#253 How to Protect Your Wealth: Asset Protection Strategies for Physicians

Hey everyone, Hope you've had another great week. This week on the podcast we're going to talk about a crucial topic all of us need to know about and that is how to protect your wealth. Now, you've worked hard to build your income, your assets, your investments, but are they truly safe at the end of the day? What's going to help us sleep well at night? We're going to talk about all of these things, so stay tuned. Welcome to the Passive Income MD Podcast where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing hearing about this stuff, make sure to hit subscribe. Now, let's get on with the show. First of all, quick shout out to everyone who I've met at some of the conferences I've been at lately. One of my favorite things to do is to be there and talk to people live about their concerns, their issues, their wins and their challenges. And so if you came up to me and we had a good conversation about, you know, you listening to the podcast or the things that you've done. First of all, thank you so much for that. I really appreciate it so much and I loved connecting with you. I mean, our community is the best and just keep it going. I'm sure I'll see you soon at some of the other events I'm going to be a part of. And at the very least, I'll see you at pimdcon this fall. Now back to the material of the show. As physicians, it's obvious, and I think we all know this, that we're at higher risk for lawsuits and financial pitfalls than the general population. We all know that that cloud hangs over us whenever we do any sort of work or even if we get into a car accident. In some ways, I think people see us as targets and, and that's why asset protection is something that I believe isn't just for the ultra wealthy. The Warren Buffetts out there, that Jeff Bezos and Elon Musk's it's for anyone who wants to keep what they've earned and ensure long term financial security. That's all of us. That's everybody that's listening to this. We're going to walk through some practical, proven strategies that are going to help us safeguard our wealth and again, be able to sleep well at night. That's what matters at the end of the day. So let's talk about why asset protection is so important. Now, as physicians, we're high income earners and unfortunately that makes us really prime targets for lawsuits. Whether that's from malpractice claims, business liability, even personal situations like car accidents or rental property issues. I don't know if you've heard, but I've heard the worst thing you can do in a car accident is to have your white coat there hanging in your car. You definitely don't want to make yourself a target in any way. Now here's a quick set. In the US Nearly one in three physicians will be sued at some point in their career. It's not a fun thing to think about, but it's in the process of just doing our daily jobs and trying to do our best. And while malpractice insurance it covers a lot, it's definitely not enough. Lawsuits, creditor claims, and even divorce, unfortunately can put everything you've worked for at risk in some way. So what is the key takeaway here? Asset protection. It's not about hiding money. It's about structuring your wealth and the system around it smartly so that it's legally shielded from threats. So let's break down the best ways to go ahead and do that. Now, before we head into this next section, I just have to have a quick disclaimer. I am not an asset protection lawyer. I am not a professional in this area. I am providing this for some information, so you can use this as a starting point to speak to a professional, an asset protection lawyer. Sometimes a financial planner is able to help you out and get you to the right resources. But this is just a starting point for you to think about. Not everything's going to be relevant to you, but hopefully you can piece together a great strategy and this will give you some basic education to build on top of to come up with a solid plan for yourself. Now, there are a couple of things you have to think about when it comes to asset protection and how you can put this together as a whole pie. The first thing is legal structures for protection. Now, many of us heard of the concept of LLCs or limited liability companies. Now, especially if you own real estate, putting them into an llc, for example, that will separate them from your personal assets and it'll shield you from lawsuits related to tenant issues, property issues. Sometimes people just slip and fall and they can go after anything. And you want to separate again your investments from your personal assets, you never want to put those at risk. Now, LLCs, they provide something called limited liability protection, meaning that again, if someone sues your llc, they typically can't go after your personal assets. It creates a wall between them. And that again, is an essential tool for all of us Listening to this, I know people are part of our community are going out there buying rental properties, taking out their investments, bringing businesses on board and you want to protect that, making sure that you have these entities in place to protect yourself from this. One other reason to have LLCs in place is for anonymity. It's great if your name is not plastered over all of these assets, over these investments. Sometimes people are looking to find where people's assets are and you want to try to avoid having people be able to look into your own home to know what assets you have and sometimes these llc depending on what state you use. And for anonymity there are certain states that are better at this than others. But you can use LLC in the area to use a different name that protects people from knowing and seeing that it's in Peter Kim, Maryland's name, whatever it might be, that there's some anonymity, you might create a structure name and they don't know actually who's actually owns it. And that will prevent people from actually trying to chase you a little bit more or trying to prevent it, making it even harder for creditors to come after some of your assets. So not only for asset protection, but for the enemy's sake. Sometimes they say the best protection is that defensive mode where you make it so hard for people to know what you have. That again, people don't really find it's worth their time or energy to go after you.

