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Asset Protection for Patients

by rjmintz on June 27, 2017

In light of the proposed appeal of The Affordable Care Act, we are re-issuing this Article about the importance of protecting your assets from unexpected medical bills and claims:

Asset Protection for Patients

By Robert J. Mintz

In a new and ironic twist, a growing number of individuals are now legally protecting themselves from their doctors. The idea may be surprising, but with rapidly disappearing health coverage, medical expenses are now a realistic and high probability threat to the lifetime savings of millions of Americans.  Just as physicians have been diligent about planning to minimize their malpractice liability risks, now patients are anticipating and protecting themselves against the serious financial consequences of unforeseen medical expenses.

No one doubts that there’s a monumental crisis in health care coverage. Forty-five million Americans have no medical insurance and even those with group or private policies are sometimes stuck with unexpected and un-payable bills. Higher deductibles and co-pays can easily balloon out-of-pocket costs beyond anything anticipated. Even those who think they have solid insurance, in a good plan, may find out, when it’s too late, that their coverage means a lot less than they thought.  Every day we hear stories from clients and the news about insurers refusing payment during or after treatment.  In a recent CBS News report about one of the nation’s largest insurers, Richard Blumenthal, Connecticut Attorney General, declared that “The company [Assurant Health] offers the illusion of coverage while challenging any large claim.” In the report, a former claims adjuster revealed that it was company policy to scrutinize any significant claim, often manufacturing excuses to avoid payment. Unfortunately, despite a few notable fines and lawsuit settlements, these hardball tactics appear to be the normal course of business for at least some insurers.

When Patients Can’t Pay

What happens when a large medical bill can’t be paid?  Usually the outcome is a lawsuit filed by the hospital or collection agency with a judgment and a lien filed against the patient’s home and accounts. In most states, a percentage of the debtor’s employment earnings can be garnished. Generally, before this point is reached, the patient files a personal bankruptcy to stop the wage garnishment and wipe out the medical bills and other accumulated debts. But that requires that he give up all of his assets including savings accounts, real estate and equity in his home.  These assets, except those that are specifically exempt, are turned over to the Court and divided among the creditors.

According to a 2005 study by Harvard University, about half of the 1.5 million annual bankruptcy filings are caused by illness and medical bills. And surprisingly, three fourths of those had health insurance at the start of the illness which triggered the filing. “Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy”, said Dr. David Himmelstein, the study’s lead author and an associate professor of medicine. “Most of the medically bankrupt were average Americans who happened to get sick.”

How Patients Protect Themselves

The high level of financial risk posed by an unpredictable medical event is now leading patients to take steps to protect their savings from this threat. For instance, I met with Mr. and Mrs. X last week, a couple in their early 50s. They have about $300,000 of equity in their home and $200,000 in savings. Mr. X is self-employed and Mrs. X works for a small company. Both are covered under her group plan, but, with rising costs, the company might cut back or terminate the plan sometime soon. Individual policies may be available at that point but the cost and extent of the coverage is unknown.  The goal of their planning is to protect their savings from large, unexpected bills at any point in the future.  Asset protection, using techniques such as a Family Savings Trust can effectively shield savings from these events, but the planning must be completed before the fact. If bills have been incurred, or expenses loom, planning is too late at that point.

Conclusion

Of course the real solution to the problem is for everyone to have affordable insurance which covers any health care costs. However, it’s almost impossible to imagine a scenario in which competing financial and political interests are able to agree and implement a worthwhile plan, at least for the foreseeable future. For now, many believe that their only reasonable choice is asset protection to minimize these risks.  Early planning and advice from a knowledgeable local attorney are essential to the success of these measures.

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The Legal Extortion Racket

by rjmintz on February 28, 2017

What are the rest of the lawyers going to do? What about the other 95 percent of trial lawyers who are not so great and not such good lawyers? How is a lawyer who is not at the top going to feed his family? His chances of getting your case against Exxon-Mobil are about the same as hitting the lottery. Many of my close friends are personal injury attorneys. They think and dream about the one good case that will earn them enough to be on easy street. But the one good case never seems to come. Instead, most lawyers make a living by looking for somebody to sue and filing bad cases with bad facts. As long as a lawyer can find a potential defendant with even modest assets, he will attempt to make his case. If he doesn’t have a good case, he has to go with what he has. That’s how he makes a living.

The lawyer is willing to gamble that by filing a case he will be able to squeeze a settlement or play “lawsuit roulette” with the jury. Just like the population in general, from whom they are drawn, jurors can be confused and misled by emotional and irrational arguments. Experiments in human behavior show that most of the time individuals are unable to distinguish the truth from a lie. When asked to distinguish truthful from untruthful testimony based upon the demeanor and expression of the witness, in a majority of cases, the subjects in the experiment incorrectly identified the lie as the truth and the truth as the lie. The conclusion of the study has frightening implications. Jurors are more likely to believe a witness who is lying than one who is telling the truth.

