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Asset Protection for Physicians, Part 5

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Part 5: Protecting Accounts Receivable

By Robert L. Bolick

This article is the fifth in a six-part series on simple and reasonable steps you can take to protect your assets. This issue focuses on how to protect your accounts receivable. In our next issue you can learn how to protect cash values of life insurance.

With the flurry of lawsuits today, more and more physicians are looking for ways to protect their hard-earned assets. The following is a brief discussion of how to protect your accounts receivable.

Is It Really Possible to Protect My Accounts Receivable?

Yes. It is.

You may have had other physicians or their attorneys tell you that it is impossible to protect your accounts receivable (AR). It is true that as prospective earned income, your professional corporation (PC) or your professional LLC (PLLC) cannot assign its AR into your family limited partnership (FLP) or other entity where it will be protected. Protecting your accounts receivable requires a great deal more creativity and planning.

How Can I Protect my Accounts Receivable?

Essentially, you create a “friendly lien” (a bona fide lien from a “friendly” entity) which is secured by your AR. A “bogus lien” (one without substance) will not work.

In order to create the friendly lien, your PC or PLLC must be taxed as an S corporation or as a partnership. C corporations won’t work. You also must have funds approximately equal to the value of your AR held in an FLP or LLC that you own. For example, if your AR totals $300,000, you can protect 100% of your AR if you have $300,000 in your FLP or LLC.

Here’s how it works:

Step 1: Have your FLP (holding company) lend $300,000 to your PC (or PLLC). The loan is evidenced by a promissory note and security agreement encumbering all of the assets of your PC, including your AR. A UCC-1 form is filed with the Nevada Secretary of State to give all prospective future creditors constructive notice that all of the assets of your PC are encumbered by the loan.

Step 2: Over the course of a reasonable period of time, the $300,000 lent to your PC is periodically distributed to you as the sole shareholder, tax-free.

Step 3. You redeposit the funds back into your FLP, tax-free.

End result: All of your investment assets are back in your FLP where they are held safe from creditors. In addition, your FLP holds a note for $300,000 from your PC which is secured by all of the PC’s assets, including AR. If any future claimant attempts to attach AR, they are in a second position behind your FLP!

Final words to the wise: Don’t delay. The sooner you get your protection in place, the better. Life is too short to constantly worry that all of your years of schooling, training, scrimping, saving and hard work could all vanish overnight.

Robert L. Bolick is the senior partner in the law firm of Durham Jones & Pinegar in Las Vegas, where he has practiced for over 23 years. His primary areas of practice are asset protection and estate planning. Mr. Bolick has an “A/V” rating from Martindale-Hubbell, the highest professional rating for an attorney. He is listed in “Nevada Super Attorneys” (top 5% in his field). He was named Outstanding Estate Planning Attorney of the Year by the Nevada Business Journal. He has authored numerous articles and publications on asset protection and estate planning, and is a frequent lecturer on these topics. Mr. Bolick is a member of the State Bars of Nevada, California, Arizona, Utah and Hawaii.