With medical malpractice claims on the rise and only limited amounts of liability coverage being offered to doctors, it is important to find other strategies to supplement the protection of assets. The average OBGYN on average gets sued 2.6 times in their career with the median claim well above 1 million dollars. Typically physicians with high exposure can pay $200,000 for 1 million dollars in coverage. This is expensive and not much leverage. Many physicians are having trouble securing any coverage and in fact in many instances going bare.
One of the biggest assets of any practice is their accounts receivable. If a judgement can’t be satisfied by the insurance in place, then the creditor will come after the receivables for sure. A strategy that has been around for 16 or 17 years that can be very effective and create supplemental retirement income is the pledging of the AR. The practice would pledge the receivables to the bank and in turn the bank would place an UCC-1 lien on the AR. The bank then becomes the first creditor of the receivables and puts them out of reach of creditors. The proceeds of the loan are placed inside a vehicle that will help the practice get a positive return on the otherwise dormant asset (the AR). The proceeds will then grow in a tax favorable vehicle such as Life insurance or an annuity. The bank will also put a lien on the life insurance or the annuity and therefore become the first creditor for that as well.
The practice would we responsible to pay simple interest on the interest only loan. This interest could be tax deductible, but it is important to consult with your tax consultant. The goal would be to get a positive return on the loan proceeds above the cost of the simple interest. It is important that you have a good agent and a good program. Not all programs are created equally.