This phenomenon has been understood and exploited for years by political leaders and others with a message to sell. A lie that is repeated forcefully and with conviction becomes accepted as truth. Think of the Nazi propagandists and the McCarthy type demagogues who convinced millions of people of the “truth” of their cause. More recently, public hysteria over so called “death panels” illustrates the relative ease with which fear and irrationality can be heightened and manipulated by skilled politicians to influence the outcome of the public agenda. Advertising messages repeated often enough are believed, regardless of the merits of the product and despite overwhelming evidence to the contrary. That’s the foundation of the advertising industry and is the basis on which political leaders and corporate interests present their programs.

In the same manner, a lawyer attempts to “sell” his case to the jury. Facts are distorted. Lies, half-truths, and perjured testimony are zealously advanced on behalf of the “injured” plaintiff. If things go right and the lawyer gets lucky or knows what he is doing, the jury will reward these efforts with a judgment for several hundred thousand or maybe a few million dollars. Every day in court a sympathetic plaintiff prevails against a wealthy or comparatively wealthy defendant— even in those cases which appear to be absurd, illogical, and utterly without merit.

Any lawyer who is still in business after a few years of practice has learned that the unpredictability of human behavior can be used to his advantage. The uncertainty of the outcome creates a potential risk of loss for even the most “innocent” defendant. Lawyers know that for most people the risk of financial loss also creates a highly uncomfortable level of emotional strain. If you have ever been sued—no matter what the cause—you understand that the unpredictability of the result and the possibility of economic loss can generate a severe degree of stress and emotional charge.

Download pdf of the entire book

Coming next:  The Appeal of Settling

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The Ability to Pay

by rjmintz on February 10, 2017

The Ability to Pay

The reality of our legal system is that people are named as defendants in lawsuits not because of their degree of fault but because of their ability to pay. When an attorney is approached by a potential client who is claiming injury or economic loss, the attorney will consider whether a theory of liability can be developed against a party who can pay a judgment. This is called the search for the “Deep Pocket Defendant.”

The Deep Pocket Defendant will have substantial insurance coverage or significant personal assets. The measure of an attorney’s skill is his ability to create a theory of liability which will connect a Deep Pocket Defendant to the facts of a particular case.

Here is an example of what might happen in a particular case. Mr. Wilson is driving in his car. Mr. Fineman runs through a stop sign at an intersection, smashing into Wilson’s car and causing Wilson severe injury.

From his hospital bed, Wilson Googles “local attorneys” and calls the first attorney he sees, Alan Abel. He is what is known as a “contingent fee” lawyer. He works for a percentage of the ultimate recovery and determines whether to invest his time and money in a case based upon what his expected return will be. Since the time and expense of preparing for litigation can be considerable, an attorney cannot afford to take a case that is not likely to pay off. Remember—no recovery, no fee. Usually the attorney advances all costs and expenses, and in exchange, he recovers these costs plus 30 percent to 40 percent of any amounts that he can get from the defendant.

Before Abel decides to take Wilson’s case, he will want to do some serious research to determine the merits of the case. Not the legal merits—the financial ones. He will want to know whether Fineman has substantial assets in order to make the case worthwhile.

Abel runs a financial search and determines that Fineman has no insurance and no significant assets such as a home or a retirement nest egg. What happens? Is that the end of the case? As for Fineman, it probably is the end of the case. Abel is not going to waste his time suing someone who can’t pay. But Abel is not going to give up so easily. He has a client with substantial injuries and that means a large damage award—big bucks. But first he has to find someone who can pay.

Here is how a successful lawyer would analyze the case to try to draw in a Deep Pocket Defendant:

    1.  Was Fineman on an errand for his employer at the time of the crash? If so, the employer can be sued.

2.  Did Fineman have any alcohol in his system? The restaurant that served him may have liability.

3.  Was Fineman on any medication? The pharmacist, drug company, or physician may have potential liability for failure to provide proper warnings, or for writing or filling the prescription improperly.

4.  The stop sign Fineman ran through was in a residential neighborhood in front of someone’s house. Did the homeowner properly maintain his property and clear his foliage to provide an unobstructed view of the stop sign? If not, there is a case against the homeowner for negligence.

5.  Did the municipality take due care in the placement of the stop sign? Should it have used a traffic light instead? There may be a case against the city or county.

6.  The driver’s side door of Wilson’s car collapsed on impact. There is a possible case against the manufacturer for not making a more crash resistant frame.

