Gyroscopic Investing

I have a sole proprietorship.  The nature of the work prevents me from forming an LLC, so I have to carry separate insurance for any lawsuits that may occur.  The insurance obviously has limits, so I am wondering if it is possible to protect personal assets with any sort of limited liability entity. 

I read this somewhere, but it was vague. 

I will obviously discuss with my accountant, but I'm curious to hear opinions.

S Corps are relatively adequate alternatives to LLC's, especially if it's only you in the business.

What kind of work is it? Why can't it be performed as an LLC?

The basic answer to your question is "no an LLC will not help you at all."

The structure you will have is:


Are a Sole Proprietor<----YOU---> own LLC----> owns your stuff

If the Sole Proprietor business gets sued, then all liability passes through to you personally. Since you personally own the LLC, then all assets held by the LLC are exposed.

There's no way to shield personal liability except through the strategies I mentioned in your other asset protection thread.

There is ways to shield business liability through forming an LLC.

Essentially you do this:


Customers<----- LLC Operating Company <------YOU---->LLC Holding Company----->Equipment


Your customers interact with the LLC operating company. Any liability stops with assets of that LLC.

You hold your equipment and real estate in the LLC Holding Company that you also own. The holding LLC leases the equipment/RE to the operating company. Operating company gets sued, and the assets of the Holding company are not exposed.

For this to work, you must treat them as separate companies, and should consult an accountant and lawyer on how to do it.  It's not that difficult but more than I care to type. I may eventually write a blog post on it (send me a PM and remind me in a few weeks if you want to read one).

WalMart and all big companies structure things this way. WalMart holds RE in a separate LLC and leases it to itself. Construction companies with millions of dollars of tools have a separate LLC and lease tools to themselves.

TripleB wrote: What kind of work is it? Why can't it be performed as an LLC?

I'm a physician in the Army, but we're allowed to moonlight a little bit, which I'm going to start doing (in New Mexico--bad tort laws there).  Usually malpractice insurance takes care of any suits, but I've heard of people having their personal assets threatened a few times. 

AdamA wrote: I'm a physician in the Army, but we're allowed to moonlight a little bit, which I'm going to start doing (in New Mexico--bad tort laws there).  Usually malpractice insurance takes care of any suits, but I've heard of people having their personal assets threatened a few times. 

Are you not allowed to provide medical services through an LLC? Or is it an issue because you are military?

There's a study that cites physicians who are liked by their patients are substantially less likely to be sued. Around 20x less likely. It's not a bad outcome alone that causes malpractice cases. It's bad outcome plus unlike-ability. Patients don't want to sue physicians they like.

The only way to really shift your personal assets into an LLC and have it work in this situation is if someone else owns the LLC. For example, you form an LLC with your cousin where he owns 90% of the LLC (According to the articles of organization) and you own 10%. Then put your assets in there. If sued, the judge can't make you hand over the 90% that belongs to your cousin, unless he suspects it's a fraudulent conveyance.

Problem is now your cousin legitimately owns 90% of your assets and he can fuck you over. This is known as counter party risk. The only way to really shield assets is to legally give up ownership of them which adds new risks to your life.

TripleB wrote: Are you not allowed to provide medical services through an LLC? Or is it an issue because you are military?

You can provide medical services through an LLC, but it doesn't limit your malpractice liability, so there's really not much of a point.

TripleB wrote:
There's a study that cites physicians who are liked by their patients are substantially less likely to be sued. Around 20x less likely. It's not a bad outcome alone that causes malpractice cases. It's bad outcome plus unlike-ability. Patients don't want to sue physicians they like.

It really depends on your speciality.  I work in a higher liability field, and we tend to get sued a lot.  No matter how nice you are, if there's a catastrophic outcome it tends to attract the attention of the medico legal system.  All in all it's pretty unpredictable, but I am aware of studies such as the one you mention. 

Go talk to an attorney.

craigr wrote: Go talk to an attorney.

Yeah, I know.  I will.  I just like to have some information ahead of time.

I've been surprised in the past at how much "variety" of opinion there can be from one attorney to the other when it comes to some topics, so it helps to be a little bit clued in before you talk to one.

But, yes, definitely, I will talk to an attorney.  

AdamA wrote: I've been surprised in the past at how much "variety" of opinion there can be from one attorney to the other when it comes to some topics, so it helps to be a little bit clued in before you talk to one.

Much like talking to a physician. 

Don't you love it when your patients show up and tell you exactly what they think they have that they read off of Wikipedia? 

