I was sitting at my desk when I heard a text message arrive on my iPhone. Thinking it was my daughter, I picked it up and saw a puzzling text. It was from the veterinary practice owner my two Golden Retrievers Bentley and Bama go to, who said he was in the middle of attending a West Coast specialty veterinarian conference. This particular class was on asset protection.
His question: Should I put each of my practice vehicles and ambulance in separate LLCs?
The picture that accompanied the text said it all. There was a complex flowchart showing Living Trusts, Corporations, Family Limited Partnerships (FLPs), and a multitude of Limited Liability Companies (LLCs). Not again.
At the Yankee Dental Conference in Boston, at medical and other veterinary conventions, asset protection “experts” arrange to form a grouping of entities whose sheer structure alone will defeat any creditor who has the audacity to obtain what may be rightfully theirs.
I texted him back to say, “Please tell me that you are only listening to 25% as they are trying to sell big living trust asset protection package…” He said that the speaker had even suggested that each practice vehicle should be in its own LLC.
I know of a few well-respected attorneys who designed asset protection structures, placing potentially litigious or “hot” assets in separate entities as a potential liability shield. But after a period of time, the complexity, record keeping, legal/accounting and filing fees to maintain the structure tended to frustrate the owners. Eventually, the owners wished that they had just gone the “simple route”.
But that’s not all. Asset protection packages are usually accompanied by a life insurance sales pitch, which may or may not be appropriate for the practice owner. I am a partial convert to whole life and other life insurance plans that are right for clients. But when sold in a vacuum, without a consensus of opinion from the advisors on your team, the potential for unintended financial and non-financial results may have been set in motion.
What should people know?
- Asset protection should not be designed so simply that it can be easily defeated, nor be so complex that it cannot be understood and followed.
- Your practice should have more than adequate general liability, malpractice and umbrella insurance coverage. I gave a speech to a group of VetPartners consultants a few years back, and one of the veterinarians went back home and added a $2 million umbrella policy to his own risk management package, saying it was the best advice he received in years.
- Revocable trusts generally provide no level of asset protection, as these trusts are essentially “principal and agency contracts”, which ask a trustee (the agent) to act on behalf of the grantor (the principal). But attorneys who have always used these trusts as the sole owner for business real estate holdings may not have the technical knowledge to develop your plan. Beware.
- Trust your intuition. If it sounds way too complex, it may be.
What should your first step be, if you think you need a first step? Assemble your CPA, attorney and insurance agent in the same room to hash out a proposed asset protection plan so everybody receives the same reasons for entity structure design, recordkeeping and filing requirements. You will be glad that you did.
Mark J. McGaunn, CPA/PFS, CFP® leads the veterinary/dental/financial planning divisions at McGaunn & Schwadron, CPA’s, LLC and can be reached via email@example.com or (781) 489-6651.