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Common CPA Advice on Asset Protection Can Leave Physicians Exposed

David B. Mandell, JD, MBA
Carole C. Foos, CPA

November 2012
Capital Ideas

Many financial advisors are surprised when they realize how few physicians have gotten any advice or direction on asset protection from their certified public accountants (CPAs). Physicians should ask themselves whether their CPAs have helped them shield their assets from unnecessary exposure. Most likely they haven’t.

Unfortunately, even when doctors do get asset protection advice from their accountants, that advice is often plain wrong. Common bad advice from CPAs ranges from “You don’t need to worry about asset protection, you have insurance,” to “Why create a professional corporation for protection? It’s not worth the expense,” to “Just put the assets in your spouse’s name. That will protect you.”

Going Beyond Insurance
While experienced financial advisors strongly advocate property and casualty (P&C) insurance as part of a physician’s asset protection plan, an insurance policy is 50 pages long for a reason. There are a variety of exclusions in such plans that most doctors never take the time to read, let alone understand. This is true for personal policies—like homeowner’s, car, and even umbrella insurance—as well as for business policies, the most important of which for physicians is medical malpractice insurance.

Even if a physician’s policy does cover the risk in question, there are still risks of a malpractice claim going beyond coverage limits (malpractice judgments do periodically exceed traditional $1/3 million coverage), strict liability, and bankruptcy of the insurance company. In any of these cases, the practice could be left with the sole responsibility for the loss. Lastly, even if all of the practice’s losses are within coverage limits, it may see its future premiums skyrocket.

For these reasons, it is unwise to rely solely on insurance for protection of a medical practice, especially ....

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