TripleB wrote:

AdamA wrote: I've been surprised in the past at how much "variety" of opinion there can be from one attorney to the other when it comes to some topics, so it helps to be a little bit clued in before you talk to one.

Much like talking to a physician. 

You got that right!

I don't know if you've used this before, but my work offers the Hyatt legal plan for $20 a month or so taken out of my paychecks.  This is one of the best plans I have ever participated in.  You can call any attorney in their network and get a will drafted, get legal advice, or anything really, and they just bill Hyatt.  It's a great value if you take advantage f it.

Storm wrote: I don't know if you've used this before, but my work offers the Hyatt legal plan for $20 a month or so taken out of my paychecks.  This is one of the best plans I have ever participated in.  You can call any attorney in their network and get a will drafted, get legal advice, or anything really, and they just bill Hyatt.  It's a great value if you take advantage f it.

Have you ever used it?

It sounds like the best solution to this problem is going to be some kind of insurance coverage, though obviously the advice of a professional in this area should trump anything you read here.

In general, I find that it is useful to put yourself in the position of a plaintiff's attorney and make yourself as unattractive a target to such a person as possible.

It seems to me that hospitals would make some kind of coverage available to the physicians working in their facilities just as a matter of attracting good talent, but I don't know anything about how all of that actually works. 

MediumTex wrote: It sounds like the best solution to this problem is going to be some kind of insurance coverage, though obviously the advice of a professional in this area should trump anything you read here.

In general, I find that it is useful to put yourself in the position of a plaintiff's attorney and make yourself as unattractive a target to such a person as possible.

It seems to me that hospitals would make some kind of coverage available to the physicians working in their facilities just as a matter of attracting good talent, but I don't know anything about how all of that actually works.  

You're basically right.  It's actually pretty cut and dry.  Medical malpractice insurance works in almost every case I've heard of. Obviously, the existence of such insurance is incentive for plaintiff's attorneys to take on a medical malpractice case, but in spite of all of the criticism the system gets, it it does at least function to compensate people who have harm done to them by the medical system.  

I've heard that some hospitals will negotiate to settle cases out of court with the caveat that the physician be dropped from the suit (in other words, the hospital takes the blame and pays the settlement).  

I have, however, heard some horror stories (none of them verified) wherein the plaintiffs attorney will try to get into the pockets of the physician himself.  From what I can tell, this is usually more of a negotiating tactic (to bid up the settlement amount) than a legitimate threat.

One interesting side note is that in spite of all of the press you hear about trumped up lawsuits and ridiculously high settlements being responsible for defensive medicine and  the high cost of medical care in general, 7 or 8 years ago Texas imposed settlement limits, and also passed some very restrictive legislation about what constitutes medical malpractice (has to be "wanton and willful,"
essential intentional) versus just an honest screw up like some other states.  Guess what the end result was...the cost of care has not gone down a bit, and actually went up just as much as anywhere else.  Go figure.  

Here's a great excerpt from an article by a physician named Rick Bukata who writes and lectures about this (he is fantastic).  

The bottom line. Health care in Texas, despite comprehensive reform, is more expensive and less accessible than before. The citizens of Texas are the losers. And those who are harmed by malpractice and who don't earn money must have their future additional costs of care (assuming that they survive) paid by their health insurance or the taxpayers of Texas.

A 2005 article in the Illinois Business Journal discussing the Texas reforms and those in other states quoted Texas attorney Robert Rowland. He said, "If you pass medical malpractice reform, those in our society who need help the most - children, older people, single mothers, people who don't have a big lost wage claim - are going to suffer the most." Rowland also said. "It occurs to me that if you have a scheme by which the people who most need the help of the court system have the courthouse doors closed to them, there's something wrong."

I know that this essay will likely annoy physicians; however, there truly needs to be a better way to deal with patients who are hurt as the result of medical negligence. Did I resent paying $180,000 a year for my group - you bet. Have I lived in fear of being sued - you bet. But there must be ways to address these challenges that fair to both physicians and patients.

I know that's one heck of a tangent (and perhaps not very interesting), but it's a topic I like to discuss.

It seems to me that the reason our health care costs are rising so rapidly is that we have the first population in history that is moving through a complete life cycle of exposure to processed foods, a mental illness-inducing set of cultural values, and the ability to prolong life for a short period at great expense in many end of life care situations.

Against this backdrop, I'm surprised health care costs haven't risen more than they have. 

I don't think tort reform has that much to do with it.

If people would learn to eat right, avoid smoking, exercise effectively and be diligent in taking care of their mental health by avoiding chronic stress and sensory overload, I think that the cost of health care would decline dramatically.

