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Interview 1

Interview
In this section, xx answers questions on asset protection issues from a previous interview. For more information on asset protection issues, go to Q & A.

Q What is an asset protection plan?
A An asset protection plan is intended to solve the most important question faced by professionals and business owners: “How do I limit the exposure of my personal assets to the risks of my business?” Stated another way, a physician should ask himself “How can I practice medicine without placing at risk my home and savings?” A typical business owner may be able to limit his personal liability through the use of a limited liability company to conduct business. As a result, the maximum loss faced in business is whatever dollar amount the owner has decided to invest. A physician is not afforded this benefit of known and limited liability. At a certain point, many physicians who are successful consider leaving the practice of medicine for exactly this reason–they cannot bear the economic risk associated with the practice. This problem is exacerbated in many states by skyrocketing premiums or complete unavailability of insurance to cover even a portion of this risk.
Q You’ve written that a successful asset protection plan “would, itself, eliminate the threat of most lawsuits by extinguishing the claimant’s economic incentive to sue.” Could you elaborate on that idea? How successful has this theory been in practice?
A A particular case may involve significant damages, let’s say $10 million, and the physician has $1 million or $5 million of insurance. A plaintiff’s attorney may not be able or willing to drop the case for just the insurance amount if he knows that the doctor has significant assets. It may be malpractice for the attorney to accept the lower amount. If the doctor does not have significant assets available and reachable, because of the asset protection plan, the plaintiff’s attorney will not pursue the case against the doctor for more than the insurance coverage. I think it is tough to measure how many lawsuits haven’t been filed because of this fact. But any personal injury attorney would tell you that he wouldn’t file against a defendant without reachable assets.
Q Is there one aspect of asset planning more important to physicians than another?
A Since a physician has only limited opportunities to legally protect himself from the liabilities of the practice, a good asset protection plan is designed to shield personal assets from these largely unavoidable liabilities. Also, importantly, the plan should insulate the assets of the practice, such as equipment, accounts receivable, cash, and real estate. Assets that can be more difficult to protect may include IRA and Keogh plans, depending upon state law.
Q Has the rising cost of malpractice insurance and unavailability of coverage produced a greater demand for the kinds of services you provide? In general, are doctors aware of their options when it comes to protecting their assets?
A WThe demand from doctors has always been pretty strong, but within the last year or so it has definitely increased. Many of my new clients are telling me that they are motivated by the insurance problem. The doctors that contact me have a very good level of understanding of the various techniques and strategies. Most have put in a lot of research and have a pretty good idea about what is out there. From what I can tell, a large group of doctors, maybe most, either have plans or are thinking about it. Of the clients I see with plans in place, 30% are good and the rest are not so good.
Q How can a physician be confident that the asset protection plan being touted is right for them?
A It is difficult to choose a good lawyer or doctor or contractor. I guess I would want the lawyer with the most experience and demonstrated competence in the form of published writing on the subject or recognition from colleagues. There is a very solid group of attorneys, maybe 30 or 40, who do excellent work in this area. I think there is a much bigger group that does not have any experience. I see a lot of material on the Web by nonlawyers and financial planners and there is a lot of misinformation and deception.
Q How do asset protection instruments achieve their goal?
A The effectiveness of these plans is based upon the ability to convert the client’s ownership of particular assets into a form that is legally and practically difficult or impossible to collect against.
Q What are some of the most common mistakes you see in asset protection planning?
A There are many companies and attorneys selling “asset protection products” off the shelf, without considering the particular needs of the client. A good deal of thought and creativity is necessary to create an effective plan that will accomplish the objectives of the client.
Q Once a physician has a plan in place, how important is it to regularly update it? How often should this be done?
A Plans should be reviewed at least once each year. Also, when assets have been purchased or sold, when there are changes or new developments in the law, or when the family situation is changed in some way, it is necessary to review the structure.
Q Are there any common myths and/or misconceptions about asset protection planning of which you find yourself needing to disabuse your clients?
A Quite a few. The Fraudulent Transfer laws apply any time there is a potential claim. Once an individual has committed an act that may lead to a claim, asset protection becomes difficult or impossible. The date the lawsuit is actually filed is largely irrelevant. Also, many people believe that an offshore asset protection plan will produce favorable tax consequences.
Q When should you start setting up an asset protection plan?
A To be effective, an asset protection plan must be in place prior to the time that a claim arises. As a general rule asset protection planning cannot be commenced once a malpractice suit is filed.
Q What do you tell clients who are uncomfortable with the idea of shielding their assets, for whatever reason?
A I tell prospective clients who are uncomfortable not to do anything. I do answer questions and sometimes try to correct any inaccuracies in the client’s understanding of a particular plan. It is illegal to transfer assets to avoid a particular claim, to hide assets in a divorce proceeding, to commit perjury, or to engage in money laundering with the proceeds of a criminal activity. As long as the plan is adopted at the right time and the client makes whatever disclosures the law requires, this planning is legal and necessary.
Q What are your feelings on offshore banking?
A Offshore banking may be a good component of a plan, in the right situation. When assets have been transferred to a bank not subject to U.S. jurisdiction, the strength of a plan may be significantly enhanced. There are hundreds of caveats here. The security issues must be satisfied and there must be proper legal disclosure and compliance.
Q There is an article at Quatloos.com (http://www.quatloos.com/traps/adtrusts.htm) that points out “five glaring defects” in Domestic Asset Protection Trusts (the so-called Delaware or Alaska trusts); are the assertions in this article correct or are these reliable asset protection vehicles?
A Nobody knows how these trusts will stand up in practice. Sometimes we use a Delaware Trust with an offshore trust or other entity as a beneficiary. On balance, I seldom use these trusts, but they may turn out to be useful in the future as the law becomes more certain.
Q What are “Belize trusts” and “Nevada bearer share corporations?”
A Belize is one of a number of countries that has passed legislation enabling the creation of asset protection trusts. A “Belize trust” is simply a trust formed under the laws of that country. There is a very high degree of hype surrounding “bearer shares” with the promoters claiming that this insures privacy. However, in a financial statement, or in a deposition or on tax returns, it is perjury or tax fraud not to properly report ownership.
Q What of the assertion that too many plans rely on excessive secrecy, which gives the impression that there is something to hide or that something unsavory is going on?
A I think that’s true. It is most likely that secrecy will not be maintained. A plan that depends on secrecy will probably not be successful. A plan should work because the legal structure is sound, regardless of how many people are aware of the structure.

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