Planning for the Inevitable: What Physicians Need to Know About Estate Planning
Death comes to us all, and no one knows that better than a physician. Despite knowing that the inevitable is part of the natural order of things, the reality of death is a difficult thing to face. More than simply a physical process, death is also an emotional one. What most people don’t realize is that there is also an important financial component to death as well. So, on that somber note, here are a few things physicians need to know about the estate planning process.
Why estate planning is a good idea
You may feel like writing a will is only for people who have things to leave behind. For most physicians, the task of paying down student loans is long and often feels like there is no light at the end of the tunnel. When the road is long, the end never feels near. And when your debt is in the six figures, it probably feels like there aren’t any assets for which to plan.
And yet, estate planning is a crucial component of protecting what you do have, whether or not you have debt.
Not only is a will a good idea for everyone, but physicians also have the added complexity of large student loan debt and/or business loans, should you own your own practice.
What is an estate?
Talking about an “estate” may sound like we’re discussing a large mansion on beautifully manicured grounds. Instead, in legal terms, an estate is simply the balance between assets (things you own that have value) and your liabilities (what you owe).
- Cash, including money in savings and checking accounts
- Investment accounts
- Property (both primary home and any rental properties you may have)
- Businesses, including shares in any business you may own jointly
Liabilities include any kind of debt, including:
- Credit card debt
- Student loans
- Mortgage loans
- Car loans
To determine your net worth, subtract the total of your liabilities from the total of your assets. Hopefully, the resulting number puts you in the black, but if not, do not worry. Many people, especially those with large amounts of debt, owe more than they have. This does not mean that you don’t need a will or any kind of estate planning. In fact, it means just the opposite.
Because student loan debt may linger, even after you die.
Any loans borrowed by the federal government will be automatically canceled should you die, but any private loans will remain. That, and any other debt you have, will be passed on to your heir(s) for them to deal with.
Elements of an estate plan
Planning your estate involves creating a set of legal documents detailing your express wishes for what will happen to your assets and liabilities. If you don’t make these decisions while you are alive, someone else will, and that someone will be the state in which you live. Any assets or liabilities not outlined in a will or other documents will enter what is called probate, where the state decides what happens next, and who gets what.
While everyone’s situation will be a little different, these are the documents most commonly needed to plan one’s estate:
- Will: This will allow you to direct where you want not only your assets of legal value to go, but any personal or sentimental items as well
- Power of attorney
- Health care proxy
- DNR order: If applicable
- List of bank accounts, including account numbers and balances
- Investment account information, including account numbers and balances
- Mortgage documents
- Business ownership documents, if applicable
- Past 3 tax returns
- Loan documents: student, car
- Vital documents: married or divorce certificates for you, if applicable, plus birth certificates for any children; include documents for any foster or stepchildren or any applicable adoption paperwork
As you can see, a review of all of this paperwork requires a professional who knows the legalities of each item on this list. It is best to start with an attorney specializing in estate planning. That person will likely refer you to an accountant, financial adviser, or other professionals as well.
Try not to be too daunted. The biggest lift is in gathering the initial paperwork. Once you have that together, the professionals do the work. Should your situation change over time, and it will, you will only need to update the file you have already created.
Why do you need a formal plan?
To plan an estate is a fancy way of saying that you took legal steps to make decisions about the dispersing of your assets and liabilities after you die. You will need a set of legal documents to make sure that everything is taken care of in the way you choose.
It’s not enough to simply leave a property to someone, or tell a friend or loved one they can have your home or the money in your bank account when you die. Verbal conversations are general not binding or enforceable, and what is in writing matters.
Imagine being the partner in a medical practice, and your business partner passes away without a will or estate plan. Your partner’s share of the business will not automatically pass to you. There will be a lengthy process where the state in which the business is owned will try to find legal heirs, who are typically living relatives. Those relatives may or may not want to be found, and may or may not want any part of your business. Maybe they’ll see you their share. Maybe they’ll sell their share and you’ll be out of a job. Maybe they’ll try to step in and run the business without experience.
Now, look at it from your own perspective. You have the ability to not be the person leaving others in the lurch. Your planning now will ensure that the business you worked hard for will thrive after you are gone in the manner in which you direct.
This all rings true for home ownership, as well. Most of us own homes that come with mortgages. It is rare for a home to be owned outright, especially when medical school has to be paid for. And when you die, a house does not necessarily automatically transfer to other occupants of the house.
What happens if you don’t have an estate plan?
If you die, and you will, something will happen to your stuff one way or another.
Either you decide who gets what, or the state will decide for you. This could be costly and time consuming for your heirs. This could also mean your hard work to curate your personal and professional life could end up at the mercy of state legal representatives.
Dying without a will has a legal term: intestate. If you die intestate, your assets (and debt) will be distributed evenly amongst your heirs. You may think that your heirs are obvious or even that you don’t have any heirs, but part of the state’s responsibility in taking over your estate is to identify your heirs.
