John is an anesthesiologist. He has worked long and sometimes stressful hours for many years and has reaped the rewards of his profession, often earning more than $300,000 in a year during his career. As a result, John has successfully accumulated a significant net worth and needs to do everything he can to continually protect his assets.
Like John, your career path as an anesthesiologist can offer great financial rewards. The average anesthesiologist earns a wage of $271,440, nearly five times the national average annual salary of all other professions.1
The longer you practice in this field, the more important it becomes to have a plan to protect your nest egg. Below we present some planning ideas.
Conflict Avoidance: Do Not Overlook the Basics
A basic asset protection strategy begins with mindfulness and not financial planning. Anesthesiologists and other medical practitioners often lead stressful lives, both professionally and personally. You can get so wrapped up in your day (and often night) job that stress can get the better of you. It is very important to pay attention to and address challenging situations and relationships as best you can and not let unreconciled situations fester. The two biggest risks to your net worth are likely lawsuits or a divorce. Do not underestimate the benefits of your personal and professional relationships. Successfully managing them throughout your professional career goes a long way towards lowering your risk of financial harm.
Managing Malpractice Risk
Conflict avoidance can be a helpful asset protection strategy, but even a best laid and executed strategy in this regard is not bulletproof.
Frankly, the odds are not in your favor of avoiding a lawsuit if you work many years as an anesthesiologist. One study showed that 75% of physicians can expect to face a malpractice claim over an extended career2. Another study indicates that 61% of anesthesiologists experience malpractice lawsuits at some point3.
The good news is that the following strategies can help prepare and better protect you should you experience such future challenges to your financial success:
Segregate your assets: One of the best ways to protect your assets is to separate them from you. There are a couple of key approaches to this strategy:
First, avoid practicing anesthesiology as an unincorporated individual and consider establishing or joining an entity such as an LLC. In this way, the corporation will absorb financial blows from lawsuits and better protect your personal assets
Second, if you are married, you may wish to title your primary residence as tenants by the entireties if your state recognizes it. The tenancy-by-the-entireties ownership structure can protect highly valued home equity from creditors who have a claim against you but not your spouse.
Seek Homestead Exemption Protection: The “homestead exemption” provides medical practitioners with another way to protect net worth tied to home equity. The homestead exemption offers varying levels of protection from creditors in the event of a malpractice lawsuit, again depending on the state in which you live. In general, the more equity you have in your home, and the higher the state’s homestead exemption, the more potential asset protection your home can offer you in the case of a potentially damaging lawsuit. Homestead exemptions exist in every state except New Jersey and Pennsylvania. Modera can help you determine whether this strategy could make sense for your particular situation and state.
Buy and update malpractice insurance: Medical malpractice insurance is a necessity for anesthesiologists. Self-insurance is never a good strategy; just because your state does not require that you buy insurance does not mean it is a good idea. The wealthier you are, the bigger the target on your back from lawyers. If you bought medical malpractice insurance years ago, also make sure you keep your coverage updated with your current financial status.
Consider umbrella insurance: While an umbrella insurance (also known as excess liability insurance) policy is not designed to protect you from malpractice at your job, it can help protect your assets from other personal scenarios that put your net worth at risk. For example, an umbrella policy would provide extended insurance protection in the event of a serious car accident where several individuals are injured and sue you for medical costs that well exceed the limits of your auto insurance coverage. This can be wise coverage to add or increase if you have a new teenage driver in your household. Greatly increasing your liability coverage via an umbrella policy is relatively inexpensive for the additional level of protection
Contribute to ERISA-qualified plans: Plans that qualify under the Employee Retirement Income Security Act (ERISA) generally offer the highest level of protection from lawsuits and creditors. Such plans include company-sponsored 401(k) plans, pension plans, and profit-sharing plans. Non-ERISA plans like some 403(b) plans, Individual Retirement Accounts (IRAs), and Health Savings Accounts (HSAs) may or may not provide the same level of protection and can depend on individual state laws.
Contribute to education savings plans: Both 529 plans and Education Savings Accounts (ESAs) can also potentially shield assets from creditors and lawsuits since the money is held in these accounts for the benefit of your child’s education. Here again, rules can vary among different states, and Modera can help you determine the best overall strategy for your state.
Consider whole-life Insurance: The cash value and death benefits of a whole-life insurance policy are generally protected and exempted from creditor claims in most states. While whole-life policies can be expensive, this protection can be a nice benefit when you consider that there are usually no contribution limits to a whole-life policy, providing you with potentially a significant source of asset protection if used correctly.
Evaluate an Asset Protection Trust: Depending on your situation, an Asset Protection Trust could be another alternative to keep personal assets segregated and out of the hands of lawyers and creditors.
Modera Can Help You Devise an Asset Protection Plan
Modera Wealth Management has financial planning professionals like Patrick Runyen, CPA/PFS, CFP® and Karl Graf, CPA/PFS, CFP® who work with anesthesiologists like you to help them create customized asset protection plans. Our professionals span across many states throughout the country and understand the benefits and challenges presented at the state level for optimizing such plans. To learn more about what Modera can do for you, please get in touch.
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