Steps ED physicians can take without a lawyer to protect their personal savings from an excess-limits verdict

Asset-protection planning can be the determinative factor in whether you and your family will live in the best or worst of times financially. If you doubt the importance of navigating this area where law, insurance, investing, and medicine intersect, please consider the following tale.

New Year’s Eve, Dec. 31, 2013

Two emergency physicians walk into a bar to attend their department’s New Year’s Eve party. Dr. Birkenstock (Dr. B) and Dr. Stiletto (Dr. S.) are both nearing retirement after working together “in the pit” for 35 years. They have both lived frugally and invested wisely. They have each built up a very nice retirement nest egg of $2 million. They both feel financially set for life.

The lawsuit concerns a woman who was a “frequent flyer” in their emergency department three years ago. She was pregnant with twins, and she would present on a weekly basis with “pseudoseizures.” At six months of gestation, she had a “real” seizure with a prolonged period of hypoxia. She barely survived and was left with severe hypoxic encephalopathy. The twins were born with profound neurological deficits. As a result, the mother and twins will require a lifetime of expensive medical care. Experts for the plaintiffs allege that the patient was incorrectly diagnosed with “pseudoseizures,” and that this misdiagnosis led to the injuries and was a breach of the standard of care. But for the misdiagnosis, the mother and twins would have been fine.

The Trial, July 2014

All the other defendants (the obstetricians, neurologists, residents in various disciplines, nurses, physician assistants, nurse practitioners, neonatologists, and the hospital) have settled and are out of the case. The only defendants left when it’s time for the trial are Drs. B and S, who decide to trust their fate to a jury. Both believe the standard of care was met, and they refuse to settle. Their attorneys have impeccable expert witnesses to confirm that their treatment was within the standard of care and there are no charting deficiencies.

The trial does not go well for the defendants. The judge allows the mother and the twins to be in the courtroom, and the jury wants to do something to help them. Life-care experts emphasize the millions of dollars needed to care for them for the rest of their lives. The jury enters a huge verdict, far in excess of the doctors’ combined malpractice insurance limits. The defendants’ appeals are ultimately unsuccessful.

New Year’s Eve, Dec. 31, 2014

Drs. B and S are at their department’s annual New Year’s Eve party, but their minds are elsewhere. The collection efforts of the plaintiff’s attorney have been relentless. The judgment was only partially satisfied by the malpractice insurance, and the plaintiff’s attorney has an obligation to his clients to collect the outstanding balance from the defendant physicians.

Dr. B now has a net worth of approximately zero and is contemplating another 20 years of practice. Dr. S still has a net worth of $2 million and is planning retirement in a warm location. Dr. B had all of her assets in a personal account at a well-known brokerage firm. That money enjoyed no protection from unsecured creditors and is now gone. On the other hand, Dr. S had her assets in various retirement accounts and IRAs, a life-insurance policy, an annuity, and equity in the home that she owns with her husband. Therefore, her assets were safe from the claims and the collection efforts of the plaintiff’s attorney.

“Many doctors recognize the benefits of protecting their assets but are under the mistaken belief that the process is both costly and time-consuming. While some high net-worth physicians need the expertise of specialist lawyers to set up sophisticated plans such as offshore trusts, most physicians do not require this. If you are starting out in your career, or you do not have a large nest egg, there are simple and inexpensive steps that you can take.”

–Douglas Segan, MD, JD

The Moral of the Story

If you practice emergency medicine, it is likely that you will be named as a defendant in a medical malpractice case at some point in your career. While the risk of losing a large malpractice suit and facing a judgment far exceeding your insurance limits is small, the fear of this dismal outcome causes a great deal of litigation stress for physician defendants and may be a factor in deciding whether to settle a case or put one’s fate in the hands of a jury.

The ideal time to start protecting your assets is early in your career, before you are sued, and this will allow you to avoid the corrosive anxiety of losing your shirt in an excess judgment. Take a few simple steps now, and be confident in the knowledge that you will end up in the shoes of Dr. S and not barefoot like Dr. B.

No Lawyer Required

Many doctors recognize the benefits of protecting their assets but are under the mistaken belief that the process is both costly and time-consuming. While some high net-worth physicians need the expertise of specialist lawyers to set up sophisticated plans such as offshore trusts, most physicians do not require this. If you are starting out in your career, or you do not have a large nest egg, there are simple and inexpensive steps that you can take to protect your savings from an excess judgment. Here are some steps you can take without the expense of a lawyer.

Maintain adequate insurance: While medical malpractice liability is uppermost in the minds of most physicians, we risk myriad other civil suits that can wreak havoc with our financial plans. The first step in protecting your assets is having adequate insurance to protect you from the most common civil suits that you might face. You need sufficient professional, auto, and homeowner’s (or renter’s) insurance. In addition, obtain an umbrella policy, which provides a great deal of extra liability coverage to supplement your auto and homeowner’s policies at a very minimal additional cost.

Try this at home: As illustrated by the above story of Drs. B and S, when a creditor is going after your assets, each asset is treated differently. Some assets can be garnered by creditors, while others cannot. The goal of asset protection is to have a large percentage of your assets in a form that creditors cannot easily take. The main reason the subject of asset protection is complicated—and why lawyers are beneficial—is that, unlike the human body, this body of law varies greatly from state to state. Frugal physicians who want to forgo a lawyer must know which assets are given special protection in the state where they live or are planning to live. You must learn the asset-protection tools that work in your state if you want to start this process without a lawyer.

The Internet has made this process much easier. Go to your favorite search engine and enter the name of your state and the words “bankruptcy exemptions.” Look past the ads and the lawyers selling complicated offshore trusts, and review a number of websites that have recent updates. The Nolo firm is a reliable source of helpful and easy-to-understand information in this area. It will give you ideas on how to start an asset-protection plan in your particular state.

What works in most states: The specific assets that are protected vary from state to state as do the amounts protected, but the odds are good that retirement plans, IRAs, some insurance policies (such as life insurance and annuities), and some amount of equity in your home will be protected from most creditors. So for most doctors in most states, fully funding retirement and IRA plans and owning your home will be the best long-term investment and asset-protection plan.

Conclusion

All physicians should take steps to protect their growing nest eggs from the risk of an excess-limits judgment. Protecting your savings now will reduce your litigation stress if you are named in a suit in the future. Asset protection should be an integral part of your financial planning from an early stage in your career. Do not let the jargon and the dread of a huge legal bill prevent you from making a start on a plan that works for you. While competent legal advice is always worthwhile, the wise and frugal physician can still come up with a basic but effective asset-protection plan. Learn which assets are given favorable treatment from the claims of creditors in your state. If the specific investment vehicles that are protected in your state match your long-term investment goals, then you have the foundation of a solid plan.

Dr. Segan is an emergency physician based in East Lansing, Mich, and Woodmere, NY. He is a member of the State Bar of Michigan and is the in-house physician-attorney at Johnson & Wyngaarden, PC, a medical malpractice defense firm in Okemos, Mich. He can be reached at dougsegan@yahoo.com.