They could be your surviving spouse, your siblings, your children, and even possibly aunts, uncles, or cousins. The state could also decide that, in the absence of any of these more obvious relatives, your heirs are relatives you’ve never even heard of. The state generally looks for relatives by blood or marriage, and goes down the line until they find someone, skipping over anyone who may have been close to you in personal relationship but not in legality, such as foster children or stepchildren.
If no heirs are found, the entire estate goes to the state to auction off as they see fit.
What does the state do with your estate?
The state will sell off everything that can be sold. Check out the local newspaper. You will likely see items in the classified listed as “estate sales.” You may also see these advertised on Craigslist or in your community in other ways. These sales are generally happening for 2 reasons:
- The state is auctioning off or selling everything they can from an estate with no known heirs
- A family member inherited things they don’t want or need to can afford to maintain and so are selling what they can to liquidate assets.
Estate sales are not necessarily a bad thing. If you inherit a home but would like to move in all of your own furniture or sell them home, you need to do something with the contents of the home. There are likely many items that will be useful to others, so it makes sense to sell them in this way.
Ready to plan?
Think of planning your estate as creating an advanced directive for your things. By “things,” we mean your assets (home, car, bank accounts, investment accounts) and your liabilities (debt).
In addition to the documents referenced above, consider these items as well when putting together your plan:
You most likely have a life insurance policy through your job. Make sure you read it, and pay close attention to the person you name as your beneficiary.
Items of monetary value
Jewelry, artwork, cars, and collectibles all could have monetary value. Consider which items do or could have an insurance policy associated with them. Those are items you need to consider in your will.
Items of sentimental value
Items of sentimental value are things that may get sold or potentially thrown away if you don’t have heirs or a will. Yet, these are items that may mean a great deal to you. Perhaps it’s your great-grandmother’s costume jewelry, or a piece of artwork your mother painted as a girl, or an antique pen that belonged to your father. If you want to make sure these items of value to you wind up in the hands of people who will care for them as much as you do, make sure to write that down in your will, with the guidance of an attorney.
If you have minor children, who will be responsible for their care should you die or become incapacitated? If they are adults, consider what, if anything, you wish to leave to them. Name a guardian and decide on division of assets. If the children are minors, consider a trust. This will ensure your money and other assets are professionally managed by a neutral party until your children arrive at the age you designate to receive control of the assets.
Whom do you wish to be your designee in the event of your death? This person will have the responsibility to ensure that your wishes are carried out.
Death comes to everyone, regardless of age. If you have ideas as to how you wish your funeral or burial to go, be sure to include them.
Speak to your attorney about drawing up an advanced directive, and a Do Not Resuscitate order, should you wish to have one. If you are an organ donor or wish to donate your body to science, there is paperwork associated with that as well. As you likely already know, checking the organ donation box on your driver’s license helps hospital staff know what questions to ask your family members, but including this in your estate planning could prove very helpful, in particular if you have a prolonged illness. Additionally, if you wish to donate your body to science beyond typical organ donation (such as donating your body to a medical school or research lab), there is necessary paperwork beyond your driver’s license that must be filled out in advance.
A living trust is an enforceable document crafted while you are living that can help you reduce estate taxes, plan care for minor children, ensure your family’s privacy, and potentially save your adult children from themselves, so to speak, by providing limits on how they may access and use any assets you leave to them.
How large is the estate and which state is it in
Taxes are a big part of the consideration for settling an estate. If you die intestate, any real estate you own in a state other than where you died will be handled according to that state’s laws. Proper estate planning can help you streamline the tax liability of your estate and make life much easier for your heirs.
If you have any type of retirement or investment account, such as a 401(k), IRA, or 403(b), or even a pension, an estate-planning specialist can help you create the proper designations to ensure the right people get access to your money in a timely fashion.
This is a lot to consider! One enjoyable consideration when planning an estate is whether or not you would like to designate some money to go to one or more charities. People donating money to their cats and the like have given charitable planning giving a bad reputation, but the truth is that many nonprofit organizations have plans set in place to accept any monies you wish to donate upon your death.
Check with your favorite charities to inquire about their planned giving opportunities. They will be very grateful for your support.
Getting your affairs in order may be uncomfortable but it is also important. You may think that facing your mortality will make it more difficult to sleep at night, but having your estate planned properly will actually help you sleep better.
Estate planning is not a “one and done” type of action. Things change, assets change, debts are paid off, children are born, and businesses are started and maybe sold. Every 5 or ten years or so, or any time you have a major life event, such as the birth of a child, buying or selling of property, starting or closing a business, revisit your estate plan with your attorney. That hour you spend ensuring that your assets and liabilities are prescribed in the manner in which you choose will provide more peace of mind.
If you work for a hospital, check with your benefits package to see if there is an Employee Assistance Plan. If so, you might have free or low-cost access to basic legal services. Take advantage of that to get started and put together a plan for what you will need.
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