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.