Do you see how far we are moving away from Fineman—the person responsible for the accident—in an effort to tie in a remote Deep Pocket Defendant? In any rational legal system, Fineman would be regarded as the wrongdoer—he disobeyed the traffic law and he caused the injury. Instead, we have an attorney trying to force the blame onto someone else—who wasn’t at the scene and doesn’t even know the people involved.

The example that we just gave you is taken from a real case. Guess who ended up as the defendant.

In the actual case, the defendant was Fineman’s ninety-two-year-old widowed great-aunt Ellen. As it turned out, she had purchased the car for Fineman as a gift to him. Abel’s private investigator searched the assets of Fineman’s relatives and found that Aunt Ellen had a house that she owned and some savings in the bank. She was named as the defendant in the case and was found liable on a theory called Negligent Entrustment. The jury found that she should not have bought the car for him. She should have known that he was a careless driver and might cause an accident. She caused the accident by buying him the car. The verdict was for $932,000, and Aunt Ellen lost nearly everything she owned.

The point of all this is that the foundation of every lawsuit is a defendant who can pay. Once such a defendant is located, it is easy enough to construct a theory of why that defendant should be responsible. Judges and juries often act on their emotions—not on the law. And when the contest is between an injured or a sympathetic plaintiff and a wealthy or comparatively wealthy defendant, the plaintiff will win virtually every time, regardless of the defendant’s actual degree of fault.

As a result, the plaintiff’s attorney will search for a party who can pay a hefty judgment. In the old days, it was said that “He who has the gold makes the rules.” Now the saying goes: “He who has the gold pays the plaintiff.” The fact is that no matter how remote your connection to an injury, if you have even modest assets, an attorney for the injured party will attempt to show that you are somehow legally at fault and you will be named as a defendant in the case.

Down load pdf of the entire bookComing next:  Not Enough Good Cases to Go Around

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The Litigation Explosion

by rjmintz on January 4, 2017

It has been estimated that 50,000 lawsuits are filed in this country every day of the week. This has come to be known as the “litigation explosion.” Whatever the causes—a breakdown of traditional values, the loss of a sense of community, too many hungry lawyers, wasteful insurance companies—the impact on each of us is significant.

When patients sue doctors, the cost of healthcare rises. To compensate for product liability claims, manufacturers add a premium to the price of their products. Litigation cripples business. It is time consuming, expensive, and emotionally charged. It detracts from our ability to focus on productive matters, as attention is directed away from matters of efficiency and innovation. Parties to a lawsuit spend so much time meeting with lawyers and fighting with the other side that nothing gets accomplished. As businesses are dragged under by the burdens of litigation, our whole society suffers.

If you are engaged in any business activity or if you have a professional practice, chances are that sooner or later you will be sued. And if you are sued, everything that you have worked hard to create will be placed in jeopardy. The costs of defending even a frivolous suit can easily reach $50,000 to $100,000. Once you get to court, you will find that the system is heavily weighted toward the sympathetic plaintiff, as judges and juries play Robin Hood with your money. These judges and juries are continually expanding theories of liability, and stratospheric damage and punitive damage awards are now routine. It is no longer uncommon for awards in negligence cases to exceed $1 million.

Our legal system should hold people responsible for their acts. If someone causes injury, that person should be required to fairly compensate the victim for his or her loss. Not many people would seriously object to this principle. The problem is that this general principle bears no relationship to what is actually occurring in the legal system today.

Download pdf of the entire bookComing next:  The Ability to Pay

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Beating Estate Taxes Just Got a Lot Harder

by rjmintz on September 16, 2016

Many of the strategies used to reduce or eliminate estate taxes involve a technique known as a Family Limited Partnership. In the most popular version family wealth is transferred into a FLP and gifts of partnership interests are made to children or other family members.  Because of the rules currently in effect, the value of these gifted partnership interests can be discounted by thirty to fifty percent, saving potentially millions of dollars in estate taxes.

The IRS has battled taxpayers using this strategy in court for many years without much success.  Now, the IRS is proposing new regulations to minimize the tax advantages of the FLP.  Individuals, who have substantial estates which may be subject to tax, should take advantage of current tax laws to avoid the forthcoming restrictions.

Specifically under attack are those who attempt to discount the value of FLP’s funded with liquid assets or publicly traded securities.  See the New York Times Article “Navigating Tougher IRS Rules for Family Partnerships”; See also “Avoid Estate Taxes with Family Limited Partnership”.

Although the scope of the new proposals are not yet clear, the aim of the IRS is to eliminate the discount for FLP’s funded with cash or marketable securities which are easy assets to value. According to the IRS, simply by changing the form in which assets are held should not create the opportunity for substantial valuation discount and reduced taxes. Even if the partnership interests which are gifted cannot be sold for the value of the underlying assets because the benefit of the partnership assets may not be realized for many years, if ever, the traditional discount for lack of management and marketability may be ignored.

