Estate planning for physicians is a tricky subject to navigate. You probably spent the better part of at least ten years of your life sharply focused on one thing: becoming a physician and everything else becomes subsidiary.
While the process to become a physician may be fraught with stress and focus, the effort results in a pretty great long-term career.
Because you are a medical professional, you are likely very good at math and science and have worked hard to learn how to administer the highest levels of patient care. This requires patience, compassion, and a keen sense of intuition.
What You Will Learn
- 1 Why estate planning for physicians?
- 2 Challenges of estate planning for physicians
- 3 Benefits of estate planning for physicians
- 4 Action steps to create your estate plan
- 5 Once you have an estate plan, then what?
- 6 What about life insurance?
- 7 What about minor children?
- 8 What about real estate?
- 9 What about retirement accounts?
- 10 What about taxes?
- 11 What about charity?
- 12 Important terms
- 13 So, do you need an estate plan?
You have likely also developed a healthy dose of business sense as well, given the necessary and unavoidable relationship that all physicians must have in order to navigate the world of managed care.
But, along the way, what is not taught in school or as part of clinical training is financial planning. That’s understandable. When you are learning about how the body works, getting a crash course on how to manage your money is not at the top of the list.
The irony is that while there is an impression that all physicians are rich, you know all too well that after you factor in paying back those student loans plus expenses to start up or buy into private practice, physicians really don’t have that much money available for which to plan.
An added challenge for physicians is that you are probably all too familiar with the concept of litigation, thanks to the constant threat of malpractice lawsuits. Take that risk and multiply it by your student loan debt – which averages $192,000, and can be as high as $300,000 or more for those attending private medical schools – and having a minute to stop and think about whether you even have any assets to offset that staggering debt probably hasn’t crossed your mind.
Physicians are exposed to a much higher level of liability than most people in other professions. It is estimated that more than one in three physicians has had a medical malpractice lawsuit filed against them at some point in their careers, according to the American Medical Association.
Even though the vast majority of these lawsuits do not come to fruition, lawsuits are expensive and time-consuming. Even when frivolous or unfounded, malpractice lawsuits can wreak havoc on your life and career.
Why estate planning for physicians?
Estate planning can be hard for anyone, but estate planning for physicians is especially delicate given the high student loan amounts that most physicians tend to carry through medical school and beyond. A comprehensive legal plan to protect your earnings, your business, your assets, and your career will help you sleep better at night in the long run. When done right, estate planning for physicians will also work in tandem with your financial plan to pay down your student loan debt over time.
Having a solid plan for your estate will provide peace of mind. Even better, an estate plan will help ensure that your hard-earned assets (and you do have assets, despite the student loan debt) are protected throughout your life and career.
In addition to the ever-present reality of malpractice lawsuits, physicians also have complex business needs if they own a private practice, and those business needs add a layer of complexity to protecting your assets in terms of your estate.
And while many physicians are never what most people would consider rich, physicians do earn a high net income, despite not necessarily having a high net worth. Estate planning can help doctors in any specialty plan strategically so you maximize your earnings despite having high amounts of debt.
Estate planning for physicians is especially crucial because of the number of physicians – slightly more than half – who own their own practices. Adding a business of any size to one’s estate can be a game changer in terms of assets and liabilities. Ensuring that your finances and personal wishes are in order prior to death will help ensure that your business partners, patients, and loved ones alike are not put in an unexpected financial bind should the unexpected happen.
Challenges of estate planning for physicians
As with most things in life, estate planning is a challenge due to two unavoidable factors: time and money.
Time is perhaps the most precious commodity for all of us, but especially when you are a physician. You know all too well that your job is about much more than seeing patients and writing notes on their charts. You have insurance paperwork to file, appointments that run long due to unforeseen complications, and on-call hours to fulfill.
This is after, of course, the years of long days and sleepless nights that you put into training to get to where you can finally earn a salary as a physician.
You also have planned on how to manage your student loan debt to deal with, and that takes time as well.
You barely have enough hours in the day to deal with patient care plus the business plus insurance companies plus additional training plus attending and speaking at conferences plus writing papers and publishing in your field. A physician’s job is long and intense.
And, you likely have a life to live amidst all of this. If you have a partner or spouse, or minor children, those relationships tug on your time. Add in supporting parents, friendships, and the all-important and oft-overlooked self-care, and what time is left in the day?
