Using Annuities To Protect Your Assets February 2003 By: Marc Singer, MBA, CFP Many physicians utilize annuities as an important component of their asset protection program.  In Florida, annuities are one of the safest investment choices due to state law, having been thoroughly tested in the courts. In the benchmark case, Goldenberg vs Sawczak, May 2001, Dr. Goldenberg had a $4 million medical malpractice judgment against him. The Florida Supreme Court ruled that his $355,000 of annuities were totally protected from the plaintiff. Along with retirement plans and the homestead, a physician can own annuities in their own name and still be protected from malpractice judgments. Unlike qualified retirement plans, annuities do not have any contribution limits, and do not have to be withdrawn at age 701⁄2. All invest-ment gains on annuities are completely tax-deferred until the funds are withdrawn, making them excellent long-term retirement vehicles. When withdrawals are made, the gains (not the principal) are taxed at ordinary income tax rates. Income withdrawals prior to age 591⁄2 are subject to a 10% tax penalty. Annuities exist in two forms: Fixed and Variable.  Fixed Annuities (FA) are similar to certificates of deposit with an insurance company. On average, a FA has a flat rate of return in the first year of 4 - 5%, with the rate changing in future years.   Doctors need to be aware of certain issues. If a FA has a long surrender charge period, usually 5-7 years, the rates past the first year are determined by the insurance company. If they are not competitive, then there may be a surrender charge to get out. In addition, the value of the FA is guaranteed by the credit of the insurer. If the company goes under, the annuity may be tied up in receivership for many years, with possibly some loss of principal. Research into the quality of any fixed annuity company is highly recommended.     "In May 2001 the Florida Supreme Court ruled that annuities are protected from medical malpractice judgments" Variable Annuities (VA) have become more popular than fixed annuities due to their flexibility. This investment is composed of a group of mutual funds under the umbrella of an insurance company annuity.The better VAs offer 40 & 60 mutual fund choices, with no charge or taxation to switch between funds. Both Bond and Equity mutual funds are available, allowing the physician a wide range of diversification. Of course, since equity mutual funds are stock market-based, there will be some volatility. If invested and managed properly, VAs should earn 8 - 12% over the long term, dependent on market conditions. Most VAs have a 7-year surrender charge associated with them, usually assessed at 7-10%. Since this restricts the ability to make changes over time if the investor is unhappy, we strongly recommend no-load, no surrender charge-type annuities.These are generally available through fee-based financial advisors rather than commissioned-based advisors or insurance agents, since no-load annuities do not pay a large up-front commission. Having a true no-load investment empowers physicians to have full control over current and future portfolio choices, and allows them investment flexibility.  Investment in annuities, while not complicated, requires in depth knowledge. It is recommended that physicians seek out an experienced and competent advisor to assist them with both the selection and ongoing management of annuities in their portfolio. Singer Xenos does not provide legal advice. Please consult with your own legal counsel.