The Fortune Law Firm and the Death of Conventional Financial “Wisdom” Conventional wisdom teaches doctors that to protect your personal assets, you need to do business as a corporation or LLC, carry malpractice insurance, and have a trust. Conventional wisdom also dictates that for doctors to save in taxes, you will want to participate in some sort of “tax-savings retirement plan” like a deferred compensation plan to reduce your taxable income now, then save up all the receipts from your business and give it to your CPA at the end of the year, who will then find maximum deductions for you and reduce your tax liability. The problem with these tidbits of conventional “wisdom” is that they are absolute, 100% false.
FORTUNE LAW FIRM is a law firm of entrepreneurs. Real business owners who know and understand the law and have real-world experience
The Fortune Law Firm is a Vegas-based law firm that travels the country speaking to medical professionals educating them on the myths of conventional financial wisdom and showing the doctors how to truly protect their practice, their licenses, and their assets while dramatically increasing tax savings. The Fortune Law Firm teaches the same strategies the ultra-wealthy have been using since before the U.S. started collecting income tax just over 100 years ago.
Although The Fortune Law Firm has a team of traveling presenters, its two most prominent figures, Nick Fortune, a structures expert who got his masters in tax at Stanford, and Zach Parry, the Firm’s founding attorney, still love to present and turn a crowd. At first, the claims the Fortune Law Firm makes seem revolutionary, but all they’re really doing is pulling back the curtain on this so-called conventional wisdom.
So what about those tidbits of “wisdom” introduced in the article? If they’re not true, then what is?
Here’s the truth of it, as learned from the Fortune Law Firm:
Corporations and LLCs do not protect doctors from their patients. There is a reason business own-ers set up business entities when they’re running a business. Doing business as a sole proprietor means you are the business, and any liabilities of you personally or the business are the same. When you set up an entity, you are creating a separate “person” with its own responsibility and liabilities separate from your own actions and LLCs Do Not Protect Doctors from Their Patients. There is a reason business owners set up business entities when they’re running a business. Doing business as a sole proprietor means you are the business, and any liabilities of you personally or the business are the same. When you set up an entity, you are creating a separate “person” with its own responsibility and liabilities separate from your own.tions and LLCs Do Not Protect Doctors from Their Patients.
There are a reason business own-ers set up business entities when they’re running a business. Doing business as a sole proprietor means you are the business, and any liabilities of you personally or the business are the same. When you set up an entity, you are creating a separate “person” with its own responsibility and liabilities separate from your own. So, for example, when Sam Walton created what would become the world’s largest retail chain, he established a corporation. And now, when people enter Walmart and get hurt, they seek to hold Walmart responsible, they’re going to go after WalMart, Inc., and Sam Walton’s personal assets are safe.
But what few doctors understand is that the protections of an LLC work much differently in their field. A doctor may run her practice through an LLC, and that’s certainly going to protect her if her LLC breaches the lease agreement. But that’s not the potential liabilities that are keeping doctors up at night. The best way to protect your personal assets has nothing to do with whether your business should be a c-corp or an LLC. The best way to keep your stuff from being taken away from you is to make sure you don’t own any stuff.
The logic there seems sound, but it doesn’t seem like a tenable solution. We all like our stuff, after all. But that’s just a conventional mindset we need to get over. Poor people want to own stuff. They want to own a nice house in the hills and the fast sports car. The ultra-wealthy know, better, though. They don’t want to own a nice house in the hills. They just want to live in it. They don’t want to own a fast sports car. They just want to drive it every day. Because they know that if they own it, it can be taken away.
It’s not ownership that matters, then. It’s controlling. If you structure your business and your assets in a way that you still control your stuff, but you don’t own it, then you can enjoy it without risking it getting taken away. That’s one of the strategies The Fortune Law Firm is good at.
Medical Malpractice Does Not Protect Doctors from Their Patients
The second false sense of security doctors uses their medical malpractice insurance coverage. Unlike the business entity, malpractice insurance does provide some modicum of protection, but it isn’t what doctors think it is. Malpractice insurance is governed by the contract between the doctor and the insurance carrier. At its core, the terms of that contract are simple: the doctor pays the premiums, and the insurance company defends and indemnifies the doctor if there is an insurable event, like a malpractice claim.
