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Asset Protection: A Matter of Degree

Monday, April 9, 2018   (0 Comments)
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Written for AAOE by David B. Mandell, JD, MBA

For more information on protecting personal and medical practice assets, please plan to attend David Mandell’s presentation “Shield the Practice, Its Assets, and Its Physicians” at 2:30 PM on Sunday, April 15 at the AAOE 2018 Annual Conference in Orlando. Watch this short video to learn more!


As advisors to physicians throughout the country, and  co-authors of more than a dozen books for physicians, our firm is often asked to help doctors protect assets against future lawsuits.  From this experience, we often learn what misconceptions physicians have regarding how to protect their assets from potential lawsuits.  In this article, we hope to dispel some incorrect assumptions and shed new light on opportunities for further asset protection.


Personal vs. Practice Protection

The first misconception most physicians, including orthopaedic surgeons, have is that they should protect only their personal assets from potential lawsuits.  Nothing could be further from the truth.  In fact, the practice’s most important assets are usually the most vulnerable to lawsuits, especially in a group practice.  Any malpractice or employee claim (sexual harassment, wrongful termination, etc.) against any of the doctors threatens all assets of the practice.  In other words, orthopaedic surgeons in a group practice are underwriting the acts and omissions of all of their partners.


What are the most important practice assets?

Certainly, your cash flow and income are most important.  The good news is that the tools that protect your cash flow also typically help you save on income taxes and build retirement wealth.  These include qualified retirement plans (including defined benefit plans,401(k)s and combination plans), non-qualified plans and more.

Beyond your cash flow, the practice’s accounts receivable (AR) are typically an important asset.  What most physicians don’t realize is that a lawsuit against the practice itself, created by a wrongful act of any of the partners, threatens all of the AR in a typical practice setup.  Certainly, there have been cases where physicians had to work for free for several months because a lawsuit judgment resulting from the act of one physician created a loss of the AR for the entire practice.

Other important practice assets include the practice real estate, if any, and valuable equipment.  If your practice has valuable real estate or equipment, it must separate these assets from the main practice.  While the details of advanced strategies go beyond the scope of this article, suffice it to say here that there are many tactics we can use to protect real estate and valuable equipment from potential lawsuits against any of the physicians or the practice itself.


Personal Protection: A Matter of Degree

The most common asset protection misconception that physicians have concerns their personal asset protection – shielding their personal assets from potential lawsuits.  In this endeavor, asset protection attorneys approach a challenge much in the way that a physician approaches a patient.  Like physicians, asset protection professionals will first try to get a client to avoid bad habits.  For a medical patient, bad habits might mean smoking, drinking too much, or a poor diet.  From an asset protection standpoint, bad habits might include owning property in a physician’s own name, owning it jointly with a spouse, or operating any medical practice with business assets exposed (see above).

We use an asset protection rating system for a physician or medical practice’s overall situation.  Exposing business assets and owning property in a physician’s own name are examples of the most vulnerable situations that should motivate a physician or practice manager to consult an asset protection advisor.


Basic Asset Protection

We use particular structures to protect assets and resolve lawsuit vulnerability for orthopaedic surgeons and their practices. If you want good basic asset protection, but do not want to pay for more advanced tools, then you need to begin with exempt assets--assets that are exempt from creditor claims. We recommend exempt assets first because (1) they enjoy the highest level of protection and (2) they involve no legal fees, state fees, accounting fees, or gifting programs. In other words, you can own the exempt asset outright in your name, have access to any value, and still have it 100 percent protected from lawsuits against you.

The definition of exempt assets vary by state law. Many states provide exemptions for qualified retirement plans and IRAs, cash within life insurance policies, annuities, and primary homes. Consult an asset protection expert to find out the exemptions in your state.

Beyond exempt assets, basic asset protection tools like family limited partnerships (FLPs) limited liability companies (LLCs), and certain types of trusts should be used. FLPs and LLCs will provide good asset protection against future lawsuits, allow for maintenance of control by the client, and can provide income and estate tax benefits in certain situations.   These tools generally will keep a creditor outside the structure through charging order protections.  These protections typically allow a physician to create enough of a hurdle against creditors to negotiate favorable settlements.  For these reasons, we often call FLPs and LLCs the building blocks of a basic asset protection plan.

There are also many types of trusts that provide significant protection for clients.  These can range from life insurance trusts or charitable remainder trusts to grantor retained annuity trusts, domestic asset protection trusts, and more. Each type has its pros and cons, costs and benefits.

Obviously, for all of these legal tools, asset protection benefits are reliant upon proper drafting of the documentation, proper maintenance, respect for formalities, and proper ownership arrangements.  If all of these are in place, the physician can enjoy solid asset protection for a relatively low cost.


Ultimate Asset Protection:  Advanced Strategies

For many physicians, a basic asset protection plan, which has some potential vulnerability, is not good enough.  For example, their state may have few exemptions.  Other clients realize that the best protection comes from tools that can actually help create wealth.  For this reason, these clients use advanced structures to put themselves at a comfortable level.  These include non-qualified plans, which allow a physician to put funds away at the practice level and enjoy them in retirement.  These types of plans can be used in addition to qualified plans.  In many states, these can be funded by exempt  asset classes.  Even in the states where there is no exemption, an LLC can typically be used to provide a solid level of protection.



Asset protection planning, like any sophisticated multidisciplinary effort, is a matter of degree.  Nothing in life is 100 percent certain (except perhaps death and taxes). For asset protection planning, this adage holds true.  Make sure you understand the costs and benefits of the various tools you employ in any asset protection plan.  It will not only help physicians and their medical practices protect existing wealth, but may assist them in building greater after-tax wealth for retirement and beyond.


SPECIAL OFFERS:  To receive free print copies of Wealth Protection Planning for Orthopaedic Surgeons and Wealth Management Made Simple, please call 877-656-4362. Visit and enter promotional code AAOE01 for a free ebook download of these books for your Kindle or iPad.


About the Author


David B. Mandell, JD, MBA, is a former attorney and author of more than a dozen books for doctors, including For Doctors Only: A Guide to Working Less and Building More. He is a principal of the wealth management firm OJM Group





OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of business in the State of Ohio.  OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients.  OJM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.  For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure web site

For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.  Please read the disclosure statement carefully before you invest or send money.

This article contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized legal or tax advice.   There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances.  Tax law changes frequently, accordingly information presented herein is subject to change without notice.  You should seek professional tax and legal advice before implementing any strategy discussed herein.

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