Adding in one more challenge, to plan for something that is likely a long way off and does not affect your current lifestyle is likely not a priority.
People think that doctors are rich. That’s really not the case. Because of this, it became prohibitive to consider hiring a lawyer because they are very expensive and hiring them takes money in addition to that precious time.
Because you likely don’t have legal expertise or experience as a certified financial planner, drafting a comprehensive and legally binding estate plan is something that will cost you money.
Lawyers are neither free nor cheap, and you will need several hours with one, minimum, to draft your estate plan. The upside of this is that there are ways to maximize your time with lawyers to save you money in the long run. [link to section on hiring a lawyer]
Benefits of estate planning for physicians
Despite the need to take some time to gather paperwork and a bit of money to hire an attorney, there are very real benefits of estate planning for physicians in particular.
Peace of mind
Having one’s financial affairs in order is rarely a bad idea. The best part of estate planning for physicians is that you only have to do the heavy lifting once. Get everything together, have your plan drawn up, and then you have a master document that only needs to be updated every five or ten years, or any time you experience a major life event. You can, in a general sense, set it and forget it.
Ensures your assets are protected
You may have a great idea about who you want in control of your home or business or retirement accounts when you pass away, but your best intentions become meaningless without a written, official, legalized estate plan.
Ensures the people you care about are protected
It’s easy to wave off worrying about what will happen to your estate when you die, because, after all, you won’t be here to worry about it. However, passing away without a plan all but ensures that your heirs and loved ones will be mired in possible debt, taxes, headaches, and legal red tape, potentially for years to come.
Protects against the unexpected
Having a professionally prepared estate plan ensures that your assets won’t become “intestate,” which means that the state in which you reside decides who gets what among your assets.
The state may determine that your heir is your closest living blood relative, who could be a cousin you haven’t seen in twenty years, as opposed to your life partner who resides with you in your home.
Action steps to create your estate plan
If you’re wondering whether or not you need an estate plan, the answer is: you do. Whether or not you own property, or have retirement accounts, or have minor children, even if you’re not sure if you have any assets at all, you most certainly are on a career path that will lead to a higher than average income, even if you don’t get to pocket as much as you might like thanks to student loan debt and business expenses.
While salary varies based on specialty and location, the average physician salary as of 2018 was $299,000. That is a lot of money, make no mistake about it, but as a physician, you know all too well that you are likely very far from being rich thanks to the great expense it takes to earn the prestigious title of medical doctor. Anyone who has a six-figure income coming in owes it to themselves to know exactly how to maximize that money over time, even after one has passed away.
Be sure to hire a professional for this. Do not simply search on the internet for estate planning for physicians for a template. Those templates exist, but they will not help you make the decisions that are best for you and your family if you have children involved, or if you need tax advice (and you will very likely need tax advice).
You may have one or more beneficiaries. You may designate a percentage split among multiple beneficiaries. You may even designate a primary and a contingent beneficiary. But no matter how you divide up what you have among whom, you need to state, explicitly and in writing, exactly who those beneficiaries are. Do not expect that anyone, least of all an attorney or judge who doesn’t know you, will make any assumptions based on who lives in your home. Perhaps you wish for some or all of your estate to bypass a blood relative in favor of a friend or other family member. If so, you need to write this down and have your intentions legalized.
Choose an executor
An executor is a personal representative who handles your estate once you are deceased. This person does not need to be an attorney or legal expert of any kind. Your executor can be anyone you wish. Ideally, you will choose a person who knows you well and whom you trust to put your best interests and personal wishes first. Your executor’s role is to ensure that your expressly stated wishes as legalized in your estate plan are carried out.
Review your net worth
While your attorney will guide you on what documents you need to bring to your appointment, it will save you time if you arrive prepared. Proper estate planning for physicians, or for people in any profession, is essentially an exercise in reviewing your assets and determining what you wish to happen to them should you die. It makes sense, then, to start by identifying exactly what assets you have. Your assets minus your debts equal your net worth. If your assets exceed your debts, congratulations! You will have money left over to go to your heirs. If your debts exceed your assets, do not worry. This is very common, and a proper estate plan is exactly what you need to ensure that your heirs are not overwhelmed with the burden of your debts after you pass away.
