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Asset Protection Planning: Physician – Don’t Heal Thyself!

Published by: Health Manager News
Author: Howard Rosen, Esq.
Date of Publication: 1995

As busy as physicians are, some attempt to save the time it might take to seek qualified advice concerning asset protection planning, and utilize the following “do-it-yourself” “methods”.


A physician recently said, “My property is protected; my wife and I own everything as joint tenants with right of survivorship”. WRONG!

Joint tenancies with right of survivorship are often denominated as “JTWROS” on stock certificates and bank accounts. The only “protection” gained by this form of ownership (and then only if it was established before a creditor problem arose) is that a creditor of one co-owner can only reach that person’s interest in the property (ie., , if there are two co-owners), thereby effecting limited “protection” for the other part of the property.

What are the other negative aspects of this form of “protection”? First, besides the fact that a portion of the property remains exposed to the creditors of the indebted party, the other portion of the property is exposed to a new group of creditors – the other co-owner’s creditors! Second, if the non-debtor co-owner dies, the protection is terminated, and the entire property suddenly belongs to the indebted co-owner, and is available to satisfy his or her creditors. In addition, the creation of a joint tenancy may result in unnecessary estate (and possibly gift) tax liabilities. Conclusion: JTWROS should not be used as an asset protection technique.


In those states which follow the English common law, a creditor of one spouse could not reach property held in this form where only one spouse was indebted.

What are the traps and pitfalls of this form of ownership? First, the protection is not available to the extent both spouse are indebted (even if to different creditors). Second, the limited protection which is available only lasts as long as both spouses are alive and married to each other. If one spouse has a judgment against him or her, and the other (non-indebted) spouse dies, the protection is abruptly ended, and the entire property becomes available to satisfy the creditor’s claim.

Finally, holding a substantial amount of property as TBE or JTWROS is very poor estate planning, because only one spouse’s unified credit will be utilized (the unified credit is sometimes referred to as a $600,000 estate tax deduction). In plain English, wasting a unified credit could mean an unnecessary increase in the couple’s federal estate tax liability of upwards of $200,000!


TBE should be used as an asset protection technique only on a very temporary basis, if at all, and with the recognition of the ephemeral and limited nature of the protection afforded.


A variation of the JTWROS & TBE schemes often used in do-it-yourself asset protection planning is for the high risk spouse to transfer assets outright to the low risk spouse. In the event the high risk spouse is sued, he or she will have no assets which can be reached by the creditor (assuming the transfers were made before a creditor problem arose). Such a plan will provide asset protection as stated in the previous sentence, but not without unwarranted costs to the couple. First, if the low risk spouse dies, the protection can continue, but only at a substantial and premature estate tax cost (possibly foregoing the estate tax marital deduction), and only if proper estate planning documents are in placeWithout proper estate planning, the property may come back to the high risk spouse, and be available to satisfy creditor claims. If the high risk spouse dies first, an increased estate tax cost (possibly upwards of $200,000) will result from the failure to utilize both unified credits available to the couple.

Another problem we have seen with this “technique” is divorce. It can be very difficult to convince a court of equity that it should return assets to the high risk spouse when the transfers to the low risk spouse were undertaken to avoid paying creditors. Conclusion: Spousal transfers for asset protection purposes should be avoided.


You’ve just been sued, you panic, you don’t know where to turn; if the creditor succeeds, you’ll be wiped out… What do you do? In a variation on the spousal transfer “technique” discussed above, some people will transfer assets to spouses, relatives, and friends, with a secret understanding that the property will be returned when the creditor problem goes away. The problems involved in using such a plan are numerous. First, if the transfer is disclosed, it will very likely be a fraudulent transfer (the court would “undo” the transfer, and return the property to you to satisfy the creditor’s claim).

Of course, in such a scheme, the idea is to not disclose the transfer. Failure to disclose the existence and transfer of the property when asked under oath is a crime, punishable by imprisonment. Don’t fool yourself – such transfers are easily discoverable, and will lead to nothing but trouble. A second set of problems with such schemes are the potential tax consequences. The transfer of the property is a gift, reportable (and possibly taxable) for federal gift tax purposes. Intentional failure to file a gift tax return and report the transfer is a crime. Finally, the property has now become exposed to the transferee’s creditors, an additional unnecessary exposure! Conclusion: Avoid these schemes at all costs!


Under Florida law, funds held in the form of an annuity or a life insurance contract are exempt from the claims of creditors if the investment took place before a problem arose. The real negative aspects of this type of protection are the limited control of and the limited access to your funds. In addition, hidden commissions and early withdrawal penalties often exceed the legal fees which might be charged by a competent professional to effect a more flexible protection plan. Such investment might be one part of an overall plan, but they should definitely not constitute the entire plan.


The factor which overrides all of the above techniques is the fraudulent transfer consideration. Even to the extent any of the above plans would otherwise be effective in protecting assets, such protection will fail if the transfer is determined to be a fraudulent transfer.


Effective, non-intrusive, flexible asset protection planning techniques are available through qualified professionals, and such techniques are most effective, and you have the most options, when the planning is undertaken before a hint of a creditor problem comes into the picture.

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Globally recognized professional asset protection planners in U.S. Donlevy-Rosen & Rosen, P.A. is a law practice with a focus on offshore asset protection planning. Let us explain the significant difference our experience can make when you want to thoroughly protect your assets. Call 305-447-0061 or simply send us a message using our contact page