Provided by: Jennifer Kirschenbaum, Esq.
January 5th, 2021
Question:
Hi Jennifer,
Thank you for the regular emails with all of the valuable information.Your newsletter from three years ago states that personal assets are protected by the malpractice insurance carrier in case of a lawsuit. Does my carrier, MLMIC, protect my personal assets if a lawsuit against me results in a payout? Currently I have limits of 2,000,000/5,000,000.
I was told by an accountant that I should form an LLC because it will protect my personal assets, if I am sued. Is this really necessary, especially if I have malpractice insurance?
Are there other advantages to setting up an LLC?
If you recommend that I form an LLC, can you tell me what your fee is to set this up? Currently I am a sole proprietor.
Happy and Healthy New Year to you and your family.
Dr. R
Answer:
Wishing you a very happy and a healthy New Year to you and your family! Thank you for your question. Starting the year with an asset protection overview seems fitting as a first commentary post-2020. Before I launch into a few reasons why you may not need to form an entity, let me start with a few reasons why operating as a corporate entity benefits you, even for a long time sole proprietor...Yes, there are certain liabilities you would no longer be the target for recovery if you formed an entity. The most basic are slip and falls - general liability exposures for the location, for which you likely carry adequate insurance. Operating as an entity will also move your vendor relations - ordering supplies, copier contract, phone bill, etc., out of your name and into the entity. Also worth mentioning, when expanding and adding associates or staff, it is advisable to have a layer between you, personally, and any employment obligation. Finally, an entity construct on sale (absent any tax considerations) may be preferable for a variety of reasons.
Certain liability you cannot plan away - such as malpractice. If a patient sues for an injury caused by your care, you, personally, will be on the hook. This is why you have insurance. Real asset protection requires moving assets out of your reach. Not just into an entity you own, but out of your access and control, entirely. Transferring your home to your wife or kids, putting your investment account into a trust, etc. Most of us do not have the trust levels or financial security to move substantial amounts outside of our control - for good reason. Entity creation is somewhere in the middle - there are procedures to "pierce the corporate veil" - allow a recovery from the entity you create, but that is hard to do.
Moving to an entity structure from sole proprietor can be administratively burdensome because we look to move over all assets and contracts. Once you make the shift you will likely be better insulated. We can talk further about the intricacies of transfer and what specifically should be moved. If you elect to stay as a sole proprietor, your insurance should probably be reviewed to ensure adequate protection. Happy to help.
