The Business of Medicine

The Business of Medicine: Asset Protection Strategies for Physicians

Mark C. Doyle, Esq.LLM Master of Law Taxation

Tredway Lumsdaine & Doyle, LLP1920 Main Street, Suite 1000

Irvine, California 92614

[email protected]

Presented By:

Bill Black

Exit & Retirement Strategies, Inc.333 City Blvd. West, Suite 2050

Orange, California 92868

[email protected]

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AGENDA

I. The Problem – Creditors & Predators

II. The Solutions

III. Tactics

IV. Fraudulent Conveyance

V. Action Plan – Risk Analysis Rating & Recommendations

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The Problem - Creditors

• Medical Professionals High risk occupation Deep pockets Personal Liability

• Third Parties ie tenants, bicyclists, etc• Future Spouse/ Significant Other

• Super Creditor – IRS

I.

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The Problem - Predators

• More suits are filed in the United States than in all other countries in the world combined.

• Why? Attorneys can be engaged on “contingency” basis. Losing party in litigation is not responsible for payment of

attorney’s fees incurred by winning party.

Excessive jury verdicts are highly publicized (e.g. verdict in McDonald’s coffee case: $160,000 compensatory damages + $2,700,000 of punitive damages to woman who spilled scalding coffee on her lap.) See Simpson v. UCI

I.

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• Realistic expectations Unrealistic: To expect creditors to “run

for the hills and disappear.”

Realistic: compare the probable outcome of litigation if an Asset Protection Plan had not been established with the probable outcome with an Asset Protection Plan in place.

II. The Solution:Planning, Risk Analysis and Response

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“The Three Legged Stool”Protection

FinancialPlanning

AssetProtectionPlanning

EstatePlanning

II.

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The Solutions: Design Alternatives

Control

II.

Protection

Nest Egg

$

in toto

$$$

Considerations for Asset Protection Plans

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Asset Protection Ladder

Title Assets

II.

Domestic Asset Protection Trust

Limited Liability Companies (LLCs)Family Limited Partnerships (FLPs)

Exemption Planning

Offshore Asset Protection Trust

Estate Planning

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Estate Planning

• Liability InsuranceProfessional, Auto, Home & Umbrella

• Credit Shelter Trust-A/B Trust• Lifetime Benefit Trust

• Irrevocable Trust

III.

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Titling Assets: Inter-spousal Transfers

• Separate Property of One Spouse not used to satisfied debts of the other spouse

• Community Debts Joint Liability of Spouse• Create Separate Property by Agreement:• Equal Split but Can Select Asset for each spouse ie

med practice to dr. house to spouse

Caveat: “What is good for the Goose is good for the Gander” – Jamie v. Frank McCourt

III.

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Exemption Planning

• Federal and state law exempt certain assets from claims of creditors.

• Always better to own exempt assets, rather than non-exempt assets.

• Homestead Exemption• Retirement Plan Account• Life Insurance / Annuity

III.

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Converting Non-Exempt Assets into Exempt Assets

a) Stripping Equity

b) Venue Shopping

a) Intentionally Defective Grantor Trust (IDGT)

b) Qualified Personal Residence Trust (QPRT)

III.

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Family Limited Partnershipsand LLCs

• Single Member LLC- disregarded for tax purpose, but provides liability protection.

• Particularly effective for Investment Real Estate.• Most states only allow a creditor to obtain a charging

order. Creditors cannot seize an ownership interest in the LLC/LP Assets.

• Minority discounts and ease of transferability to family.

III.

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Asset Protection Trusts

• What is an Asset Protection Trust?

An Asset Protection Trust is an irrevocable, self-settled trust, i.e. a trust in which the settlor of the trust is also a beneficiary of the trust.

distributions to the settlor, or any other trust beneficiary are within the sole and absolute discretion of the trustee the trustees pay obligations owed by the settlor to third parties (i.e. credit cards), or to purchase assets (vacation home) settlor can use.

Available only in select states not California

III.

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Asset Protection Trusts:Offshore v. Domestic

• The case of using Domestic Trusts

Easier for the settlor and the beneficiaries of a domestic trust to be in contact with the trustee (geographic proximity)

Usually less expensive to establish and administer

Does not carry the negative connotations associated with offshore Asset Protection trusts.

Full Faith and Credit US Constitution --judgment in California recognized in Delaware.

III.

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Offshore Asset Protection Trusts: Advantages

• Usually provide features that domestic Asset Protection trusts do not. These include:

A shorter limitation period for bringing claims

A higher burden of proof for proving fraudulent transfers (must be proven beyond a reasonable doubt)

Non-recognition of US judgments

• Creditors do not have the right to execute upon the U.S. judgment and attach assets of the offshore trust. They must litigate the claim in the offshore jurisdiction (even if the claim has already been litigated in a U.S. court.)

III.

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Revocable Living Trust

Home & Savings/retirement

Accounts

Business(i.e. Medical Corporation)

Investment PropertyRental Property

(i.e. LLC)

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Offshore Trusts:How They Work

III.

Beneficiaries

ASSETSProtector

OffshoreTrustee

DomesticTrustee

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Modular StructuringThe Modular Structure

III.

DAPTOr

FAPT

LLC#1 LLC#25% Member5% Member

Liquid InvestmentsReal Property

95% Member95% Member

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Offshore Trust: Misconceptions

• Are established to hide assets from creditors

• Are established in tax haven jurisdictions to avoid income taxes

• Will be effective only if all trust assets are located offshore

III.

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Fraudulent Conveyances

• Uniform Fraudulent Transfer ActAs a general premise, creditors cannot

seize assets that you don’t own.Exception: creditors can seize assets

that you transferred to a third party with intent to defraud, hinder or delay creditors.

This means do planning before a Creditor or Predator arrives.

IV.

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Asset Protection Planning

An Asset Protection Plan is

like the American Express card…

“You shouldn’t leave home without it!”

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Thank You

Please take advantage of our freeRisk Analysis and Rating

Mark C. Doyle, Esq.Tredway, Lumsdaine & Doyle, LLP

[email protected](949) 756-0684