Protecting what’s yours: Estate planning for physicians

Keith A. Reynolds

Medical Economics Journal, Medical Economics June 2021, Volume 98, Issue 6

Proper estate planning can keep a physician’s assets safe and private after death.

Physicians are used to having control, especially in matters of life and death, but with the COVID-19 pandemic causing more than 500,000 deaths in the U.S. in less than a year, the time has never been riper for physicians to consider what will happen when they die.

A proper estate plan can continue a physician’s sense of control beyond their death by protecting assets, providing privacy for the bereaved and ensuring the deceased’s wishes are honored.

Necessary steps

Julianne Andrews is principal at Atlanta Financial Associates, LLC, and she has helped physicians across the country handle their finances. She says she is often surprised at the number of new physicians she has interacted with who do not have wills.

“If you die intestate, which means you die without a will, you’re just making it very difficult for those left behind because they have to go to probate (court), they have to prove who they areand there’s a whole process they have to go through,” she says. “The other problem that happens when you die intestate is that each state has its own laws about how assets are going to be distributed, which may or may not be what you had intended.”

According to Andrews, in her home state of Georgia, the law specifies that if a person dies intestate, their estate is divided equally among the spouse and the children with the proviso that the spouse receives no less than one-third of the total.

“Typically, people leave everything to their spouse,” she says. “So they want to make sure that they have legal documents in place. It doesn’t have to be complicated.”

Where to start

While there are online options that can help one draft estate planning documents on one’s own, most experts recommend contacting a professional.

Joseph Kampman, Esq., a partner at law firm Ziegler Metzger, says estate planning for doctors is not much different from estate planning for others who own businesses, though each case is unique. He says the goal of estate planning is to have the client’s assets pass to their beneficiaries in the most efficient, tax-effective and private way possible. To do this well, he recommends that doctors new to practicing assemble a team.

“My advice to a young doctor would be to line up a good attorney, a good accountant and a good financial planner and have that team work together to make sure everything is the way it needs to be,” he says. “There’s interconnection; the financial planner has all the assets and if the attorney doesn’t know how the assets are registered, or what the beneficiary designation is, that is problematic when it comes to preparing the documents.”

Greg Klucher, senior vice president and trust officer at Huntington National Bank, says younger physicians should approach estate planning separately from their financial planning, though the two should intersect at times.

“What you do at that point is just try and get some general concepts from the doctor and ask,how do you want the story to end? Did you want to be stinking rich? Do you want to be comfortable? Are you planning on having a big family?”

The answers to these questions can change the best course of action for estate planning.

When approaching an estate plan, Kampman says it is wise to take stock of what assets the physician has. Do they own their own practice? Are they employed by a hospital or physician group?

“Those are factors you have to look at because the valuations and that type of thing are obviously different,” he said.

Powers of attorney

Part of the estate planning process includes the creation of documents that govern who can make financial and medical decisions. A financial power of attorney designates an agent to handle financial matters.

“If it’s a husband-and-wife situation, it typically will name the spouse with a potential for naming an additional, alternate agent,” Kampman says.

Health care directives are essentially medical powers of attorney as they designate an agent to make health care decisions on one’s behalf. There is also the living will, which is a person’s declaration of what they want done medically if they’re ever in permanently unconscious state or have a terminal condition.

“It’s what I call the ‘pull the plug’ decision,” Kampman explained.

Wills and trusts

The core of the main estate planning documents is the last will and testament, which covers the disposition of the physician’s property upon death, names a guardian for the deceased’s children, names an executor for the estate and specifies how to dispose of any other assets that may fall under probate, according to Kampman.

He says it is advisable to avoid probate as it can lead to costly fees of 2 to 4% of the estate. This can be done in a few different ways, including establishing a trust. Any assets placed into a trust are made payable to that trust and thus avoid the probate process.

Trusts can also be used as a way to ensure that, if one dies with young children, the funds left to them in trust are held until the children are mature enough to manage the assets. There are also special kinds of trusts that protect assets from creditors, but those should be pursued only if the physician is exposed to a high level of liability, Kampman says.

According to Klucher, unless the physician has a high level of risk and a high dollar amount, the creation of asset protection trusts just isn’t worth the cost.

“The types of people that are using asset protection trusts are people that are in high-income professions that protect at least some of their money,” he said. “It’s really not a bank account, you can’t pull the money in and out, necessarily. You kind of have to be wealthy enough to want to put some of that money on the sidelines.”

When a physician starts out, federal estate taxes aren’t likely to be an issue with the current exemption set at $11.7 million, meaning that any estate below that point, or below $23.4 million for married couples, will pay no federal estate taxes. They can still be required to pay state estate taxes, but states including Ohio have abolished their own estate taxes, Kampman says.

Keeping up with the times

Andrews says it is important to review estate planning documents on a regular basis to ensure everything is up to date.

“So if you do have a change in life circumstances like divorce, death in the family, an inheritance, you want to go back and look at your documents and just make sure that they still are reflective of what you want to have happen,” she says.

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