The Wealth Counselor

A monthly newsletter for wealth planning professionals
Prepared by The Advisors Forum
Edited and distributed by

 Carrell Blanton Ferris & Associates, PLC  
May 2015
In This Issue

Three Liability Planning Tips for Physicians

New Continuing Education Programs


Carrell Blanton Ferris has a tradition of providing continuing education programs for our advisors and friends of the firm.  We are introducing monthly one-hour CE programs on various topics.  Some upcoming topics: Estate Planning with Retirement Accounts, Estate Planning 101 and Business Succession Planning.  We hope this format will allow more of you to attend seminars and allow you to choose those topics that best fit your needs.   We will still have our Fall three-hour CE program in early October.   


 Click here for the current calendar of programs.   Register from our website or email for more information. 

Upcoming Public Seminars 
Wills vs Trusts Seminars
Elder Law Seminars 
If you have not attended one of our seminars, please take this opportunity to join us.    
Please let your clients know about our educational seminars.   
There is no charge, but seating is limited
Contact us if you would like a speaker for your firm or a private seminar for your clients.  


Three Limited Liability Planning Tips for Physicians

Content provided by The Advisors Forum; Edited by James W. Garrett, Esq.

The practice of medicine is a profession fraught with liability. It's not just medical malpractice claims. Employment related issues (wrongful termination, sexual harassment, and discrimination), careless business partners and employees, and contractual obligations (personal guarantees, leases, business agreements, etc.) add to the increased risk assumed by a physician in private practice. Couple these practice-related liabilities with personal liabilities (divorce, vehicular accidents, rental property problems), and it is clear that physician clients need to protect themselves from more than just professional negligence claims. In this issue you will learn:

  • Types of insurance physicians should have in place;
  • State exemptions that protect certain types of assets from the claims of creditors; and
  • The role of business entities in liability planning for physicians.

Tip #1 - Insurance is the First Line of Defense Against Liability

Liability insurance is the first line of defense physicians should use to protect themselves. Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments. Types of insurance physicians should have in place include (as applicable):

  • Homeowner's insurance
  • Property and casualty insurance
  • Excess liability insurance ("umbrella" insurance)
  • Automobile and other vehicle (motorcycle, boat, airplane) insurance
  • General business insurance
  • Professional liability insurance
  • Directors and officers insurance
  • Employment practices liability insurance- covering wrongful termination

Planning Tip #1:  Physicians should not rely on insurance as their sole means of liability protection since the cost of a comprehensive policy may be prohibitive, and each type of policy has numerous exceptions to coverage. Instead, insurance should be used as one layer of a multi-layer strategy designed to place a barrier between the physician's business and personal assets and the claims of a plaintiff. In addition, physicians should work with an insurance professional who can explain the purpose of each type of coverage, make recommendations for liability limits and deductibles, and shop around for the best coverage on an annual basis.


Tip #2 - State Exemptions Protect a Variety of Personal Assets From Lawsuits

Each state has laws that partially or completely exempt certain types of assets owned by residents from the claims of creditors. While these laws vary widely from state to state, in general physicians may be able to protect the following types of assets from a judgment entered against them under applicable state law:

  • Primary residence (referred to as "homestead" protection in some states)
  • Qualified retirement plans (401(k)s, profit sharing plans, money purchase plans, IRAs; in Virginia, IRAs are exempt from creditor process to the same extent permitted under federal bankruptcy law)
  • Life insurance (in a trust)
  • Annuities
  • Property co-owned with a spouse as "tenants by the entirety" (sometimes called "tenants by the entireties," this form of ownership is only available to married couples and may only apply to real estate, not personal property, in some states in Virginia this protection applies to both  real and personal property.)
  • Wages
  • Prepaid college plans
  • Section 529 plans
  • Disability insurance payment
  • Social Security benefits

Planning Tip #2:  Physicians in Virginia should consult with an experienced asset protection attorney in Virginia to determine which state exemptions are available and how much they can protect. It is also important to understand the pros and cons of each type of exemption. For example, while co-ownership between a physician and spouse as tenants by the entirety may make sense in the short term, in the long run it can become useless if the couple divorces or if the non-physician spouse dies first. As with liability insurance, exemption planning is best used as one layer of an overall asset-protection strategy.


Tip #3 - Business Entities Protect Business and Personal Assets From Lawsuits

Business entities include partnerships, limited liability companies, and corporations. Physicians who own their own practice need to mitigate the risks and liabilities associated with owning a business (just like any other business owner) through the use of one or more business entities. Physicians should work closely with a business planning attorney to determine the right structure for their practice by not only taking into consideration asset protection, but also income taxes, estate planning, retirement funding, and business succession goals.

Business entities can also be an effective tool for protecting a physician's personal assets from lawsuits. In many states, including Virginia, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner. In addition, the personal creditors of an owner cannot step into the owner's shoes and take over the business. Instead, the creditor is limited to a "charging order," which only gives the creditor the rights of an assignee. In general this limits the creditor to receiving distributions from the entity if and when they are made.

An added benefit of using a limited partnership or limited liability company to protect a physician's personal assets is the leverage that can be created for gifting and wealth-transfer planning through the use of valuation discounts. With a properly structured limited liability entity, assets held within the entity will be entitled to a discounted valuation for tax purposes because of the lack of control, the lack of marketability of the interests in the entity, and the inability of owners simply to walk away from the business and take their ownership interests with them. Discounts on the value of the entity's underlying assets can range from 20% to over 50%. Valuation discounts allow the physician to gift entity interests for cents on the dollar and at a reduced use of the lifetime gift-tax exemption. 

Planning Tip #3: Creating a business entity in Virginia that protects a physician's assets from lawsuits involves much more than just filing some forms with the State Corporation Commission and paying an annual fee. Business formalities must be observed and documented; otherwise a creditor can attack the entity through "veil piercing" or "constructive trust" or "alter ego" arguments. Therefore, it is important for physicians to work with a business planning attorney who assists with documenting business formalities and keeps on top of changes in applicable laws. As with liability insurance and state exemptions, business entities should be used in conjunction with other asset-protection strategies.


To assist our clients with these business formalities, our firm now offers a "Business Maintenance Program" to help business clients stay in compliance. We are offering a seminar for CE credit on this very topic in June 2015 and will distribute seminar registration information shortly. Please be sure to register.

Final Advice for Helping Physicians Protect Their Assets

Physicians are constant targets for lawsuits both professionally and personally because they are perceived to have "deep pockets." You can add value to your relationships with your physician clients by helping them identify ways to protect and preserve their business and personal assets. We are experienced with helping physicians (and other professionals and business owners) create effective, multi-layered asset-protection plans. Please call us if you have any questions about this type of planning and to arrange for liability-protection consultations for your physician clients. kljlk


CIRCULAR 230 DISCLOSURE: U.S. Treasury Department Regulations require that we advise you that unless otherwise expressly indicated any federal tax advice contained herein is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax- related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.




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