When structuring and planning any asset protection strategy, one of the more important factors is often how the asset protection entity or multiple entity structure is funded. While the funding of the structure itself is of paramount importance, one of the major factors is to create an asset protection structure that titles assets in a manner that takes the equity away from the person who is of primary risk, and whose assets are to be protected.
As with many things, people often see a solution to an immediate issue but do not evaluate the entire set of circumstances to see what other problems might arise or what other long term ramifications there are for such immediate solution. In any form of asset protection, control over the asset is a valid concern and remains one of the trickier points. In the event of transferring an asset to another party where they take outright title and control, the asset effectively becomes their property whether it is through a gift or some other form of transfer. The transferor effectively loses this asset, just as if a creditor won a lawsuit, got a judgment and was able to foreclose upon the asset.
There are many strategies which involve a private transfer where the equity and ownership might vest in another party whether it is a spouse, child or other family member, but the former owner or transferor will retain some level of management, control and possibly income. The key is to structure the transfer so it is done in a proper and legal way which accurately reflects the intent of the parties and protects the asset from creditors.
Traditionally, medical practices were valued much the same as other businesses, based upon the accounts receivable, their patient/customer base and their hard assets (equipment, fixtures, lease, staff value, any beneficial contracts). However, with the HMOs and Third Party payers, as well as now the possibility of ACOs (Accountable Care Organizations), changes in government receivables, and other new developments, practices must rely on less traditional means of valuation in order to obtain a higher value.
There is no traditional customer base in a sense, since the customers follow the HMO. As such, the traditional sense of accounts receivable needs to be looked at in a different way. The number and quality of provider contracts, remaining in good standing with third party payors and government payor programs (medicare/medicaid), and maintaining a good audit record affect the value of the practice in the same way a traditional accounts receivable valuation used to – they directly affect a practice’s ability to generate accounts receivable. In order to maximize the value of these factors, any sale, assignment or transfer, needs to be structured in a way that ensures the transfer of these assets. Certain compliance activities, structures, agreements and documentation can assist in maintaining good standing as well as increase billing efficiency, which adds to the value of the practice.
We recently published a blog about protecting your personal assets from exposure when a plaintiff tries to “pierce the corporate veil.” A properly structured pension plan can further protect your assets. Certain elder planning that comes in connection with asset protection, pension structure and estate planning can also provide benefit.
Depending on how it is structured, the pension plan can act as a vehicle to:
- Protect your assets from creditors (insurance companies, vendors, malpractice, etc.).
- Save you income taxes.
- Permit a vehicle for future investments to increase your wealth tax-free.
A properly structured pension plan should take into account your practice, age and level of legal exposure to a lawsuit in order to properly meet your desired expectations.
Estate and Trust Planning
- Your assets can be given to persons who you choose and in the manner you choose.
- Elder planning can protect your assets from catastrophic nursing home costs.