That’s two duties the insurance carrier has: the duty to defend and the duty to indemnify. The duty to defend means that the insurance carrier will hire a medical malpractice defense attorney if a claim is made against the doctor. The duty to indemnify is the insurer’s duty to pay any losses stipulated to or proven in the course of the malpractice claim.
There are limits, outlined in the policy, to what the insurance company is willing to pay on the doctor’s behalf. And that’s the extent of the protection. And while it’s good to know that the first $1 Million in liability is going to be covered by your insurance carrier, doctors who really understand the consequences of being sued are less concerned about the ultimate payout and more concerned about the potential permanent stain on their reputation that could result from having any amount of money paid on their behalf.
That’s because the savvy doctors are familiar with that dark presence in their lives, known as the National Practitioner’s Data Bank (NPDB). Implemented by the U.S. Department of Health and Human Services in 1986, the NPDB is essentially a blacklist of doctors: a database that keeps an everlasting account of all doctors who have had adverse actions taken against them, medical malpractice payments made on their behalf, and health-care related civil judgments or criminal convictions. It is, in effect, the sex-offender registry of doctors. It’s no less damning nor less permanent.
For example, although most standard patient contracts include an arbitration clause, far fewer contain an even more essential clause: the mediation clause. Mediation is the process through which the aggrieved party (the patient) has a chance to sit down with the accused (the doctor) and try to reach an agreement that will dispose of all issues.
But even doctors who have mediation clauses usually have clauses that are written not for license protection, but to save money in legal fees, which protects insurance companies more than it protects doctors. If drafted right, the mediation clause will require the patient to request mediation as a mandatory prerequisite to filing a lawsuit. If the patient follows the contract, it gives the doctor a chance to reach a settlement pre-litigation. And if done right, that pre-litigation settlement does not get reported to the NPDB, so both the doctor’s assets and her reputation remain intact
But what is more likely is that the patient, who hasn’t read the agreement, sues the doctor without having first requested mediation. When that happens, the doctor’s first call is going to be to the Fortune Law Firm. The Firm is then going to coordinate with the malpractice carrier and coach the defense attorney (who knows nothing about the NPDB and cares even less) to file a motion to dismiss against the plaintiff for failure to meet the contractual prerequisites to filing a lawsuit. When that motion is granted (and given judges’ love for mediation and the fact that the contract is written so clearly, it will be), either the case goes back to a mediator, where the doctor has a chance to settle, or if the statute of limitations has expired—and because most cases are filed on the eve of the statute expiring, there is a good chance it will be—then the case is over, the doctor has won, and there is neither payment nor reporting. And then, the patient can pursue a malpractice case against her attorney, who filed a lawsuit without looking at or abiding by, the patient contract.
If the patient does request mediation but fails, and the lawsuit moves forward, the doctor is not out of the woods yet, but there is hope on the horizon. If the doctor is a Fortune Law Firm client, she is a member of a clinical practice group that protects her in the event of post- demand settlement. Again, this requires some finesse, and so once again the Fortune Law Firm is going to coach that defense attorney to make sure he knows exactly how to structure any future settlements using the clinical practice group, which will obviate the need for any reporting to the NPDB and keep the doctor’s name, license, and reputation unscathed.
A Living Trust Does Not Protect Assets at All
For whatever reason, there is a common misunderstanding that a living trust has an asset protection component. Although in some cases, it does provide some anonymity of ownership, that’s all the protection you’ll ever get from a living trust. A living trust speaks when the trustee (you) cannot. So if you are in a coma, or mentally disabled, or dead, the trust dictates what happens with your body, your assets, your business, and it determines who gets to make those decisions not specifically laid out in the document. It also fulfills the purpose of avoiding probate (the lengthy court process where it is determined how the assets in the estate are going to be distributed).But it does nothing to protect your assets. Assets in a living trust are just as vulnerable as assets in your name.
A 401(k) Is a Tax-Collection Plan, Not a Retirement Plan.