Make a list of your assets
A simple list or basic spreadsheet of your assets is helpful, though if possible, compile statements and other supporting documents as well. Assets are anything of financial value that you own. Cash, money in your bank accounts, and any retirement accounts count as assets. Any real estate that you own, specifically if you own the property outright or have equity in the property, is an asset. Your business may be an asset, depending on your financials. Any artwork, valuables, or other collectibles such as cars or jewelry are assets as well. Be sure to include appraisal documents if you have them.
Make a list of your liabilities
Don’t be afraid to face the reality of your debts. By engaging in proper estate planning, you are taking control of what you owe, and taking steps to maximize your finances. Liabilities are, quite simply, your debts. Anything you owe on a credit card is a liability. Student loan balances are liabilities. Money owed on a mortgage, minus the equity, is a liability. Any other debts you may have, such as a car loan or loan on your business is also a liability.
Hire your attorney
It’s best to hire an attorney who specializes in estate planning, and in particular, estate planning for physicians. This individual will be best prepared to maximize your time in the planning process, which will save you money on legal fees.
It’s not uncommon to meet with attorneys for a consultation to determine if you are a good fit for moving forward. However, it’s important to know that an attorney’s time is rarely, if ever, free. You should expect to pay a fee for the consultation. This fee will vary based on the attorney, and will include factors such as their experience and even your location.
Once you are ready to move forward with your attorney, you may pay a flat fee up front based on the attorney’s estimation of how long it will take to complete the work. More likely, however, you will be asked to pay a retainer. This is akin to paying for the work upfront, based on the estimated number of hours that the attorney expects your work to take. You can expect a detailed monthly statement of time worked on your case, with the hourly rate deducted from the prepaid retainer. If the work takes longer than anticipated, you will be informed of this and will be able to make a decision about how to proceed.
Don’t let the idea of a retainer scare you. Two to three appointments of roughly an hour each are the general ballpark of what you may expect for a consultation, presentation and review of documents, and review of the finalized plan. This will vary based on your personal situation, of course, but this should give you an idea of what to expect in a general sense.
After the plan is written and finalized, you won’t need to check in again until you either experience a major life event, such as the birth of a child, purchase of a property, or payoff of a loan. You may also wish to check in with your attorney once every few years or so to review everything and make sure that your existing plan still reflects your wishes and financial situation.
Once you have an estate plan, then what?
While having the estate plan written is the biggest lift in terms of time and money, it’s important to take a few extra steps to ensure everything is sorted exactly as you wish.
Some people make the mistake of thinking that it’s the attorney’s job to read over everything and pay attention to detail. That is certainly correct, however, attorneys are human just like anyone else, and no one knows your financial situation and your wishes better than you do. Be sure to not only review the completed estate plan, but read it carefully, pen in hand. Make notes as you go. Write down any questions you have. Don’t think that because the plan is written with legalized language that it’s beyond your expertise to review. Your estate plan represents your life’s work and your money, and you are the most important person who needs to understand it, not the attorney.
Decide where you want everything to go
Your estate plan will be a document that you need to keep safe. Consider buying a safe to keep in your home to protect against flooding or fire. You might also wish to consider renting a safe deposit box at a nearby bank.
Be discerning about sharing the document or information contained within. Provide a copy to anyone who might need it, such as your executor or the identified guardians of any minor children. You also could choose to provide a separate letter to those individuals outlining details of their part only. This will allow you to share the information they need to have without your divulging all of your financial details.
Review once a year
You don’t necessarily need to schedule an appointment with your attorney on an annual basis. Instead, simply take out the document and read through everything. Have you experienced any major life changes? Have you changed your mind about any of the details? Do you wish to make any changes to your beneficiaries? It’s always okay to change your mind. Making minor changes like these over time is much cheaper than overhauling the entire plan after too much time goes by.
What about life insurance?
A life insurance plan is an important part of estate planning for physicians. This should definitely be part of your conversation with your estate planner.
Life insurance is generally covered by your employer if you work for an organization, such as a hospital. If you own all or part of a private practice, be sure not to overlook having adequate life insurance coverage for yourself and potentially for your staff.
Life insurance is especially important if you have minor children or other dependents, or a spouse who relies on your income. The purpose of life insurance is that your immediate family members can navigate any funeral costs, as well as manage expenses while your estate is in the process of being settled. As with all parts of estate planning, life insurance lends peace of mind.
