In other words, how to Cover Your Ass(ets)
It’s time to CYA!
If you’re a doctor, you already know what that means. Unfortunately. But if you’re not a doctor, and you’re reading this for fun, CYA stands for Cover Your Ass. We usually use it as part of the phrase “CYA medicine”. As in, “Oh, I know ordering an EKG, chest x-ray, 200 labs and a stress test is probably overkill for a 15-year old’s skin tag removal pre-op workup, but hey, it’s CYA medicine.” In today’s world a lot of our decisions are made to protect our ass, so that if god forbid anything goes wrong with our plan, we can “prove” to the plaintiff attorney that we did every imaginable thing under the sun to prevent it from happening. CYA medicine is not good for anybody. It’s bad for the patient, because it subjects them to a lot of extra testing and rigamarole, and the costs those incur, it’s bad for the physician, because it forces us to make decisions we don’t agree with, and it’s bad for the healthcare system overall, because it’s wasteful and drives up costs.
But I digress.
Today is about how to cover your ass(ets): ie: wHealth protection.
As a doctor you’ve got a lot of threats to your wealth. Mainly, these are death and taxes, but they also include lawsuits (not just malpractice), disability, and identity theft. These things can happen to anyone, but doctors are particularly vulnerable because we are perceived by the general public to be “Rich”, and we’re too busy practicing medicine to be protecting our stuff from folks who want to take it, plus we are high earners, so we get taxed at high rates. (Note: being a high earner does not mean being rich. Hence, Money Med School.)
So, what are the ways I can lose my stuff?
- Death: as in inheritance taxes and probate, or loss of your income due to you being, you know, dead and unable to work. (Although many hospital corporations wouldn’t consider being dead a reason not to show up for work, amirite?)
- Taxes: your biggest expense, but it doesn’t have to be
- Lawsuits: When I say lawsuit I don’t mean a malpractice suit. Those rarely go after your personal assets.
- Disability: if you get hurt or sick and can’t work, what happens to your income?
- Identity Theft & Fraud
Death
Death causes two problems:
1) You can’t work anymore, because you’re dead*
2) Your assets will go into probate unless they are protected.
What this all adds up to is that your family who depended on you now has no income and also can’t get their inheritance until the state you live in processes it through their ultra-efficient government bureaucratic process for 2 years and makes sure the taxes are taken out. That process is called probate.
So what do you do about these two problems? First off, avoid dying. But if that can’t be avoided, and I understand that for the majority of us, it can’t, then you need to have life insurance that will replace your income for your dependents, and you need to set up a trust to prevent your assets from going into probate.
But I have a will, why do I need a trust? And also, I’m not a billionaire, so again, why do I need a trust? Well, a will is just a document that says what stuff goes to which people. It doesn’t say how or when.
That’s where the trust comes in. A trust will specifically outline how the stuff gets to the people, so that the state doesn’t do it instead. Trusts are not just for billionaires. They’re not just for millionaires. They’re for everyone who has assets they are passing on to heirs when they die.
Trusts also protect your estate from excess taxation, and most importantly, trusts prevent your assets from becoming public knowledge. That’s right, when your estate goes through probate, every asset you own becomes public information. And, if Joe Schmo falls on your property, guess what their attorney will find when they do the asset search? You don’t want your asset info to be public.
To set up legal protective entities and trusts, you’ll need to hire an attorney. For life insurance That’s TERM life insurance, you’ll need to purchase it through an independent insurance agent.
(*depending on who you work for)
Now, on to Taxes: (boy, this is a light one isn’t it?)
When you’re first starting out, you’ll probably be a W2 employee with taxable income, and not much in the way of assets. At that stage, it’s fine to just throw your numbers into Turbo Tax and be done with it.
But as you increase your wHealth, your assets grow, you obtain investment properties, you have multiple income streams, and / or an LLC or business of your own, your taxes will become more complex. Owning a business and real estate both provide you with excellent tax benefits, because the government wants people to own businesses and buy real estate.
Well, if I have my CPA, what else is there? Isn’t this obvious? Welp, no because a CPA’s job is to keep you in compliance with the IRS rules. They are not there to save you money or give you financial advice. They are there to make sure your I’s are dotted and your T’s are crossed.
What you need is a tax strategist. Typically this is an attorney who specializes in tax law (the tax code). They can look at your situation and say, “huh, well you have this business that gets you these deductions, according to this law, and then over here your rental property gets you this advantage, so blah blah blah”, they apply a strategy, based on the tax law, to reduce your tax burden as low as possible. This is legal. It has a name: tax avoidance. What a terrible name. So many negative associations! (Like with the person who was recently evicted from the White House.) Lots of huge companies apply these laws and end up paying less tax than you do! (‘Cause it’s their workers’ incomes that are taxed instead.) The general public looks unfavorably on all this, but it’s the law, and it can benefit you, so you might as well use it.
Lawsuits
When it comes to lawsuits, you have to be able to make your assets (anything you own that is valuable) invisible to the world (ie plaintiff attorneys) so that you won’t lose them in a lawsuit. When I say lawsuit I don’t mean a malpractice suit. Those rarely go after your personal assets. I mean, Joe Schmo slipped and fell on your property and finds out you’re a “Rich Doctor” so they sue you. Or, your teenager borrowed your car and caused an accident that injured someone. Legally you are responsible for this because it’s your car, and, again, once they find out you’re a “Rich Doctor”, they’re gonna sue the shit out of you. That is, unless you’re not really a Rich Doctor. “But, Wagner, isn’t the entire purpose of all of this to make us wHealthy?” Yes, Padawan, it is, BUT, I’m not saying you don’t have wHealth, I’m saying you have to hide your wHealth from people who want to take it.
