If you’re an accomplished dentist, you’ve likely generated significant wealth . . . or will soon. Now it’s time to learn about developing a comprehensive asset-protection plan.
Succeeding in dentistry isn’t just about launching and growing a practice. It’s also about protecting the assets your practice generates. Not ensuring your assets are secured can jeopardize everything you’ve worked so hard to achieve. But here’s the good news: adopting sensible protection strategies can assure that your wealth is available for you to enjoy during your retirement, and to one day pass on to your heirs.
Buying malpractice insurance is the foundation of dentist asset protection. But it’s only a partial solution. A comprehensive asset-protection strategy should preserve every asset you own—both financial and non-financial—and neutralize every risk that jeopardizes them.
Assets come in many types and sizes. They include current assets such as cash, accounts receivable, inventory, supplies and cash equivalents. You can tap into current assets immediately or convert them into cash within a year. Fixed assets are less liquid such as buildings or dental equipment. They can be sources of cash over the long term, but depreciation will likely erode their value. Financial assets are instruments such as stocks, bonds and other securities that trade on financial markets.
The starting point of asset protection is knowing exactly what you own and the liquidity status of each holding. Also crucial is understanding the risks that can reduce or destroy the value of those assets. Here are some major ones against which you should protect yourself:
- Bad dental-practice or dental-career decisions. Adding a poorly conceived dental service or relocating to a sub-optimal geographic area are examples of bad business decisions that can harm your assets. Joining a poorly performing practice as an associate might derail your future earnings, causing you to tap your assets prematurely. Having a process for reality-testing decisions is crucial. For example, you might seek feedback from a formal or informal advisory group. This can help you to evaluate your plans realistically rather than let pipedreams sidetrack you.
- Interpersonal issues: No one is immune from unforeseen events that can weaken one’s finances. These can range anywhere from hurting or killing someone in an auto accident to having a guest get drunk and injured after attending a party in your home. The range of possibilities are endless, which argues for buying homeowner’s insurance with large coverage limits, augmented with a personal umbrella liability policy.
- Accidents in your dental office or grounds: Slips and falls are a perennial risk exposure for businesses of all kinds. Just because you’re not a high-traffic retail business doesn’t mean you’re immune to such losses. Forgetting to shovel your steps after a snow or ice storm can lead to a serious trip-and-fall injury and a potentially costly lawsuit. Evaluating the physical risk exposures in your office and then mitigating them with general liability insurance is an essential strategy for keeping your assets intact.
- Employee injuries or illnesses: Because you and your dental-care team deal with potentially toxic blood-borne agents and sharp instruments, you are at a high risk of sustaining a job-related injury or illnesses. If these conditions persist and involve costly treatments and lost-wages payments, your practice could suffer a serious financial blow. To prevent this, businesses in all states except Texas are required to purchase workers’ compensation insurance for their employees. Practice owners often can include themselves in this coverage, which will mitigate the financial impact of job-related injuries or illnesses on the business.
- Dental malpractice: Failing to properly diagnose or treat a dental condition is a major risk for practice owners and clinical staff. If patients can prove that they were under your care, that you failed to uphold your professional duty, that this lapse resulted in an injury that resulted in physical or financial loss, they can sue for compensation in a court of law. Having robust dental malpractice insurance will protect your assets against legal judgments or settlements should you lose your case.
Mitigating the Risks of Practicing Dentistry
According to industry claim surveys, the patient allegations that generate the most malpractice claims involve dentists in the following scenarios:
- Failing to successfully treat a condition
- Performing a procedure improperly
- Taking inadequate precautions to prevent patient injury
- Performing the wrong procedure
- Treating the wrong tooth (or teeth)
Each of the above risks suggest mitigation steps. For example, you might evaluate your most common treatments to determine how and why they fail. Understanding those issues will allow you to revise your care practices to minimize future problems.
Another way of viewing allegation type is by claim severity. Claim studies have found that the allegations with the highest average claim payouts are dentists:
- Performing inadequate radiographs
- Causing or failing to prevent anesthesia complications
- Failing to prescribe a needed treatment
- Getting an inadequate patient consent
- Failing to correctly diagnose a condition
As with claim frequency, brainstorming the above items can help you adopt mitigation strategies that preserve assets. Each of these errors highlights opportunities for case analysis and continuing education to prevent such allegations from gaining legal traction.
As we mentioned earlier, malpractice insurance should be the foundation of your asset protection program. When patients claim you made a mistake that harmed them, your malpractice insurer will open a claim and provide funds to hire an attorney to defend you. It will also pay for any covered financial judgments or settlements (an average payout of $79,000 according to the National Practitioner Data Bank), as well as for expert-witness and court-related costs. Finally, your policy will offer protection in case a patient files a dental board complaint against you.
Malpractice Insurance Isn’t the Full Answer
Malpractice insurance will only protect your assets if you have enough protection to cover a large lawsuit. For this reason, make sure your policy’s coverage limit is sufficient to protect you against the typical malpractice claims filed in your state. Also, solve for your specialty’s typical claim exposures. If you provide high-risk treatments, selecting a jumbo limit will prevent a plaintiff from confiscating your assets through litigation.
You also need to make sure you have extended-reporting-period coverage to protect you once you leave the profession. This means if a prior patient sues you after your leave your practice or associate position, you will still be protected. Finally, make sure you’ve added the name of your legal entity (if modified recently) and your current specialties to your policy. If your coverage doesn’t synch with your practice’s legal structure and clinical specialties, you might end up not being covered at claim time.
Even with these measures, legal advisors strongly urge dentists to adopt a range of other strategies to protect their assets. An excellent starting point is the concept of separation. When there are no clear boundaries between assets, they will be exposed to greater risk than had separation existed. This principle involves three possible strategies:
- Separate dentists within a single practice from each other. Avoid having multiple dentists working under the same legal entity. Why? Because if one gets sued for malpractice, it can expose the other dentists’ assets even if they had nothing to do with the incident. To prevent this scenario, talk to an attorney about putting each practitioner within a separate Professional Corporation (PC) or Professional Association (PA).
- Separate any property your practice owns from the practice itself. For example, let’s assume you set up a limited liability corporation (LLC) and contribute your office building to the LLC. Then you decide to lease your practice’s space from your LLC. Under this scenario what happens if a patient slips and falls while exiting your facility and decides to take legal action against you? The person would be required to sue the LLC—the source of the liability—not you, the dental practice owner. Separating the practice’s assets from your personal assets means your financial exposure is limited to the value of the assets within the LLC . . . in this case, your office building. Separation works in the opposite direction, too. For example, if you get sued for malpractice and lose in court, the plaintiff can only come after your dental practice’s assets, not those inside the LLC. This means if you lose a major malpractice lawsuit and must shut down your practice, your building and equipment will be there for you to lease again should you decide to start over.
- Separate your practice finances from your personal finances. If you set up your business as a corporation, it’s crucial to treat it as an actual corporation. That requires conducting annual meetings of your corporate officers and filing minutes. It also involves separating corporate finances from family finances. If you use your practice’s checkbook to pay for family vacations or to buy furniture for your home, that gives a plaintiff’s attorney carte blanche to come after your personal assets during malpractice litigation. This defeats the purpose of having incorporated in the first place.
Other than playing the “separation card,” you can safeguard your assets by no longer owning them. That sounds bizarre, but it’s actually a common asset protection strategy for dentists with substantial holdings. How do you still retain your assets without owning them? By placing them in an irrevocable trust, also known as an asset protection trust. This involves transferring assets to the trust, while retaining your ability to receive trust distributions. With this arrangement, you continue to benefit from the appreciation of your assets, but shield them against creditor or plaintiff attacks. You can form an asset-protection trust in the U.S. or offshore. The methods have the same practical result: they place your assets out of the reach of creditors and plaintiffs because they’re no longer yours. Multiple U.S. states allow for this strategy, as do countries such as the Bahamas, Belize, the Cook Islands and Nevis. Regardless of the jurisdiction, it’s essential to retain a professional legal advisor to establish such a trust. The governing law can be arcane and the decision irrevocable, so dealing with this instrument is not for amateurs.
Another protection strategy involves asset titling. Dentists who are married can have their lawyers place assets such as real estate property in the name of both spouses as tenants-by-the-entireties. Now, if the dentist spouse gets sued, a creditor or litigant can’t target property owned by both spouses. Titling a principal residence in this fashion can effectively safeguard a big portion of a dentist’s personal assets, without having to incur ongoing trust expenses.
Finally, if you’re using your dental practice to help you achieve financial independence after you retire, you’ll want to max out your qualified retirement plan and IRA contributions. Not only does this make for a more comfortable and financially secure retirement, it protects plan assets against legal attacks.
In conclusion, if you excel at providing dental care and at managing a dental business—or you’re a successful dental associate—you will soon generate significant wealth. Once you reach that enviable position, it’s crucial to take steps to protect your assets against creditor or plaintiff assaults. This article laid out some possible strategies. Now it’s time to retain a professional advisor to create your own comprehensive—and bulletproof—asset-protection plan. Good luck!
Having dental malpractice insurance is an essential element of every dentist’s asset-protection program. Learn more about the Dentist Malpractice Insurance Program from 360 Coverage Pros.