What about minor children?
If you have minor children, you need a will. Regardless of any other estate planning you may do to take care of property or financial accounts, ensuring that you have a legally binding plan in place regarding care of your children is crucial.
Decide which responsible adult or adults you wish to be their guardians. Set up a time to speak with those individuals, and ask if they are willing to be named as guardians in your will. Give them time to digest this information, consider the ramifications of it, and get back to you at a later date with their answer. Be prepared for their answer to be no, and honor that. It helps to identify a few backup individuals to ask should your preference decline.
Once your guardian or guardians have been determined, inform your attorney so that the proper documents can be drawn up to formalize the agreement. This is in the best interest of your minor children. Should the unexpected happen, your having this plan in place will ensure that your children are cared for in the manner of your choosing, with minimal stress to them.
Your attorney and financial planner can help you determine how your estate can be structured so that there is financial consideration set up to support your minor children in the event of your death. This information should be reassuring to your chosen guardian or guardians.
What about real estate?
Real estate seems straightforward, but can actually be trickier than you might expect to settle upon your death. Simply living in a house, or even having a rental agreement, is not enough to ensure that a person has the right to remain in the house after your death. Even if you are married, if your spouse’s name is not on the deed, that person is not automatically legally entitled to remain in or own the home after your death.
Part of your estate planning conversation should include discussion of whether it makes financial sense to retitle the property in both of your names, which carries with it attendant fees to consider, or if it makes more sense for your situation to create a tenancy in common document instead. A tenancy in common is a legal document that will allow your significant other or person of your choosing to remain in the home after your death, despite not having his or her name on the title.
What about retirement accounts?
A good rule of thumb with estate planning for physicians or for anyone else is to always keep your eye on your retirement accounts. As you move from one organization to another – and anywhere from 40-70% of people will change jobs within five years of starting their first professional position – it can be easy to leave retirement funds in the employer-held accounts. The money is still yours, after all. It will still likely grow, ebb, and flow along with the stock market, whether it stays in your employer-sponsored funds or into funds you have managed on your own. The downside of leaving the money where it is, though, is that the money is then easy to forget. You can find yourself years down the road and may have moved and lost track of statements and then your money is not working for you as well as it could.
Every time you leave an employer, take the time to fill out the paperwork to roll your retirement account money into a private account. Your financial planner can help with this. It’s a very easy process, and then over time, your retirement funds will be managed together in a place where they can grow in accordance with your own financial goals, because they are managed by an advisor you have hired to look out for you.
What about taxes?
If there is one truth about life that we know all too well, it’s that taxes never go away. The best path forward is to accept this and plan for it. The upside of paying taxes is that there are plenty of professionals available to help you navigate how to pay them so you maximize using all of your assets.
While it is always best to consult a certified professional accountant for advice on all things tax-related, it helps to know that there are some ways that the law is currently on your side in regards to estate taxes.
While tax law can and does change every year, as of 2017, the federal exemption before estate tax is applied is $5.49 million dollars. That means that as long as the total value of your estate at the time of your death does not exceed $5.49 million, your heirs will not owe any tax on your estate. This amount doubles if you are married.
What about charity?
Many people like to consider leaving some or all of the proceeds from their estate to one or more charities. If there are any nonprofit organizations that are particularly meaningful to you, it’s not a bad idea to consider leaving them a gift in the form of a lump sum or even an endowment.
As of 2015, you can donate up to $5.43 million during or after your life tax-free. That number doubles if you’re married.
Charities make it easy to accept your generosity. It will cost you nothing to reach out to your favorites now to ask about their planned giving opportunities. They likely have a brochure or website at minimum, or a professional who will be happy to speak with you and share the information you will need for planning your estate.
Be sure to consult with a certified public accountant to determine the particulars of your estate plan. This way, you can rest assured that your heirs are not saddled with an unexpected tax bill after your death.
Here is a glossary of important terms that you may find handy as you work with your attorney and other professionals on planning your estate.
Advanced Care Directive: See “Living Will”
Asset: Something tangible and liquid that has value based on a contractual claim.