AdamA wrote: I know that's one heck of a tangent (and perhaps not very interesting), but it's a topic I like to discuss.

Tort reform, last I looked, would only reduce the costs of health care by .5%.  It's one of those ideaological conservative ideas that conflicts with libertarianism, so obviously it won't do much to fix the problem.

The bigger issue is simply too much government involvement and protectionism.  We don't have a free market in medicine, we don't even have a private market, nevermind a consumer-driven one.  "Private" medicine is 98% controlled by regulations from an alphabet soup of Federal agencies, nevermind state.  The Medicare regulations are 110,000 pages, trumping the Internal Revenue Code by a factor of 10x.  Accountability is to the regulations of unelected bureaucrats, insurance companies and trial lawyers, not the consumer.

It's the same old story but nowhere in the economy is socialism and its vulture feeders more on display as a human travesty than in medical care.  Nothing short of major deregulation and major reform is ever going to get the costs down.  When, and only when, it becomes politically expedient to do so, it will happen.

MG

MediumTex wrote: If people would learn to eat right, avoid smoking, exercise effectively and be diligent in taking care of their mental health by avoiding chronic stress and sensory overload, I think that the cost of health care would decline dramatically.

If the government would just give us free health care then we could eat whatever we wanted, smoke as many packs of cigarettes a day as we wanted, and never be forced to leave the couch.

MediumTex wrote: If people would learn to eat right, avoid smoking, exercise effectively and be diligent in taking care of their mental health by avoiding chronic stress and sensory overload, I think that the cost of health care would decline dramatically.

What are your thoughts on sensory overload as it relates to health?

Lone Wolf wrote:

MediumTex wrote: If people would learn to eat right, avoid smoking, exercise effectively and be diligent in taking care of their mental health by avoiding chronic stress and sensory overload, I think that the cost of health care would decline dramatically.

What are your thoughts on sensory overload as it relates to health?

My basic assumption is that mental health issues will manifest in physical health issues sooner or later (examples of which would be stress leading to heart disease and high blood pressure and depression leading to reduced resistance to infections).  Thus, a source of mental illness that goes unaddressed is the same as a source of physical illness going unaddressed.

I think that sensory overload is one of the precursors to all sorts of mental illness as we attempt to process and assimilate more information than the human mind can handle.

When too much information and too many concepts are thrown at someone, it eventually leads to confusion, then frustration, then alienation, all of which tend to chip away at the state of mental calm that is needed for sustained mental health.

Many of our information delivery systems are designed to keep people in a state of titillation and/or emotional turmoil, and I think that this is obviously not good for one's mental health.  I don't think we are well adapted from an evolutionary perspective to coping with a video monitor in our living room that lies to us continuously about almost everything.

Imagine if instead of cave paintings, cavemen looked at the walls of their dwelling and saw the following messages flashing in endless succession:

Horses are awesome
Scantily clad cavewomen prefer ________ brand
Food is good
A caveman's status is determined by his tastes
The world will end soon
You are not popular enough
Your leaders love you
Your leaders are lying to you
A sabre tooth tiger might eat your children
A horse disease may strike at any time
The stone age will end due to a shortage of rocks

Imagine what a mess those cave dwellers would be after being exposed to that for years or even decades.

It's ironic that GEICO has come up with the concept of the neurotic and insecure caveman to sell insurance.  I imagine that a TV set in a caveman's cave would quickly reduce him to such a state.

I got the wooly mammoth blues.  I can't go on the Stone Age Way

AdamA wrote:

Storm wrote: I don't know if you've used this before, but my work offers the Hyatt legal plan for $20 a month or so taken out of my paychecks.  This is one of the best plans I have ever participated in.  You can call any attorney in their network and get a will drafted, get legal advice, or anything really, and they just bill Hyatt.  It's a great value if you take advantage f it.

Have you ever used it?

Yeah, I had wills drafted for myself and my wife and saved a couple hundred bucks using it.

MediumTex wrote:
My basic assumption is that mental health issues will manifest in physical health issues sooner or later (examples of which would be stress leading to heart disease and high blood pressure and depression leading to reduced resistance to infections).  Thus, a source of mental illness that goes unaddressed is the same as a source of physical illness going unaddressed.

I think this is exactly true, and a bigger problem than many people realize.   Someone with a psychosomatic complaint can see their health care provider, have their complaint evaluated with an overly sensitive, underly specific electron microscope of a test and end up with a "diagnosis".  Then, they end up getting a treatment that they don't need and living the "I have xyz-itis," lifestyle.

