Planning is an essential part of growing and protecting your business. As many doctors grow their practices, they encounter legal opportunities to insulate themselves from risk and capitalize on cost-effective savings techniques. Doctors who fail to plan may not even realize that they are paying extra business costs. Even worse, they may find their entire livelihood is exposed after an unfortunate event.
As your success grows, you may become the target of unfounded allegations or unscrupulous agitators who see you as an opportunity to capitalize for their own financial gain. Proper planning can assist you in avoiding these pitfalls by ensuring you have the proper legal structure to manage your business and personal assets. Complex asset structures may dissuade potential plaintiffs from attacking you in lieu of an easier target. Even better, they can limit your liability within a specific business by ensuring that your assets stay separated and insulated from each other.
One particular area of focus is real estate.
For example, as their practice grows, a doctor may find themselves interested in purchasing a building from which to run their medical practice. It may seem natural for your practice to own the building. However, it is essential to own this building in a business or legal entity separate from your medical practice. Your practice can then lease the building from the other entity, which will cover the cost of any mortgage, while keeping it apart from your practice.
This structure serves multiple purposes. First, you are growing your personal wealth separate from your business. Second, by keeping the asset out of your business, you are insulating it from any claims which may arise as a result of your business, such as medical malpractice or even a slip-and-fall in your waiting area. Third, by paying the lease from the business, you are deducting legitimate business expenses from your primary source of income, which can result in cost savings.
In addition, many doctors will invest in real estate outside of their businesses. While this is often a great investment strategy, it is important to put the necessary safeguards in place. Investment properties should be maintained in separate entities to protect your interests.
For example, assume that you have several residential investment properties owned in your individual name. If one of your tenants slips and falls at the property, you may be personally liable. Unless your investment properties are kept in a business, that tenant may obtain a judgment against you individually. If you own all of your investment properties individually, that tenant may proceed with collection efforts to satisfy the judgment from all of your properties!
This also highlights the importance of keeping each piece of real property in a separate entity. By further example, assume all of your residential investment properties are held in one business. If one of your tenants injures themselves at the property, they may still attempt to collect against the other assets of that business. Keeping each property separate helps avoid this situation.
Without the proper structure, one mistake can lead to losing all of your assets. Keeping everything separate is an essential part to ensuring that one liability does not bleed into all your other holdings. As your holdings grow, the management of these multiple entities can be controlled through an umbrella entity, such as a family limited partnership or trust. Additional safeguards can be put into place with respect to some businesses to ensure that they cannot be compelled to make distributions for the benefit of an outside creditor.
If you need help in implementing such a structure, contact an estate planning attorney. The time to act is now, since any structure implemented after you have knowledge of a potential claim against you may be attacked as a fraudulent transfer. It is in your best interests to enact your plan right away.