The first thing that happens when someone decides to sue you is that the plaintiff attorney runs an asset search. This pulls up any property, bank accounts, and other large value assets that you own in your name. If they see that you’ve got some shit to come after, then they’re gonna come after it. This includes insurance — if you have an umbrella policy or a huge auto policy or both, in other words, if you are over insured, they are looking at a goldmine. It’s even easier to sue the big ass policy than to get your stuff!
The plaintiff attorney has to front the cost of the lawsuit until they get a judgment in their favor. That means they are on the hook for about 2 years of expenses while the case is processing. They don’t get paid by the plaintiff. If they did, there’d be a lot less lawsuits that’s for sure. They get paid by taking a (large) percentage of the settlement. So the plaintiff attorney wants to see that you’ve got assets in the bank and phat insurance to take. They don’t work for free.
The solution to this problem is to hide your assets. You do this by taking them out of your name, and putting them into a legal protective entity, like an LLC, so that when the asset search is done in your name, it shows jack squat.
Again, don’t be over insured. Too big of a policy makes you a target. You may think you’re buying yourself extra protection, but you’re buying a target for your back, plus wasting money to do so.
Disability
We covered this here. If you get sick or get hurt and you can’t work, then this insurance will cover part of your lost income. It’s insurance for your income if you are no longer able to work. For this, you’ll need to purchase through an independent insurance agent. [For the love of God not through a financial adviser!]
And Finally, Identity Theft
What the heck is this? You hear about it all the time. It’s when a criminal steals your personal information, like your Social Security Number, and uses it to commit fraud, like opening fake bank accounts or credit cards which are then used to make fraudulent purchases. This can damage your credit history and it costs you lots of time and money to fix your credit history and get off the hook for the money the thieves stole in your name.
Identity theft includes theft of any of your personal information: name, address, birthdate, phone number, email address, SSN, medical ID number, drivers license number, bank account numbers, other account numbers, license plate number, employee ID number, etc.
Here are some examples of identity theft (how the shit can hit the fan):
- fake credit cards in your name
- fake bank accounts in your name
- they steal your health insurance ID number and make false claims
- they file a fake tax return in your name and steal your fake tax return
Federal law limits your liability in some aspects, but not entirely, and if thieves get ahold of your cash, it’s gone.
There are two types of monitoring for identity theft: credit monitoring and identity monitoring. Credit monitoring alerts you to an account being opened in your name/SSN. Identity monitoring scans for any abnormal use of your personal information listed above. It also alerts you if your info was sold on the dark web. Monitoring does not protect you from fraud, it only helps you detect it early to limit the damage. That’s why speed is of the essence: the faster you are alerted to fraud, the faster you can shut it down and limit the damage done.
There is only one way to truly protect your credit from fraud, and that is to place a credit freeze. No one can open an account in your name with your SSN if a credit freeze is in place. You’ll have to unfreeze this if you want to open a credit card or get a loan. Here’s how to freeze your credit, from Nerd Wallet.
Make sure to freeze your kids’ credit too. That’s because thieves know that kids don’t use their credit, so if it was stolen, no one would know for years until the poor kid decided to get their first credit card and discovered they had a FICO of -200 due to years of fraud in their name. Devastating. Here’s a link from nerd Wallet on how to freeze your kids’ credit.
You can monitor your identity and credit by signing up for an identity and credit protection service. They are called “protection” services, but again, they can’t protect your information from theft, they can only alert you to it as soon as possible, to help limit the damage done by thieves. Many services offer “insurance” as well, but that’s mainly a marketing tool and a misnomer— the insurance does not reimburse anyone for theft in your name, it just helps you with the credit repair process. So that’s fine, but don’t let it make or break the selection of the product. Some say the threat is exaggerated, but if it happens to you, it’s a huge loss of time, peace of mind, not just money. It can take ages to sort out damage to your credit history.
So now, for the quick part you can do in 3 min:
Sign up for an identity & credit monitoring service now. Here’s a link to the top identity theft protection services of 2021.
3 other things you can do to protect your identity & access to your accounts:
1) Always check your credit reports once a year for free with annualcreditreport.com
Due to the pandemic, all three credit reporting bureaus are currently offering free weekly credit reports as well.
2) Sign up for junk mail opt out—the fewer blank credit card applications with your name and address on there, the better.
3) Don’t share your home address, phone number, email address, workplace information or any other personal information on social media (check your privacy settings to make sure none of this is publicly viewable). Be selective in what you share, as thieves can piece together all sorts of your life to steal your identity with the help of social media. (Ex: those “extra security questions” that you fill in to protect your accounts? How easy is it to find your best friend’s name, your dog’s name, or your hometown on social media?) (That’s how they get you!) (So, lie on these, and remember to store your fake answers in your password protection app.)
And if it’s too late, and you’ve been hacked:
- Report it to identitytheft.gov
- Identity theft resource center
- All Things Secured guide to being hacked (This is an excellent site, and as a result, it’s a guaranteed rabbit hole.)
Here’s a link to the CYA video on the Money Med School YouTube Channel:
