Estate planning is one of those things that sounds like something you don’t need to think about unless you’re old, or rich, or both.
If you are recently out of medical school, or are in relatively good health, or are one of the 76% of medical students who graduate with debt, you may think you don’t have any assets. You may also feel that creating a plan to account for assets is something you can put off until much later.
If you do think these things, let us be blunt: you’re wrong.
To begin with, it’s never too soon to have a solid plan to protect one’s actual or potential wealth. It’s also never too soon to protect one’s home, business, or personal effects, such as family heirlooms. Considering common questions about estate planning will help you take the first steps to creating your plan.
All of these things come together when you plan your estate, including making plans for any medical directives or guardianship for your minor children.
There’s a lot that goes into planning an estate, probably more than you might have realized. Don’t worry, though, because we break down the key components of an estate plan here.
To get started learning what you need to do to create a plan for your estate, check out these 15 most common questions about estate planning.
1. What is estate planning?
When you think of an “estate,” you might conjure up visions of Downton Abbey, or a large villa in the country. There is generally a mansion, perhaps some land, maybe a few stables or a swimming pool or a tennis court. The word “estate” can signify the wealth of property. And if you do not yet own property of any kind, let alone a mansion, you might think that an estate is a far-flung dream, and certainly not a reality.
The good news is that, when it comes to financial planning, an estate is about much more than real estate. In the legal sense, an “estate” is the collection of money and property owned by a particular person, especially at the time of their death. Or, put a different way, an estate is someone’s net worth in the eyes of the law.
The “death” part sounds a bit sobering, but don’t be scared. The benefit of estate planning is the fact that when you consider all of your property and assets, including what you might have at the end of your life, you’ll see that you are actually far richer than you might have realized.
2. Why have an estate plan?
The answer to this question is simple: having a plan to ensure that your assets, debts, property, and loved ones are cared for in the way that you choose even once you are gone will offer peace of mind.
It’s easy to think that planning for your death is not necessary. After all, you’ll be gone, so what happens to your student loans, property, business, or personal effects will be someone else’s problem. In a legal sense, this is true. But don’t you want control in how your personal property, the business you have worked so hard to build, your personal effects, and especially your loved ones are treated after you’re gone?
The greater your assets, the greater the tax burden that your survivors may have to resolve as well. A few hours of work today could save your loved ones from years of debt and hassle later.
3. How is estate planning any different for doctors?
In most ways, estate planning for doctors is no different at all than estate planning for anyone else. What constitutes an asset or a debt is the same no matter what you do for a living. Real estate is real estate, student loans are student loans, and everyone should choose beneficiaries.
The one key difference between estate planning for doctors and estate planning for people in other professions is that doctors tend to have private practices. Until as recently as 2015, more than half of physicians owned their own practice.
Owning a business adds a level of complexity to one’s estate, especially when that business is may involve other physicians, countless other employees, insurance plans, and overhead.
4. What should I think about when it comes to estate planning?
Put simply, you should think about what you want to happen to what you own, and how you want your loved ones affected by what you owe.
It’s easy to think that what happens after you die doesn’t matter because you won’t be here to worry about it, but think about your hard-earned work to build your practice, your career, and your personal wealth. Think also about your loved ones.
There are ways that an attorney and a tax advisor can help you plan your estate that will allow your loved ones to appreciate your memories and cherish any belongings you may wish to leave, with a minimal tax burden.
5. What makes up my estate?
An estate is made up of everything you own which has value in the eyes of the law minus that which you owe. Having value in the eyes of the law is the important distinction between what constitutes an estate and what are simply possessions.
You can designate anything you wish to be disbursed at the time of your death. If you have an heirloom piano or a pet or a collection of books that you would like to go to a particular individual or organization, you can absolutely include those items in your will. But for something to be a part of your estate, it needs to have net worth in a legal sense.
What is an asset?
An asset is something of value that is owned and by which you benefit. It is generally something that provides an income or a service, such as housing. Examples of assets include: retirement accounts, real estate, a business, or items of value such as a fine wine collection, jewelry, or collectible artworks.
What is a liability?
A liability means you are responsible for something in a legal sense, such as paying back a loan, paying child support, or owing money on a property.
6. Can I write my estate plan myself?
Absolutely. The real question, though, is whether or not you should write your estate plan yourself. A lawyer will save you time and stress because they know exactly which documents you need to suit your individual situation.
Attorneys specializing in answering the most common questions about estate planning are generally not tax advisors themselves, but they will likely have a network of professionals to whom they can refer you. Estate planning laws do change year by year, and part of the job for an attorney specializing in estate planning is to stay on top of those changes, and advise you accordingly.
An attorney will also know how a major life change such as a marriage, divorce, or purchase or sale of a business will affect your estate, as well as help you make the necessary legal arrangements involving any minor children or if you wish to leave any money to charity.
7. What makes up a good estate plan versus a bad one?
A good estate plan encompasses provisions for your possessions, people, and property. A solid plan will likely include your will, perhaps power of attorney, a living trust, any medical directives, your beneficiaries, and tax advice.
