reasonable amount of malpractice insurance.  Most judgments for medical malpractice will not exceed the insurance limits.  To the extent that the physician can choose the insurance carrier, he or she should carefully investigate the alternatives.

Unfortunately malpractice insurance is the starting point but not the ending point for a solid asset protection plan.  In subsequent posts over the next several weeks I will address some of the steps that every physician should be taking to lawfully protect his or her assets.  These steps include a focus on how assets are titled; maximizing contributions to qualified retirement plans; trust arrangements; and various other alternatives. 

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