Like many well-paid health professionals, dentists are no strangers to assessing risk and liability in their practices. But what about liabilities pertaining to their homes and possessions? In addition to making sensible decisions, dentists need to know how to protect their assets from potential litigation.
Medical professionals are naturally mindful of the risk of claims on their assets, but many wrongly assume that having adequate professional malpractice insurance is protection enough.
They’re overlooking other types of claims — those having nothing to do with their professional practices. Like people in other professions with substantial assets, dentists and other high-earning health care professionals can easily find themselves targets of litigation for personal liability.
In many states, certain types of financial accounts can protect assets from judgments. These may include deferred annuities, life insurance (whose cash value is often protected) and qualified retirement accounts. But if these accounts offer protection in your state for the assets held within them, marauding plaintiff’s attorneys will go after other assets.
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Perhaps greater prudence lies in managing risks to prevent mishaps, death and injury — and resulting claims on your assets. The first line of defense is your behavior, as governed by your best judgment and common sense, to prevent damage from occurring.
Common scenarios include:
· Your home. The bigger and more elaborate your home is, the more liability traps it may involve. A large home with extensive electronics inside and gardens outside often means a lot of foot traffic by tradesmen, cleaning people and others. It never occurs to many homeowners that if these people are injured at your home, this could mean a lawsuit. Many of these people are private contractors uninsured for work accidents, so consider being proactive to prevent accidents. What kinds of risk are contractors taking regarding ladders, electricity or toxic substances? What is their level of insurance, if any?
· Recreational facilities at your home. The big liability here is a swimming pool, but serious accidents can also occur on trampolines, go-cart tracks and other action activities for kids. Again, managing safety prevents accidents that can bring claims. Keep a close eye on your pool when children are swimming, and consider hiring a lifeguard for kids’ pool parties.
· The poor judgment of people close to you. Even if your behavior is steady in ways that minimize risk, you must use your best judgment about the behavior of people close to you and how it may create risk. Lending your house, boat or car to children, relatives or friends can be a deep liability trap. If your teenager is irresponsible, this is a no-brainer. If your teen has a wild party in your home while you’re out of town and a guest drives home drunk, bringing claims from serious injury or death, this will make it easy for plaintiff’s attorneys to “bring you in” as a defendant, as they like to say.
Or, if your teen cracks up your car after drinking or using drugs, the same can happen. Your teenager may be highly responsible, but how about his or her friends? How about their friends’ friends, who might take the wheel or introduce alcohol or drugs into the evening’s activities? And it may not be a teen whose actions bring claims down upon you; it could be your spouse or brother-in-law with a drinking problem.
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· Co-signing on loans for vehicles and real estate as a favor to friends and relatives. When lawyers are building a case, the first thing they look for is the name of a co-signer with the assets to shoulder the liability. As with your own property or vehicles, you can’t always manage this risk.
Of course, this kind of proactive risk management requires attention, alertness, consistency, diligence and, often, telling people close to you things they don’t want to hear and creating family friction. So instead, some choose to dismiss their risk by relying on legal strategies they see as clever but that may be based on myths. These myths include:
· Putting your assets under the name of your spouse or a relative necessarily safeguards them from judgments. Not so. Retitling assets for this purpose is known under the law as fraudulent conveyance.
· Assets held in a revocable living trust are protected. In most states, this protection can come from an irrevocable trust, but not from a revocable one.
· Vehicle or homeowners’ insurance necessarily covers all judgments completely. This is wrong because judgments may exceed the limits of coverages. And while vehicle liability coverage levels may be more or less standard, coverage limits on general liability umbrellas attached to homeowners’ policies are often too low. If you have substantial assets to protect, you should consider a liability limit of up to $5 million. Before arranging this coverage, it’s a good idea to touch base with your attorney.
It’s a good idea to go over options for asset protection with your financial advisor and/or your attorney.
By exercising care and discretion to prevent mishaps — and having the right financial accounts and insurance as backup — you can manage risk and prevent, or at least limit, hurtful judgments against your assets.
David Robinson, a Certified Financial Planner®, is founder and CEO of RTS Private Wealth Management, an SEC-registered advisory firm in Phoenix, Arizona, that provides fiduciary services to help pre- and post-retirement clients achieve their financial goals. He specializes in helping wealthy individuals — such as physicians, executives and professional athletes — prepare for the future by creating custom-tailored financial plans that employ a holistic approach including growing/protecting wealth, managing taxes, identifying insurance solutions, preparing for retirement and managing estate plans.