The Fortune Law Firm will be the first to tell you (and maybe literally is the first to tell you) that a 401(k) is not a real retirement plan. You probably don’t even know why it’s called a 401(k), but it’s really just part of the tax code: the same tax code that governs income taxes, payroll taxes, capital gains taxes, and all those other provisions designed to transfer money from the individual to the government. Conventional wisdom tells us that it’s a good idea to put money into a 401(k) or another deferred compensation plan because we get the tax deduction now and can pay the taxes when we retire and are in a lower tax bracket.
First, believing that your best retirement plan is one nestled in the tax code is like believing a casino has your best interests at heart even as your dice hit the felt of the craps table. The house always wins, after all.
Second, if your plan is to be in a lower tax bracket when you retire, then you need a new plan. No one wants to go from having a lot of money but little time during their working years to have a lot of time and very little money during retirement. So if your plan is to take a hit to your lifestyle when you finally have time to enjoy life, then perhaps you should just keep working.
Third, most people believe (and history supports this) that in the future, taxes will be higher, not lower, than they are now.
But haven’t you also heard you should buy low and sell high? That’s not what you’re doing. The reason 401(k)s are so popular is that your financial planner gets paid as long as your money is in the market, regardless of whether you are earning or losing money. And unless the For-tune Law Firm’s predictions are wrong, even though the stock market reached record highs 19 times in 2019 and 7 times in 2020, you never got a call from your financial planner telling you it was time to sell with a plan to buy again once the stock market dropped.
Next, if you would rather ride the market instead of buying low and sell high, that’s all well and good while you’re young and have lots of earning years ahead of you, but what happens when the stock market corrects right before you retire? Or worse, right after you retire? There goes that lifestyle you were planning on.
Last and finally, don’t forget about all those deductions that you enjoy now. Among the most common tax deductions are the child tax credit, deductions related to business expenses, and deductions from interest paid on your mortgage and student loans. When you retire, your children will be grown, and out of the house, you are no longer running your business, and your house and student loans are paid off. And if you were contributing to a 401(k), you don’t even get those deductions anymore. So all those deductions you’re enjoying now? They’re gone.
Unfortunately, conventional wisdom is persuasive. Americans have a combined $5.7 trillion in 401(k) plans, which is 20% of all funds in retirement savings. And the U.S. Government is going to tax every penny of it. The Fortune Law Firm busts conventional wisdom here, too. They are purveyors of a plan older than the tax code that uses after-tax dollars to put in a vehicle with guaranteed growth, where you aren’t subject to the volatility of the stock market and therefore guar-anteed not to lose your principal. With this vehicle, called an Investment Grade Insurance Contract, there are virtually no contribution limits, doctors can use it without having to contribute to partners’ or employees’ accounts, the money is liquid immediately and not subject to a penalty if used, can be invested in anything (there are no prohibited transactions), and best of all, when it comes time to retire, you can use 100% of that money without paying any taxes.
Why Haven’t You Heard All This Before?
Your CPA, who makes far less than you do, can’t see past the software on his monitor. He doesn’t do tax planning. He does data entry. He just doesn’t get paid enough to bother to learn. Even if he did understand the tax side of it, he doesn’t understand structures, and he doesn’t under-stand the Investment Grade Insurance Contract.
Your financial planner only knows the products they sell at whatever brokerage she works at. And although she can’t afford to invest in the plans she is recommending, she still recom-mends them because as long as she has money under management, she’s making money. But she doesn’t understand structures any more than your CPA does, really doesn’t understand taxes, and will never recommend you do any-thing other than purchase their product that has outperformed the S&P for 15 of the last 20 years.
If you have a good tax attorney, he’ll understand the tax side of it, but not the structures. And a good corporate attorney will understand the structures but not the taxes.So if you wanted to put all this together, you’d have to find the right professional in each field, and then they’d have to work together to create a cohesive program.
But what actually happens is your financial planner makes one recommendation, your CPA makes another, and your attorneys are giving other recommendations besides. So you either get analysis paralysis trying to figure out who’s right, then you do nothing. Or even worse, you follow all their advice and now you’ve spent a lot of money and have a bunch of stuff that you don’t understand and that doesn’t help you.
The Fortune Law Firm has the knowledge and the licenses to provide the complete package. And they’re so confident that they can help you that they promise you they’ll save you more in taxes in your first year than you’ll spend with them. If that’s not true, they’ll pay you the differ-ence.
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