Estate Planning for Physicians – 7 Steps to Plan Your Estate



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Medical school teaches many things, but estate planning isn’t one of them. There’s no course on what should happen to your medical practice if you are incapacitated, are in an accident, or pass away.  And there’s definitely nothing taught about the importance of protecting your assets, avoiding probate, and planning for estate taxes.

Although physicians pick up skills along the way such as  how to survive on a handful of hours of sleep, and the quickest dinner options after a long day of seeing patients, financial planning and estate planning are not included.  But it’s your financial future we’re talking about here; it’s a bit more important than deciding between takeout burgers or pizza for dinner (even if they are vegan!).

Then there’s the unfortunate reality that the stakes are higher for physicians than most professionals. High tax rates and the ever-present threat of malpractice claims mean that doctors face a number of challenges to their financial health and that of their families, both during their lifetime and after their passing.

You became a doctor to help people, but the long hours and high-stress levels take their toll, and caring for others can come at the cost of caring for yourself and those closest to you. If you have a family and children, estate planning is one of the most important steps you can take to protect them. You can’t afford to be like almost half the American population who “haven’t gotten around to it”. As a physician, it’s not something that you can put off until you have more time.

7 Steps to Plan Your Estate (and Avoid Probate)

These are some of the steps that your estate planning attorney will walk you through. Everyone’s needs are different so the exact order and specific steps may vary to address your specific situation.

1. Create a Will

A will means that you get to decide who gets your assets when you pass away. It allows you to distribute your property, as well as name an executor and guardians for your children. This is the absolute minimum that you need to have in place, but it isn’t always enough to avoid probate, so keep reading…

2. Create a Net Worth Statement

A net worth statement is a list of your assets and liabilities. It includes your life insurance policies, bank accounts, cash holdings, real estate, loans, debt, and mortgages. This will give you a good idea of your current financial standing and means that you can take the next step.

3. Set up a Revocable Trust

This is a vital step for physicians as a revocable trust will prevent your assets from going through the probate process and your family can be taken care of quickly and efficiently.  If your estate is over the estate tax exemption threshold, you will need to discuss additional estate planning strategies with your attorney. Also, if you run your own practice, you will need to appoint a Special Trustee that is licensed to manage the practice until it is sold. A revocable trust will not protect your assets from malpractice claims, so make sure to discuss that with your attorney.

4. Formalize a Buy-Sell Agreement

If you are in a partnership with other doctors, there needs to be an agreement between the partners as to how the value of the practice will be determined. This will prevent other partners from taking over patients without passing on value to your estate.

5. Establish an Asset Protection Trust

Because a straightforward revocable trust doesn’t offer asset protection, you need an instrument that will protect you against malpractice claims. An asset protection trust is often combined with a Family Limited Partnership, an LLC, or a Private Retirement trust.

6. Consider a Division of Business Assets

The 2018 Tax Reform means that physicians are unable to benefit from most income tax cuts. You may consider a division of your assets between the medical equipment, your office, and the practice of medicine for better asset protection and to meet the income thresholds for a larger tax break. These structures are created in close consultation with an experienced CPA.

7. Make Provisions for Your Spouse

For many families, the doctor is the sole or major breadwinner in the home. This income discrepancy may mean that you need to draw up pre- or post-nuptial agreements to keep assets separate or purchase life insurance as a replacement income stream for your family after your passing.

Estate Planning for Physicians, Our Most Frequently Asked Questions

When it comes to estate planning for physicians, there are a number of important questions that come up time and time again:

Why is estate planning so important for doctors?

Regardless of your profession, estate planning is important for tax planning, asset protection, and to ensure that your assets are distributed according to your wishes after your passing.

For doctors, there is an additional concern about structuring your medical practice properly. Unlike with other businesses, doctors aren’t protected against medical malpractice by creating an LLC or corporation. While it is essential to have medical malpractice coverage, it may not be enough to cover all your risk, making you personally responsible in the event of a malpractice claim not covered by insurance. This places your assets at risk even after your death; it’s a very real concern as over a third of doctors in America have been sued during their careers.

Estate Planning Physicians

Estate planning will also help you address what happens to your practice if you are ill or injured or in the event of your death.

What will an estate plan look like?

Your estate plan determines what happens after you die, or if you become ill or incapacitated. It includes:

  • Naming beneficiaries
  • Naming guardians for minors
  • Appointing individuals to control assets
  • Avoiding probate

Why would you want to avoid probate?

Probate is the process of proving a will in court to ensure that the wishes of the deceased are fulfilled and that the inheritance goes to the right heirs. It is often a long, drawn-out process, and it can take months to access funds. The four main issues are:

Access to funds

Probate can leave your family in a difficult financial position as they need to pay for funeral expenses and monthly living costs. A modest estate can take between 6 months and 2 years to get through the probate process and your heirs are also liable for taxes, insurance, and other costs related to the estate until probate is officially opened by court order. If you have a spouse who doesn’t work and doesn’t have access to funds, they may be left struggling to pay for rent and groceries.

Endless paperwork

Your executor will likely need court approval for every small step of the probate process, from selling business concerns and real estate to distributing funds for living expenses. This can be overwhelming as there are rules that need to be met, forms to fill, and appraisals that need to be completed and submitted before they can be approved.

Lack of privacy

Probate records are available to the public, so anyone can learn everything about the estate of the deceased, including assets and liabilities, beneficiaries, and personal representatives. In some states, these files are available online.

High Costs

From attorney costs to court filing fees, the costs of probate for even a modest estate can quickly get expensive and run into the tens of thousands of dollars. All these fees are payable out of the estate and mean less money and possibly fewer assets for your heirs.

How can expert legal advice help?

Let’s put it like this: your patients could Google their symptoms and self-medicate, but is it the best solution? Estate planning is a bit like that – you can get the basics from Google, but to save on death duties and taxes,  ensure that you and your family are protected, and to avoid any nasty surprises, it’s best to work with an expert.

They can help you:

  • Understand changes in tax laws, as they affect estate, death, and inheritance taxes and may mean you can take advantage of higher gifting and asset transfers during your lifetime to lower your estate’s tax liability after your death.
  • Structure your estate correctly. An irrevocable trust, for example, allows you to transfer assets into the trust, so they’re not included in your estate and therefore offer a significant tax saving for your dependents.
  • Save money, from estate tax savings to asset protection and avoiding probate, an experienced estate planning attorney will plug the gaps and help to secure your family’s financial wellbeing during your lifetime and after your passing.

In Conclusion

There’s no “one size fits all” solution for planning your estate if you’re a physician since your plan will depend on your practice specialty, location, financial goals, and succession planning. This makes it essential to work with an estate planning attorney to ensure full peace of mind so that, whatever happens, you and your loved ones will be looked after.

If have additional questions on creating an estate plan for a physician, or you’re a physician and need professional legal services, please reach out on our contact page.

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