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Selected Topics on Asset Protection – Updates

by rjmintz on August 11, 2015

We’ve just published our new book “Selected Topics on Asset Protection“.  It’s now available for a free download as a full book pdf, or you may choose independent articles from the Contents.  This new edition updates case law, legislation and new developments in the field of asset protection and represents an important addition to “Asset Protection for Physicians and High-Risk Business Owners“. Topics include “Piercing the LLC Veil” , “Protect Assets From Unexpected Medical Expenses” as well as other key articles about the latest court cases, legislation and changes in asset protection law.

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The U.S. Supreme Court ruled this month that inherited IRA’s are not exempt from creditors in bankruptcy.

Mr. and Mrs. Clark were the owners of a small pizza shop in Soughton, Wisconsin.  In 2010 they filed for bankruptcy and closed the store.  Their only remaining asset was an IRA inherited from Mrs. Clark’s mother with a value of about $300,000.  Although regular IRA’s are generally protected from creditors, the Court unanimously determined that inherited IRA’s don’t serve a similar retirement purpose and should not be accorded protected treatment in bankruptcy.

The treatment of inherited IRA’s is now a significant estate planning issue for many individuals.  Those who hold IRA’s that may be left to children, should arrange for the IRA to be held in a manner which protects the asset from future or even outstanding claims against the children.  Creating and designating a properly designed spendthrift trust as the IRA beneficiary can often accomplish a significant level of protection for family members.

See full Reuters article

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Florida’s Fourth District Court of Appeals ruled that a debtor cannot be compelled to turn over a stock certificate in a company located outside of Florida. In this case the debtor owned a myriad of foreign corporations, based in the Netherlands, the Bahamas and the Dominican Republic. Rather than ordering the turnover of the shares, as all other decided cases have previously ruled, the Florida Court claimed it was bad legal policy for courts to compel collection of stock in companies outside the jurisdiction. Instead the creditor would have to go to each of the home countries of the corporations to attempt collection there.

The courts’ ruling would apparently apply as well to stock in domestic companies located outside of Florida and there is no reason why the same logic would not encompass any assets held outside the state. Effectively, anyone living in Florida is now able to avoid collection on judgments and payments on claims as long as their assets are safely parked in an out of state or foreign company or trust.

We don’t know how long this case law will last. The Florida legislature or the state Supreme Court may overturn the absurd result, but for now at least, the state has found a new reason to attract many permanent residents.

New York Times Article – Ruling Could Escalate Florida’s Status as Haven for Debtors

District Court of Appeals State of Florida - Sargeant v. Al-Saleh

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Corporate pension plans, or defined benefit plans, which provide lifetime income to retirees are growing closer to extinction.  In 1979, 38% of workers in the private sector were covered by these plans and now the figure has declined to less than 15%.  Public employees are also facing challenges to their traditional pension model as plans are frozen or cut by cities which have systematically over promised benefits and under funded costs.  The recent Bankruptcy filing by Detroit, along with it’s proposal to sharply reduce current and future pensions, is a certain harbinger of how cities will deal with their pension obligations which cannot be paid.

Most economists recognize that government incentives to encourage retirement savings  represent good social policy. In addition to tax breaks for contributions to IRS qualified plans, California exempts all private retirement plans from bankruptcy or collections in a judgment. This policy effectively encourages employers and self-employed individuals to create additional retirement savings that are not subject to business risks and potential liabilities which may seriously impair their future financial security. Floyd Norris details a variety of incentives to assist in retirement savings.

Floyd Norris article here

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When Is Privacy Legitimate?

by rjmintz on April 17, 2013

As part of the Treasury Department’s battle against money laundering, stricter disclosure requirements are at hand for beneficiaries of bank and financial accounts. Regulators have pulled back from the most onerous proposals, which would compel banks themselves to verify who operates and benefits from the accounts. But even the scaled-back rules — requiring self-disclosure by customers — raise questions about the legitimate use of privacy for business or personal reasons.

While the specifics of the final policy, which could be enacted as early as this year, are still under discussion, regulators are insistent that banks reveal the names of the beneficial owners of any company account. One iteration of the rule would require anyone with at least a 10% stake in the company and managers who oversee regular operations of the company to be identified.

The need for information in the fight against terrorism and criminal activity is understandable, but these rules open a wider debate about the legitimate use of privacy in business transactions. Isn’t privacy a legitimate business or personal financial strategy? Given the prevalence of frivolous litigation and “Deep Pocket” targeted lawsuits and dubious marketing practices to customers by financial institutions themselves, what level of disclosure should be required from individuals and companies seeking to protect themselves from overreaching by the government, potential legal adversaries and aggressive marketing tactics?

Treasury Eases Off On Bank Rules 

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Asset Protection for Physicians and High-Risk Business Owners by Robert J. Mintz JD, LLM

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