Whether you are a physician in private practice or working for a hospital or other health care organization, you should consider some basic steps to protect your assets. Here are a few suggestions:
- Maximize contributions to IRA's and other qualified plans. Assets in IRA's and qualified employee benefit plans are generally awarded special protection from creditors. Many plans (including 401(k)'s) are also protected in bankruptcy because they are not considered part of a bankruptcy estate. The Bankruptcy Abuse and Protection Act of 2005 limits the IRA exemption in bankruptcy to $1,000,000 adjusted for inflation.
- Consider some life insurance strategies. In many states death benefits from life insurance, as well as the cash value of a life insurance policy, are exempt in whole or in part from claims of creditors of the insured. In Ohio, for example, under Ohio Revised Code Section 3911.10, insurance death proceeds are exempt by statute if paid to the spouse, children or certain other designated beneficiaries.
- Consider various trust arrangements. Not all trusts provide asset protection, but some do. For example, irrevocable life insurance trusts (ILITs) can be a great estate planning tool and can also provide significant asset protection. If the ILIT is formed properly creditors of both the person who set up the ILIT and the beneficiary should have no rights in either the cash value or the death benefits of the insurance.
- Split assets between spouses. Simply dividing assets between spouses may offer some protection. As I have explained in another post, holding property as joint tenants is generally not the best strategy from an asset protection standpoint.
- Focus on your principal residence. Some states (Florida and Texas in particular) provide special protection for your principal residence against claims of creditors. Ohio, however, provides a so-called homestead exemption of only $20,200 pursuant to Ohio Revised Code Section 2329.66. Strategies for protecting your home from creditor claims therefore vary from state to state.
Many of these considerations are applicable to anyone who has accumulated assets that are worth protecting. Since physicians (especially those in certain specialties) are far more at risk than many other people, they generally have a greater need to focus on asset protection.