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Now, obviously if you have your own private practice, you want to have this in some sort of either an S Corp or C Corp. You want to talk to your lawyers to see which one works out best for you. But these entities, again, provide some liability protection against your personal assets. And of course, there's some tax advantages to this too. Again, that's beyond the scope of today. That's something you need to talk to your professional about to figure out whether an S Corp makes sense for you or C Corp. But know that there are these entities for your practice so that you're not held personally liable if something happens for whatever reason. Now there's something also called family limited partnerships, called FLPs. This doesn't make sense for everyone, but it can be a great tool for estate planning and for wealth protection. It can allow physicians to transfer wealth to some of your family members while maintaining control over the assets. Now, because ownership interest in FLPs can be difficult for creditors to go after to seize, it can offer an additional layer of legal protection. Again, it doesn't make sense for everyone, but it's something you may want to talk to your asset protection lawyer about. So entities, these legal structures are just one piece of the armor that you can have to protect yourself. The second is insurance. In fact, some people think this is the first line of defense. Having some insurance in place for the right situation makes sure that you're protected, at least financially. And it makes sure that again, you don't have to reach into your own pockets in case something happens. The first type of insurance, of course you got to have is malpractice insurance. I think that's easy. I don't need to talk much about it. If you own a practice, you're in a practice, you practice medicine in some way, you're going to have malpractice insurance. And of course you want to make sure you have adequate coverage for the worst case scenario. The second type of insurance that you might want to have on top of your house insurance and car insurance with all the liability things that are in it you might want to have something called umbrella insurance, and maybe you've heard about that. Now, this is a relatively inexpensive way to add extra liability protection beyond your standard policies, your home policies, and your auto policies. You want to look into it and see what your liabilities are or how much they'll pay out in the case of a situation. And of course, you can alter that. You want to make sure you have good, appropriate coverage for that. But you can also add something called umbrella insurance for a couple million dollars on top of that for not much money. That'll cover all of these things. In case, again, the protection that you have in place isn't enough, then the umbrella insurance kicks in. So make sure you look at that, figure out how much umbrella insurance you have. You want to have several million dollars, I'd say, for everybody listening to this, on top of that, to provide that extra layer of protection. And of course, if you're leaving a job, you. You want to have something called tail insurance. I didn't even know what that was. But when I left my practice, they needed me to buy tail insurance so that if any lawsuits came in after the fact, even when I had left, that I'd be protected in that situation. You want to make sure you have that coverage for past incidents. Now, we all know that, again, a lot of these things are out of our control. We can just be in the room, everybody will be piled in together. Even if it's not your situation, it's not your fault, I mean, or you're not even involved. In some ways, it's possible that you can be roped into these things. I have personally, just being in the room, as an anesthesiologist, sometimes they'll just throw you in there. And these things can be long, they can go on for years. They can go after you in certain ways. And having the proper insurance in place, the right type of protection, the right limits will just make you again, sleep or allow for you to sleep easier at the end of the day. Another thing you can do is titling your properties and having things called trusts in place to protect these things. Now, some of these things may only be relevant for the state you're in, but let's talk about these things real quick. There's something called the homestead exemption, meaning that some states offer legal protection for your primary residence and can prevent creditors from forcing its sale to satisfy some of your debts. Now, again, the level of protection varies by state. States like Florida and Texas have pretty much unlimited homestead protection. So you see a lot of people make sure that they have a lot of their equity in their homes, they pay off a lot of their debt, or they don't like to have a lot of mortgage, but they put money in there knowing that if something happens, worst case scenario, at least creditors or people cannot go after that. Now, other states have strict equity caps. Some don't have any at all, or they're very, very small. So if you plan well and you know your state's laws, then you can protect yourself. You can assure that your home is properly titled, meet your state requirements, and then you know that at the very least, anything happens to you, your home is going to be protected, your family's going to have a roof over their heads, and everything's going to be okay. Now, you've probably heard of different type of trusts, which are entities or actual structures in place to hold title to certain assets. There are things called revocable trusts and irrevocable trusts. Put simply, revocable trusts don't offer any sort of asset protection, but irrevocable trusts. Now that allows you to transfer ownership of these assets out of your personal