Many doctors are concerned about losing everything they have worked for through a claim being made against them. In this article I would like to explain what asset protection for doctors entails and how you can achieve it.
What is asset protection for doctors and what are some of the risks?
Asset protection means protecting your house and other assets from any potential claims from (most commonly) unhappy patients. Apart from patient claims, there is also increased risk from employing staff. Issues such as unfair dismissal or bullying are more commonly pursued nowadays, which may lead to legal claims being made against you as the employer.
What are some of the ways you can protect yourself?
The first line of defence would be your insurances. Indeed, the best way to protect yourself is to have appropriate and adequate medical indemnity in place, and to deal quickly with issues as they arise by seeking help from the insurer’s legal team. For non-patient related risk, you can take out specific business insurance cover to protect yourself when employing staff, and you should discuss this with your general insurance broker. However, even though you can take out various insurance policies to protect yourself, you should still consider shielding your assets against any potential claims.
Alternative ownership structures
There is a saying that the key to asset protection is to own nothing and control everything. This is exactly why trusts – in particular discretionary family trusts – are so popular for high-income/high-risk occupations. The protective benefit of a trust is that if you have (debt) enforcement action taken out against you or you go bankrupt, assets in which you have an interest via a trust may be sheltered from such action. You can read more about the tax planning benefits family trusts offer HERE. A superannuation fund is also a type of trust structure and can offer valuable protection, particularly in the event of bankruptcy, unless you purposely made super contributions (that were out of character) to shield assets. Traditionally, the family home is bought in joint names – you and your spouse. However, for better protectionit could be bought in the name of your non-medical spouse, or at least majority owned by him or her. For example, your family home could be owned 90% by your spouse and 10% by yourself. Keeping yourself on the title (even with 1% ownership) means the property cannot be sold or mortgaged without your consent. This gives you a significant element of control with very little ownership (risk). Please note for divorce purposes the ownership percentage is pretty much irrelevant.
Buying your main residence in a family trust or another entity is not really an option, as you lose the capital gains tax exemption – in other words, if you sell the family home tax may then be payable.
The one exception where assets might be better held in the name of the medical professional is negatively geared property. The tax deductions will typically be more valuable in the name of the doctor (who is on a high tax rate), and if the loan against the asset is fairly high compared to the value (say 90% or so), then there is not so much risk in this asset being pursued by claimants. In conjunction with this strategy, you could then build up assets in another entity or person’s name, which offers more tax and asset protection benefits.
Example: You may own an investment property that is worth $600,000 but has a $550,000 loan. The equity is only $50,000 in your name, and you receive associated tax deductions. At the same time, you may be building up other assets in superannuation, your family trust or your spouse’s name, where there is potentially no risk.
Whilst it is ok to choose the best ownership structure when acquiring new assets, what options do you have with regards to existing property and assets?
How can you protect existing assets?
Well, it is more difficult to transfer existing properties or assets as stamp duty and/or capital gains tax may be payable – often this a serious hurdle to overcome. For example, with an existing family home that is jointly owned, if you want to transfer it fully into your spouse’s name you will incur stamp duty depending on which state or territory you live in.
This is why you should always seek tax and financial advice before making these types of decisions, in order to get the full picture.
Asset protection for doctors is an important planning area and you should always seek advice from your accountant and a lawyer.
I specialise in managing and coordinating the financial affairs of medical professionals and have been recognised as one of the best financial planners in Australia. I am a Certified Financial Planner and member of the Financial Planning Association of Australia.
As I understand your time is extremely valuable and scarce, I am able to offer flexible meetings times, including outside business hours and during the weekend. I can even come and meet you somewhere convenient, or talk via videoconference on Skype.
My first consultation is free. I allocate up to 90 minutes to discuss your personal circumstances and to establish how I may best assist you. Where you already have an existing adviser, I would be happy to offer a second opinion. I always quote a fixed dollar fee before we start working together.
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Yves Schoof and Affluence Private Wealth are Authorised Representatives of Synchron, AFS Licence No. 243313. The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.
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