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Asset Protection Strategies by Dr. Donald E. Machen

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Effective Risk Management in a Volatile Economic Environment
Recently, several readers have requested information on how they can improve the protection of their valuable assets, both personal and professional. These health-care practitioners, and others like them, are concerned about the many social and economic problems that are occurring with greater frequency in our society.

Over the past 25 years, much has changed in the world of professional practitioners. Professional practice, investing and retirement have become difficult and contentious. During this time, important advice has been provided regarding both legal and ethical methods for protecting the practitioner’s hard-earned assets from needless loss.

Asset protection strategies are elegantly sophisticated and the focus incorporates structuring the ownership of the practitioner’s assets so as to protect him or her from future risks. On many occasions, the question has arisen about protection from current and immediate risks. Depending on the nature of these problems, available strategies offer increased protection for assets, over and above the manner in which their current ownership exists. However, the important aspect for health-care practitioners is that effective advanced planning is the key to effective asset protection risk management.

In this introduction, our goal is to provide an overview of the considerations and the processes, which are generally followed in collecting the necessary data and developing an appropriate strategy for asset protection. There are many available vehicles and entities commonly utilized, some of which will be described in this article. The important message is that a carefully developed, customized plan specific to the individual practitioner’s needs is the paramount concern. Be careful about trying to create a piecemeal, off-the-shelf, do-ityourself solution. Without a well thought out and thoroughly vetted plan, problems are likely to occur.

As an overview, some of the solutions include limited liability companies, corporations, limited partnerships, revocable and irrevocable trusts, offshore trusts and many other mechanisms for ownership and location. We will discuss the appropriate method for collecting data and evaluating the specific practitioner’s needs.

Generally, the process should follow a logical pattern, not unlike that which health-care practitioners use in evaluating their patients. First, all relevant information is obtained regarding the individual or individuals who are considering incorporating asset protection into their personal, professional, investment and estate planning. Are these spouses, business partners, families or others involved in risky activities? Also, it is important to fully appreciate whether the risks are potential or current. Complete candor is required between the individuals and the consulting professional(s).

Next, the nature of their current status is evaluated. It is important to carefully evaluate the manner in which the asset or assets are currently held. Specifically, are the assets held individually, jointly, in a corporation, limited liability company or limited partnership? Also of significance is what type of debt, if any exists and whether indebtedness with or without personal guarantees exists. Additionally, it is critical to fully evaluate any current or existing threats and all potential risks that might present based on both the nature of the activities of the individual or individuals and also the risks that the assets might pose themselves.

As an example, consider the activities of professional practitioners and their specific locations. In Florida, New York, Michigan, Texas and California, health-care practitioners have been experiencing “excess verdicts” in professional negligence cases. Excess verdicts are jury cases in which the verdict has been in excess of the professional negligence insurance limits. The amount over and above the insurance coverage then becomes the responsibility of the individual practitioner. It is easy to see how important it becomes to properly structure, in advance, the ownership of one’s assets in such instances.

The previous example describes the need for an asset protection strategy based on the specific activities of the professional. Next, consider the asset itself. Some assets, such as buildings, whether residential or commercial investment property and businesses, other than the professional practice, add another layer of potential risk that must be considered and planned for in the event of a catastrophic event. Some recent experiences include boiler explosions with severe injuries or death to tenants, rape of a tenant, food poisoning as with several franchise operations, employee malfeasance or tortuous or criminal activity. The list is endless.

Other concerns include the liability for your children’s activities. A Pennsylvania occurrence sent a chilling message to health-care practitioners when the practitioner’s seemingly emancipated son, a young professional himself, went on a rampage killing several people. The plaintiffs’ families and creative lawyers built a strategy around the son’s early mental problems and the ineffective treatment provided for this individual in a successful effort to impute liability to the parents. In this situation, merely having title of the assets jointly held with a spouse would have been ineffective. This scenario resulted in the massive liability of the parents who had contemplated retirement before the incident but were significantly impacted financially and now must continue to work to rebuild their depleted finances. Such unexpected instances are precisely why a careful personal, professional, investment and retirement asset protection plan are critical for every practitioner and should be considered long before any possible need arises to have the highest probability of success.

It is also important to understand the current or potential creditors. Evaluating potential creditors is an activity that helps to determine the level of asset protection that might be needed. Some creditors have a track record of aggressive asset recovery while others are less inclined to incur the sometimes-huge costs associated with this process. The level of indebtedness, the nature of the creditor and the level of asset protection needed are part of the overall equation in developing the appropriate and specific asset protection plan.

In concluding this introduction into asset protection, some final thoughts are offered which might be helpful to those practitioners who are considering beginning the process of asset protection and the benefits that can be derived. First, liquid assets are generally portable and may be moved to various jurisdictions that might be more favorable in the event that the protection program is challenged. Illiquid assets such as real estate are jurisdiction specific. However, there are methods to provide protection for these assets as well. Along those lines, jurisdiction is important and there are several jurisdictions that are more favorable than others. Specifically, one or more jurisdictions will not recognize protection for single-member limited liability companies. However, at least one jurisdiction, Nevada, does. Also, the potential for bankruptcy is an important consideration, especially after several dental practitioners have encountered this scenario as a result of the recent economic downturn in more than one southwestern jurisdiction. Special recovery provisions of the Bankruptcy Code require careful planning.

Lastly, nothing is a perfect protection. Even careful asset protection programs have vulnerabilities. The goal then is to offer an optimal plan for a legal and ethical protocol that provides a high level of asset protection but permits the individual to understand that in a worst case scenario, if all else fails, by incorporating such a plan, a platform for negotiation then exists to lessen the burden of the indebtedness and mitigate any loss.
Author Bio
Donald E. Machen, DMD, MSD, MD, JD, MBA, CFA, is the recognized authority on risk management in orthodontic practice having initiated the discipline in the mid-1980s. He developed, moderated and presented at the AAO’s first national risk management telecast to more than 2,600 orthodontists. He has represented orthodontists, dental specialists, general dentists and physicians in malpractice lawsuits and other legal matters as a trial lawyer and currently is a trial court judge in Pennsylvania, having served for more than 14 years. He is a board certified orthodontist maintaining a part-time practice and is on the orthodontic faculty of Case Western University Dental School and The University of Pittsburgh School of Dental Medicine. He is also an adjunct professor of Law at Duquesne University School of Law where he teaches malpractice litigation. Dr. Machen was the editor of the Legal Aspects of Orthodontic Practice column in the AJO, writing a monthly column and has authored columns in JCO and Ortho Tribune. He lectures extensively to orthodontic groups, both large and small, focusing on developing highly effective systems for eliminating lawsuits, optimizing patient care and increasing practice referrals. Dr. Machen is the author of Managing Risk in Orthodontic Practice and is managing director of Risk Management Consultants, LLC. He can be contacted at: drmachen@orthormc.com.
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September 2025
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