for doctors and dentists
Asset protection means protecting your house and other assets from patient litigation.
However, where you run a private practice and employ staff,
there are also other risks you need to consider.
The best way to protect yourself is to have appropriate and adequate indemnity cover in place, and to deal quickly with issues as they arise by seeking help from your insurer’s legal team. 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.
You can take out a particular business insurance policy to protect yourself from these types of situations, and you should discuss this with your insurance broker. Even though you can take out various insurance covers to protect yourself, you should still consider shielding your assets against any potential claims.
How can you achieve asset protection?
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 medical professionals. 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.
However, it is important to regularly review your trust deed, to ensure you have the best protection and also tax planning opportunities. 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 medical professionals, it could be bought in the name of your non-medical spouse, or at least majority owned by him or her.
Keeping yourself on the title (even with a 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). Buying your home in a family trust or another entity may not be an option, as you lose the capital gains tax exemption – in other words, if you sell the family home tax may be payable.
How can you protect existing assets?
When you are acquiring new assets, you should always seek advice in terms of your ownership options, both considering tax planning and asset protection benefits.
However, how do you achieve asset protection for existing assets? Well, it is much 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.
When you transfer investments assets, then capital gains tax may also be payable. As a result, you may find that the cost of achieving asset protection may be prohibitive. Hence, it is important that you seek advice early in your medical career to avoid such issues in the future.
Asset protection in the event of a relationship breakdown
Another area of asset protection that is often overlooked is what happens in the event of a relationship breakdown. Whilst it is surely not an easy conversation to have with your (new) spouse, it is worth considering whether you should put in place a Binding Financial Agreement (BFA), commonly referred to as a ‘prenup’.
They can even be put in place whilst you are already in a relationship, but one of the conditions for creating an enforceable document is that both spouses have sought independent legal advice before signing the document.
If you would like to discuss your options for asset protection, then please contact us.
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“Very informative, a financial ‘nuts-and-bolts’ that every doctor should read.”
~ Dr Green
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