Asset Protection Plan

           Deferred Compensation Plan 

Problem:           A 41-year old doctor who operates in a P.A. has accounts receivable of $300,000 that are exposed to any and all third party creditor claims.  Also, the doctor has a retirement plan that will not produce the desired level of income during his retirement years.

Plan:                 The doctor adopts the “Deferred Compensation/Supplemental Retirement Plan.” 

Benefits:           By implementing “The Plan”, the doctor protects the receivables from any third party creditor.  In addition, the doctor will create a TAX FREE stream of revenue in the amount of $150,000 per year for the retirement years.

Case Study

            The doctor enters into a “deferred compensation agreement” in an amount that is equal to the uncollected accounts receivable.  Assuming $300,000 of collectable A/R, the P.A. borrows $300,000 from a bank.  The accounts receivable are then assigned to the bank as collateral for the loan.  Since the A/R is used to collateralize the loan, it now is protected from any potential creditor claims.
            The P.A. continues to collect the accounts receivable and use the monies for office operations (including salaries) just the same as prior to entering the loan transaction.  However, loan payments made to the bank consist only of interest, which is fully deductible by the P.A., until the doctor reaches retirement.
            The $300,000 loan proceeds are then placed into an investment contract comprised of an annuity and life insurance.  This annuity funds the payments for the life insurance contract.  The life insurance policy is a variable annuity life policy, which is a mutual fund wrapped in an insurance policy.
            Performance of the insurance policy cannot be guaranteed.  However, a 7.4% yield is assumed for illustration purposes.  Using this yield assumption, at age 65 the doctor will have accumulated a $1.4 million cash surrender value.  In addition, the life insurance death benefits are projected as follows:

                                                Age 41                                     $1.2 Million

                                                Age 65                                     $1.5 Million

                                                Age 80                                     $265 K

            Upon retirement, the doctor has six months to collect the accounts receivable and repay the $300,000 loan.  Upon repayment of the loan, the bank releases the life insurance policy as collateral and it is now fully available to the doctor.  The cash value of the policy ($1.2 Million) can then be distributed to the doctor TAX FREE at $96K per year until age 80.
            This creates a substantial retirement supplement plan that protects a doctor’s practice assets while also providing a significant tax benefit!

Problem:           Underutilized accounts receivable which are vulnerable to lawsuit now – retirement shortfall (reduced income at retirement) later.

Plan:                 Supplemental Benefit Program – Through unique major bank financing, accounts receivable as collateral are at once protected from creditors and converted to a retirement asset that will be worth many times the actual accounts receivable.  The retirement income will be tax-free. 

Prospect:          Doctors and other professionals who have substantial but collectable accounts receivable.