estate, which makes them essentially inaccessible to creditors and lawsuits. As I mentioned earlier, revocable trusts, you maintain control. So really, again, it's still really held in your personal name, whereas irrevocable trusts are managed by a trustee. And again, that can add a really strong layer of protection. There's pros and cons to it, so you may want to talk to your lawyer about it. But these irrevocable trusts can be particularly useful if you want to shield your assets from future liabilities. Maybe you want to reduce your estate taxes, or you can ensure maybe a smooth wealth transfer to some of your dependents or beneficiaries. However, once assets are placed in that irrevocable trust, they generally can't be pulled back out or reclaimed. So you got to really carefully plan this well. So there's always a downside to everything. There are pros and cons, and it's important for you to know, but many physicians use these trusts to protect their personal wealth from malpractice claims or other legal threats. Now, just so you know, I haven't actually gotten into these yet, but there are things called asset protection trusts. It can be domestic or can be offshore. There are some really more advanced tools for shielding wealth from future creditors. Some exist in the United States, some outside, that you can use in countries that have strong asset protection laws that can create an extra layer of security and protection. If that's something that you feel you need or it's a path that you want to go down. Another thing you can use is retirement and investments to protect your assets. Many 401ks and IRAs, if you didn't know they have strong asset protection under federal law, which shields them from creditors in a lot of cases actually. So it's nice if you know that as a planning tool, some people like to use these retirement accounts as part of their broader asset protection plan to contribute to it and then make sure that those assets are protected. Other people will use things like annuities or some types of life insurance. Again, it's state dependent, so talk to your professional. But sometimes these state laws are in place to protect again your assets by using things like annuities and life insurance that creditors can't really touch or move into. Now I want to talk about some real quick pitfalls that some people do when it comes to these type of things. You might have heard about all these things, but what some people do, and it's a big mistake, is to mix your personal and business assets. When you have investments, your practice, your side hustles, the thing that you really want to do is try to avoid commingling that money. You want to keep them separate because it truly shows that they are separate. And your personal wealth and your businesses and your investments, you want to do your best to create a wall so that creditors, whoever might try to go after you, will not be able to touch those things. The second pitfall is some people rely too much on insurance. Now insurance is absolutely important. You want to have good limits on that. But know that that may or may not be enough. You want to make sure you have insurance in place, but you want as part of a bigger asset protection plan, you may want to have some entities going there. So let's sum this all up with some quick action steps that you can take right now. Number one, this is a no brainer. Review your asset protection strategy. If you own any assets, your own home, you have a bank account in your name, you have some investments, you want to make sure that your asset protection strategy is solid. Look at your current setup and identify gaps or holes that you might have that you want to explore and maybe talk to a professional about. Number two, it's yeah, find somebody to speak to. There are tons of great asset protection attorneys out there, even some financial advisors who will point you in the right direction. We have our recommended people as well. If you want to look. We'll have a link in the show notes for that just to make sure you're properly covered people that can help you in whatever situation to make sure that you're well protected again because sleep well at night. 3. You want to make sure you have the right insurance. Make sure that your liabilities or your limits on some of your insurances are appropriate that make you feel safe that are in line with the amount of assets you have. Then you want to have that umbrella policy in place to give additional protection. If you don't have that right now, that's something you may want to look into that's not typically super expensive. And it's important to have Number four. You want to structure your businesses and your real estate properties. You want to use Those entities, those LLCs, those other legal entities for your holdings to make sure everything is held in the right place to make sure again, it's walled off from your private or or personal assets. I've talked to so many lawyers and it's so much easier to proactively protect your assets than to scramble for solutions. After you have some problems or some issues or you get to a car accident or somebody sues you for this or that, then you're left scrambling and there's no guarantee that you'll be able to protect your assets in that situation. Now, this is not a topic that I talk about often or love talking about. It's not as exciting as investments, but protecting your wealth, protecting your family is just as important as going out there and creating other streams of income. Hopefully this has been helpful in some way. Hope you have an amazing week and let's talk again soon. Thanks everyone. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, be sure to hit subscribe. Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. Learn more at our website, passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.