I often think that most people would do best to avoid the health care system altogether, unless absolutely necessary.

Nonetheless, it seems that the cave wall writings keep people coming.  Sadly, I think there are factions of the health care community who are responsible for a good portion of those writings.  

AdamA wrote: You're basically right.  It's actually pretty cut and dry.  Medical malpractice insurance works in almost every case I've heard of. Obviously, the existence of such insurance is incentive for plaintiff's attorneys to take on a medical malpractice case, but in spite of all of the criticism the system gets, it it does at least function to compensate people who have harm done to them by the medical system.  

I've heard that some hospitals will negotiate to settle cases out of court with the caveat that the physician be dropped from the suit (in other words, the hospital takes the blame and pays the settlement).  

I have, however, heard some horror stories (none of them verified) wherein the plaintiffs attorney will try to get into the pockets of the physician himself.  From what I can tell, this is usually more of a negotiating tactic (to bid up the settlement amount) than a legitimate threat.

One interesting side note is that in spite of all of the press you hear about trumped up lawsuits and ridiculously high settlements being responsible for defensive medicine and  the high cost of medical care in general, 7 or 8 years ago Texas imposed settlement limits, and also passed some very restrictive legislation about what constitutes medical malpractice (has to be "wanton and willful,"
essential intentional) versus just an honest screw up like some other states.  Guess what the end result was...the cost of care has not gone down a bit, and actually went up just as much as anywhere else.  Go figure.  

Here's a great excerpt from an article by a physician named Rick Bukata who writes and lectures about this (he is fantastic).  

The bottom line. Health care in Texas, despite comprehensive reform, is more expensive and less accessible than before. The citizens of Texas are the losers. And those who are harmed by malpractice and who don't earn money must have their future additional costs of care (assuming that they survive) paid by their health insurance or the taxpayers of Texas.

A 2005 article in the Illinois Business Journal discussing the Texas reforms and those in other states quoted Texas attorney Robert Rowland. He said, "If you pass medical malpractice reform, those in our society who need help the most - children, older people, single mothers, people who don't have a big lost wage claim - are going to suffer the most." Rowland also said. "It occurs to me that if you have a scheme by which the people who most need the help of the court system have the courthouse doors closed to them, there's something wrong."

I know that this essay will likely annoy physicians; however, there truly needs to be a better way to deal with patients who are hurt as the result of medical negligence. Did I resent paying $180,000 a year for my group - you bet. Have I lived in fear of being sued - you bet. But there must be ways to address these challenges that fair to both physicians and patients.

I know that's one heck of a tangent (and perhaps not very interesting), but it's a topic I like to discuss.

That's fascinating, AdamA.  I always suspected that the reason our politicians are pushing so hard for medical malpractice limits had more to do with being in the pocket of the insurance companies than legitimately wanting to help doctors.  I also suspect that in states where malpractice reform has passed, doctors probably haven't seen a significant drop in malpractice insurance premiums.

As in all cases, once you limit the fundamental right to sue for a redress of grievances, you are playing with fire and someone is going to be hurt.  A jury trial will take care of the frivolous lawsuits.  Unfortunately, malpractice reform just insures that those least able to defend themselves are going to die sick and unhealthy because of an injury they shouldn't have sustained.

MediumTex wrote: My basic assumption is that mental health issues will manifest in physical health issues sooner or later (examples of which would be stress leading to heart disease and high blood pressure and depression leading to reduced resistance to infections).  Thus, a source of mental illness that goes unaddressed is the same as a source of physical illness going unaddressed.
...
I don't think we are well adapted from an evolutionary perspective to coping with a video monitor in our living room that lies to us continuously about almost everything.

Brilliantly stated and I agree on every point.  These are some important factors yet they are very easy to neglect.

Glad I asked.  :)

TripleB wrote:

MediumTex wrote: If people would learn to eat right, avoid smoking, exercise effectively and be diligent in taking care of their mental health by avoiding chronic stress and sensory overload, I think that the cost of health care would decline dramatically.

If the government would just give us free health care then we could eat whatever we wanted, smoke as many packs of cigarettes a day as we wanted, and never be forced to leave the couch.

If you have comprehensive insurance then that creates the same scenario doesn't it? Once you have paid your insurance you might as well get your money's worth. You might argue that if the government was on the hook for the costs, they might be less likely to do things that screwed people's health up. Anyway does cost of the health care figure when individuals are deciding whether or not to give themselves cancer or whatever?