More physicians are opting to "go naked" and self-insure.

Lawsuit. Divorce. Bankruptcy. The very words can make a client shudder. But these events don't have to decimate wealth.

Consider the physicians that Coral Gables, Fla., certified financial planner Marc Singer advises. Two-thirds practice bare-no malpractice coverage-and dozens have been sued. Yet the clients sleep soundly at night, their wealth intact. Under Sunshine State law, the full value of a principal residence is exempt from attachment by creditors, as are annuities, life-insurance cash values and retirement-plan assets. "All of the clients' assets are protected so that if they get sued, there's no ability for a plaintiff to (collect)," says Singer, a principal at Singer Xenos Wealth Management. "This is not a sophisticated asset-protection strategy," he admits. "It is very simple - and very safe."

For the advisor providing guidance about shielding assets from peril, the tools available range from basic to arcane, from tried-and-true to brand new. The objective is to make creditors jump through hoops to reach assets, and each technique erects its own unique hurdles. While even the most rudimentary strategies give you some leverage in negotiations, there are cases of failure as well as success at all levels of complexity.

Advisors often use a mix of techniques for each client, keeping in mind the full array of hazards to which wealth is exposed. "Many more people lose assets in a divorce or to family members in some kind of internecine dispute than to claims of creditors," says attorney Stanley Ragalevsky, a partner in the Boston office of Kirkpatrick & Lockhart LLP.

While you owe it to your clients to raise asset-protection issues with them, doing so can also be good for your estate-planning business. "A credit shelter trust is asset-protected because it's an irrevocable trust for the needs of the survivor," says Andy Gitkind, an attorney at The Schlender Law Firm, P.C., in Boulder, Colo. "A QTIP trust can hold the overflow of the first-to-die's estate in order to park that in an irrevocable trust" which is also asset protected, he says. "So, somebody who is on the fence about doing estate planning might choose to do it because there is an ancillary benefit of asset protection."

Before offering advice in this arena, advisors need to understand the concept of fraudulent conveyance. It's a transfer of assets made when insolvent or with the intent to hinder, defeat or delay present or probable future creditors, says expert estate-planning attorney Gideon Rothschild, with Moses & Singer LLP in Manhattan. Once a client has been sued, or has committed an act which could lead to a claim, it's generally too late to move money. The client has to act before there's the whiff of a problem. Courts typically remedy a fraudulent conveyance by voiding the transfer and allowing the creditor to recover the assets. An advisor who assisted with the transaction could be held responsible. "If the creditor can't reach the client's money," says Rothschild, "then they'll go after the attorney or the planner." Now look who needs asset protection.

The first place to seek cover is under sanctioned safety nets. Examine state law to see whether, as in Florida, the principal residence is sheltered via a homestead exemption, or if certain insurance-company products avert creditors' claims. Many states allow a married couple to own their home as tenants by the entirety. That can keep the creditors of one spouse from seizing the residence as long as the other spouse is living there, Ragalevsky says. "The creditor can get an attachment against the house and hope that the non-debtor spouse dies first, so that the house passes to the one with the judgment. But if the wrong spouse dies first, then the creditor gets nothing. So you have leverage for compromising."

A key concern is protection of individual retirement accounts, including SEP-IRAs, and company plans in which the only participants are the owners and spouses. These aren't shielded from creditors at the federal level, Ragalevsky says. State law dictates the protections, if any. Therefore, you need to know the local law before recommending rollovers or setting up plans for the self-employed.

Mitchell Freedman, an advisor in Sherman Oaks, Calif., recently served as an expert witness in a case where an advisor was sued after recommending a rollover to an unprotected IRA and the client's creditor seized hundreds of thousands of dollars. "I can tell you that the advisor's E&O carrier settled that claim," Freedman says. Because the law can be complex, you may benefit from working with a seasoned attorney.

Bear The Brunt

Next consider self-insurance. Work with the client to identify all risk exposures, then assess the probability of an event impinging upon attainment of the client's objectives, says Tim Kochis, CEO of the San Francisco planning firm Kochis Fitz and editor of the new book Wealth Management. "If the consequences are something that the client can tolerate, you may simply choose to bear the risk," Kochis says.

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