Beneficiary: The person (or place) who receives your money or property after you die. You can have multiple beneficiaries. A primary beneficiary is first in line to receive the money you designate. A secondary or contingent beneficiary is the person who will receive the money should the primary beneficiary be unavailable or deceased.
Certified public accountant: A professional financial adviser who has passed a formal and rigorous exam qualifying that individual to provide advice on all matters relating to taxes, including audits, personal taxes, business taxes, and the like.
Endowment: A gift of money or incoming-producing property to a public organization, such as a nonprofit, charity, hospital, or school. The donation is for a specific purpose, such as research or capital improvements, or do generate ongoing income to be used by the organization. The original gift, known as an “endowed asset” is kept intact and generates ongoing income on a long-term basis.
Estate: An estate is the term to represent all property owned by you at the time of your death.
Estate planning: A written plan designed to identify your beneficiaries, ensure your property will be transferred appropriately to those you designate after your death, minimize taxes, determine any long-term care plans you may wish, and determine any funeral arrangements you so choose. An estate plan is particularly helpful in reducing time and money that your survivors must spend to resolve all of your assets and liabilities.
Estate planning for physicians: The same as a general estate plan, though may have the added component of determining resolution for a private practice or other profession-related business.
Estate planning law: The branch of law concerning living wills, trusts, powers of attorney, other documents and planning to protect management of property and minimize taxes after death.
Executor: A legal adult appointed to represent an individual after the time of death, and ensure that the wishes of the deceased and legal obligations for property and possessions are carried out.
Financial planner: A professional financial adviser who provides a written, comprehension financial plan, along with dispensing financial advice.
Guardian ad litem: A court-appointed adult who stands in for a minor child during legal proceedings when the child is deemed unable to represent him or herself. This is typically, but not restricted to, the attorney or a family member.
Intestate: When you die without a will, and the state takes over the handling of your estate in according to the law, which may not necessarily be in accordance with your personal wishes.
Liability: A legal obligation to deliver payment to fulfill a contractual claim.
Legal guardian: An adult over the age of majority (18 in most states), who is legally responsible for a child’s physical, educational, and financial needs.
Liquid assets: Something of monetary value that can be converted into cash in a short amount of time.
Living will: Sometimes known as an “advanced care directive,” a living is a document that clearly states a person’s wishes for end of life care. The document is only valid until the time of death.
Major life event: Otherwise known as a qualifying life event, these are major events that can lead to changes in financial status or situation, to include loss of health care coverage, getting married, birth or adoption of a child, death in the family, change in residence, change in citizenship status, or getting married or divorced (list is not all inclusive).
Minor child: A child under the age of legal majority, which is 18 in most states.
Net worth: The combination of what you owe and what you own.
Power of Attorney: While the rules differ state to state, power of attorney is the legal permission for another person to act on your behalf with concern to legal matters.
Power of Attorney for Asset Management: A form of Power of Attorney limited to areas of financial affairs. This document allows you to nominate an individual to represent you specifically regarding your financial affairs should you become incapacitated.
Power of Attorney for Health Care: A form of Power of Attorney documents that provides solely for appointment of a health-care agent, without specific directives regarding medical treatments.
Probate: A legal process to verify that a will is valid.
Retainer: A fee that a client pays up front to cover the costs of legal fees. This may be a general retainer, which covers a specific period of time as opposed to a specific project, a lump sum fee paid in advance from which the attorney draws funds to cover time spent working on a case, or a special retainer, which is a flat fee paid by the client for a specific project.
Tenancy in Common: A legal agreement where there are multiple owners of a property, each owning a share. These shares can be transferred to one another either during a lifetime or via a will. This agreement allows all parties to have the right to occupy and use the property, regardless of whether or not they are legal owners of the property.
Title: A document that states who has legal ownership of and the right to use a piece of property.
Trust: A legal arrangement where a third party, such as an individual or organization, holds assets on behalf of one or more beneficiaries. There are many types of trusts, including those that can provide liquidity to an estate for the benefit of beneficiaries, or to provide income for a surviving spouse.
So, do you need an estate plan?
Bottom line: you absolutely do. The good news is that creating an estate plan is not that difficult when you employ the right professionals. The peace of mind you will achieve from knowing that your home, your property, your business, and your life are properly cared for in the event you are incapacitated or should die is more than worth than bit of time and money it takes at the outset to create the right plan for you.