8. What is a living trust, and if I have one, do I still need a will?
A living trust is a plan created while you are alive where your assets are available for your benefit until your death, at which time they pass to your designated beneficiaries. This helps to avoid your assets going into the process called probate, which can involve lengthy court proceedings. The key difference between a living trust and a will is that a living trust helps your beneficiaries avoid probate after you die.
An estate plan is about more than just documents directing where you want your assets to go. A comprehensive estate plan incorporates such decisions as medical directives in a way that is legally binding so that your loved ones are ready to best assist you in accordance with your wishes should that need arise.
As a physician, you likely know the importance of having a health directive ready in the event of the unthinkable. Medical emergencies are stressful, and prior planning to ensure that your wishes are met and carried out is critical.
The decisions necessary to honor your wishes are not decisions that can be made on the fly, or at all, should you become incapacitated.
10. I have a will. Isn’t that enough?
By now, you have probably realized that a will is simply not enough to ensure proper planning of yourself and your possessions. A will is a good step, because it does allow you to put some of your decisions in writing about the disbursement of your possessions after you die. But a will alone will not ensure the care of your minor children, or contain medical directives, or ensure a quick and seamless transfer of your assets to your beneficiaries the way that a living trust will.
11. I am single or in a same-sex relationship. Does that affect my estate planning?
It’s a common misconception that if you are married, and you live with your spouse in the same home, that your home ownership and other assets will automatically transfer to your spouse in the event of your death. This is not true, regardless of the legal status of the relationship.
That’s right – even a long-standing partnership, where you share a home and a life together, does not ensure transfer of ownership of assets upon your death. There are steps that you must take, legally and in writing, to ensure that your home and other assets are transferred to the person or people you wish upon your death. If you do not take the necessary legal steps to put this plan in place, your estate could wind up in the hands of the court, tied up in probate for years, while your loved one loses access to their home and potentially savings account or other assets.
This is one of the areas where you need an estate plan the most: to ensure that your immediate family or the people you hold most dear are covered in your plan, because the state may find that blood relatives are the appropriate beneficiaries in the eyes of the law, which may not be your choice.
12. What documents do I need for my estate plan?
When you make an appointment with your lawyer, he or she will likely provide a list of documents to bring to your first appointment. These documents will include copies of statements of all assets and liabilities. Be sure to bring copies of any legal documents you may already have, such as your will, advanced directive, or trusts.
Bring copies of mortgage statements and loan paperwork for student loans, business loans (if applicable), or any other loans you may have. You may need to bring additional documents with you, but these documents will get you off to a good start and save you time later.
While the time it will take to design an estate plan will vary based on each individual’s needs and situation, it generally won’t take more than a few hours of your time to make a list of assets and liabilities and gather supporting documents, and then a few hours with an attorney over the course of two of three visits.
13. Once I have an estate plan, does it ever need a checkup?
This can, of course, vary widely based on your needs, your preferences, and your assets. Just as your assets and liabilities will likely change over the course of your life, so will the needs of your estate plan.
It’s best to revisit your plan every few years or any time you experience a major life event, such as a marriage, divorce, birth or adoption of a child, buying or selling of a property, move to a new state, or anything else that might affect your financial situation.
The upside is that reviewing and revising your estate plan will likely take less time than designing the plan in the first place, which will save you money on attorney’s fees.
You can name anyone you want to be your heir.
There are legal definitions of what makes a person an heir if you don’t designate any beneficiaries yourself, but all you have to do is name your chosen heirs on in your estate plan.
Absent any named beneficiaries, or should your named beneficiaries be unavailable at the time of your death, the state in which you resided at the time of your death will make decisions for you as to who your heirs will be, most likely based on your blood relatives and not at all based on your lifestyle or life choices.
In other words, just because you live with someone for years or decades and share a life and a home and even children, that person may not be your legal heir unless you designate him or her as such in your estate documents. Choose wisely and make sure you have a primary and a secondary beneficiary for each asset.
15. Should pets be considered in an estate plan?
This may seem like an odd question, but it comes up more than you might think.
Pets are often considered part of the family, and require care once you are no longer able to care for them yourself. It’s best not to assume that a family member or friend will love your pet the way that you do. Or, perhaps they don’t wish to take on the responsibility of your animal.
Some pets, such as reptiles or birds, can live for decades. Parrots in particular often outlive their owners and require a high level of care. Make sure that your estate plan includes your decisions for who should care for your pets after your death to ensure they are cared for in the manner of your choosing.
As you can see, a comprehensive estate plan encompasses much more than a will. The first step involves considering these common questions about estate planning and how the answers best fit your situation.
It’s important to put emotion aside and focus on your assets and liabilities of today while considering how your estate may change over time. As a physician, estate planning is particularly important given the added element of owning a private practice.
Many physicians also earn high salaries, even without a high net worth, and it helps to have the right professionals in your corner to navigate how to maximize your earnings over time so you can live your very best life.
Did this blog help you answer questions about estate planning? We’ve got more up our sleeve! Be sure to check out Everything You Need To Know About Estate Planning for Physicians, but not before subscribing to the podcast!