Asset Protection & Estate Planning For Physicians

Asset Protection & Estate Planning For Physicians

I. The Practice Entity
II. Insurance Planning
III. Basic Estate Planning
IV. Exemptions And Maritalplanning
V. Liability Protected Entities For Investment Assets
VI. Domestic And Offshore Modular Planning With Asset Protection Trusts

The proliferation of medical malpractice gives many physicians pause. If you are a physician and you have not begun estate and asset protection planning, you are leaving yourself, your family, and your practice severely exposed.

Asset protection and estate planning are complex areas that vary from state to state, and they should be addressed with asset protection attorneys and financial advisors. Having said that, here are some things to think about.


It is typically most advantageous for physicians to be independent contractors rather than employees. Incorporating as a professional medical corporation can produce income tax savings; limit medical malpractice exposure from other physicians, personnel, and other service providers; and insulate against creditor Risk.

By separating yourself from your practice entity, you reduce the likelihood that a personal claim could interrupt your practice. Practice assets should be owned by separate business entities. If you own your building, your practice equipment, or other business assets personally, those things should be owned by different entities and leased back to the practice. If you derive income from multiple sources, such as seeing patients and speaking engagements, those too should be divided into separate entities.

If a claim should arise against the practice, diverse ownership of assets limits exposure to the practice only – the equity you’ve built in your building and equipment is significantly less exposed. Think of it as an additional form of insurance; you may never need that protection, but it can make a huge difference if you do.


Personal and business insurance is the first line of defense against creditors. Consider maxing out auto insurance limits, making sure you have sufficient homeowner’s insurance, and purchasing an umbrella policy. And don’ forget professional liability insurance. Your conversations with your financial professional should include discussions about optimizing your insurance coverage.


Estate planning is crucial. It should include a will, trusts, beneficiary designations, powers of attorney, healthcare directives, gifting, special provisions for minors, and family with special needs. These areas are the minimum requirements of an estate plan.

Life insurance and a buy-sell agreement also need to be considered. Life insurance is a necessity any time you have dependents and/ or debt (think medical school loans). A buy-sell agreement is necessary if you have a partner in your practice, or if you think you may want to sell your practice at some point in the future.

Other things to discuss with your financial advisor: Grantor Retained Annuity Trusts, Intentionally Defective Irrevocable Trusts, Irrevocable Life Insurance Trusts, and Gifting of Family LLCs. These won’t apply to everyone, but they may be important to high-net-worth individuals.

When it comes to seeking out financial advice, search for an estate planning attorney, preferably one who has asset protection experience. Also, remember this is not a one- and-done endeavor. You’ll have to go back to your estate plan at least once a decade or any time there is a significant change to your assets or your family.


Exemptions address certain assets that are protected from creditor attacks and bankruptcies. These exemptions can vary from state to state. Examples include homestead exemptions, insurance, annuities, and retirement plans. Marital planning may include retitling assets to the nonworking spouse who has no professional risks.

Life insurance, annuities, and retirement plans are great asset protection tools and should be part of a wealth management plan. However, use caution: some advisors may promote the products they sell... if all you have is a hammer, everything is going to look like a nail. Work with a wealth manager who charges a percent fee of assets under management and who possesses character and competency.


Don’t forget to consider assets that may lie outside the business. Think about placing most, if not all, assets into a liability protected entity. Rental properties, vacation homes, securities, financial and brokerage accounts, and other properties should be considered. Typically, the entity of choice for this type of personal creditor protection will be an LLC. Aside from the tax and estate benefits of an LLC, there are significant asset protection advantages. If properly structured, creditors who gain judgments will only be entitled to a charging order remedy, which allows only distributions from specific LLCs but does not permit control over assets or the timing of distributions. That means creditors could incur a tax bill on the profits of your LLC without any distributions. This “poison pill” may deter claims altogether or provide you with a good bargaining chip in settlement negotiations.


Domestic Asset Protection Trusts and Offshore Asset Protection Trusts add another layer of asset protection. If you have a revocable living trust, for example, you should know that such trusts do not provide asset protection from creditors.

Domestic Asset Protection Trusts vary from state to state, but they offer significant protection from creditors. Real property or investments may be held within a liability-protected LLC, and then 95 percent ownership is transferred to the trust. This modular ownership of assets creates significant barriers to potential creditors.

If an individual owns everything in his or her own name, one lawsuit can result in that individual losing everything. However, with proper planning and structuring of multiple layers of LLCs, the risk may be contained. An example: Paul has implemented the use of LLCs and DAPTs to protect his assets. To be successful in litigation, creditors must:

  • Obtain a judgment against Paul personally.
  • Sue the trustee of the DAPT and attack the legal viability of the structure.
  • Obtain a judgement against the LLCs.
  • Receive a charging order remedy which could lead to further legal futility, income tax bills on income they never receive, delays, etc.


Planning in advance is the key to asset protection and estate planning. While physicians may face certain industry headwinds, the public’s perception is that they have deep pockets. The earning potential of physicians makes it important that they protect real estate, liquid investments, and other assets via LLCs and DAPTs. Over the years, expanding theory of liability and aggressive plaintiff lawyers have increased the chances of adverse medical malpractice judgements.

Non-practice assets and investments like rental real estate, brokerage accounts, and other financial interests must be protected. Rental and commercial real estate should be held in separate LLCs. Claims against the property will be restricted to the property only and cannot be asserted against other assets. In the event of a malpractice suit or other claim, the LLC provides the additional benefit of the Charging Order Protection.

The most important steps are to evaluate your current plan and assess whether you need professional assistance.