It’s easy to get all caught up in complicated strategies and tactics to build and protect wealth, but sometimes physicians get ahead of themselves and overlook the basics. That’s to be avoided.
For example, when physicians think about their biggest exposure to financial risk and protecting their assets, invariably the first thought that comes to mind is defending against a malpractice claim. Think again. It’s more likely you’ll be sued over something much more mundane, like an auto accident, involving either yourself, a spouse, or child.
For perspective, a study published in the New England Journal of Medicine a few years back that reviewed the malpractice claims experience of nearly 41,000 physicians over a 14-year period found that on average 7.4% incurred a claim in a given year, but that only 1.6% of those resulted in any actual financial awards being paid.
Those results might be skewed a bit by varying results for different medical fields; surgical specialties typically are subject to more malpractice claims than others. Of course you still need malpractice insurance, but that’s not the end of the asset protection story.
Beyond Malpractice Coverage
If your focus is on malpractice coverage, you might be thinking, perhaps unconsciously, that it will protect you from all kinds of other legal problems. Wrong. Malpractice insurance certainly won’t cover you for medical injuries caused by an auto accident.
Also, some physicians have the false impression that if you title a car, boat, snowmobile, or what have you, in their spouse’s name, their assets would be safe if they, the spouse or a child had an costly injury- or damage-causing accident in that vehicle. Wrong again, assuming your assets are pooled with your spouse.
In any case, you’ll probably want an “umbrella” liability policy for full protection. It picks up coverage where your basic auto and homeowner policies leave off, providing an “umbrella” of cover spanning a variety of risks (but not medical malpractice).
Suppose, for example, you have a $500,000 liability limit on your auto policy. An umbrella policy would kick in on the amount of awarded claims exceeding that limit. Umbrella policies are generally quite economical, because the probability of the underwriter having to pay out any claims is slim. So you can get coverage up to, say, $3 million or $5 million at a reasonable price. You’d want to match the limit to the value of all the assets you want to protect.
Also, keep in mind that if push comes to shove and you are facing litigation over some damages you are being held responsible for, the opposing side will ask for the moon, but generally settle for the amount of your insurance coverage. That’s why there’s no point to buying more coverage than the assets you need to protect–why pay out more than you would otherwise have to pay?
Asset Titling Matters
Also, how you title your home matters. It’s generally best for you and your spouse to have “tenancy by the entirety,” as opposed to a “tenancy in common.”
The former keeps your home safe from garnishment resulting from claims against you. In other words, you can’t be forced to give up some divided interest in your home, because it isn’t divided; it’s all or nothing for both of you. That’s not the case with a tenancy in common.
A final asset protection topic to consider is the disposition of your assets upon death. Be sure you have completed a beneficiary designation for all of your retirement plan accounts. Or, if you have already done so, check to be sure it’s up to date. That’s because unlike with your other assets, a retirement plan beneficiary designation will supersede your will. Your designated beneficiary will automatically receive those assets. They will not be subject to probate.
The equivalent for a taxable investment account is a “transfer on death” provision, that allows you to bypass probate. You can also use something similar, a “payable on death” provision in a bank account, to shift those liquid assets to the person you want to receive them.
Let’s be clear: We are not attorneys; you need to consult an attorney for legal advice on these topics. Our goal is only to introduce you to these concepts.
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