Quick & Dirty Estate Planning for Doctors

By Katherine Vessenes, JD, CFP®, RFC
President, MD Financial

 

Although most of our physicians are concerned about income taxes, estate taxes can be a much bigger burden. In fact, they can eat up almost 50% of an estate.
 

The good news: unlike income taxes, estate taxes are completely voluntary. There are things doctors can do to make sure your estate passes without any estate taxes.
 

Take a look at these facts:

·      Estates over $1,500,000 million in Rhode Island are subject to an estate tax. The maximum rate, for large estates is 16%. 1

·      Estates over $1,000,000 in Massachusetts also pay estate taxes. Their top rate is 16%. 2

·      Estates over $1,600,000 in Minnesota will generally average about 10%, although the top rate goes to 16%. Minnesota also has the honor of being one of two states with a gift tax. Connecticut is the other state. 3

·      And here is the big one: Estates over $5.45 million pay up to 40% in Federal Estate Taxes.

 

For estate tax purposes, you may be richer than you think. Here are some of the assets that will be included in your estate for estate tax purposes:

·      The value of your retirement plans, including your 401-k, your 403-b, old IRAs and other qualified assets

·      The death benefit of your life insurance, even if it is a term policy with no cash value (it is pretty easy to get over the limits of the estate tax just with life insurance)

·      Other assets including investments, bank accounts, CDs, mutual funds, investment real estate, business interests and brokerage accounts

·      Personal belongings including jewelry, antiques and artwork

·      The equity in your home

 

As you can see, it is easy for our doctors to quickly move past these limits and find their heirs are paying taxes they had never imagined.
 

Couple of quick estate planning basics for physicians:

  1. Married couples who are both US citizens can pass an unlimited amount of money (including life insurance proceeds to each other).
     
  2. Married couples can also share the Federal exemption. So if the first spouse to die only uses $1 million, the surviving spouse will have $4.2 million from the first spouse and $5.2 million for their own exemption. This will allow them to shelter $9.4 million from taxes at the death of the second spouse.
     
  3. Married couples where one or both are not US citizens, can get the same result, but they will have to work with an estate planning attorney to set up their estate properly.
     
  4. Single doctors especially need to be careful about their estate planning to make sure their heirs get the full value of the estate.
     
  5. Legally married same sex couples will be treated the same as heterosexual couples for the purposes of Federal and State estate taxes.

 

Some things to think about:

  1. We almost always recommend our physician clients get an up-to-date will and, if necessary, a trust.
     
  2. Since estate laws vary from state to state, it is important for our residents and fellows (who may live in three different states in three years) know that their documents may need to be updated for their current state of residence.
     
  3. Trusts are helpful for a number of reasons. They can be used to bypass probate, which can save both time and money for your heirs. They can also be used to eliminate estate taxes and they can be used to set up a trustee to manage the assets for minor children.
     
  4. Take a good look at your beneficiary designations on your retirement plans and your employer paid life insurance. These usually trump any estate planning documents, so if there is a conflict, the beneficiary designations are likely to win over the will. For single parents, we recommend they create a trust for their children designate the trust as the beneficiary. 4
     
  5. Whenever possible we try to set up clients’ investment accounts as Transfer on Death (TOD). This allows your beneficiary to immediately receive the assets instead of having to go through a lengthy probate process. 5

Katherine Vessenes, JD, CFP®, RFC is a nationally known attorney, popular platform speaker and the author of three books.  She is a four-time winner of the coveted Medical Economics Top Advisor for Physicians Award. In addition, she was recently selected to be a “Top Woman in Finance” and has been selected as a 5-Star Advisor four times. She served on the Certified Financial Planner Board of Ethics and created an ethics program for American Express Financial Advisors. As the President of MD Financial, she and her skilled team are the personal CFO for busy physicians. 

 

Citations.
1 http://www.nolo.com/legal-encyclopedia/rhode-island-estate-tax.html  

2 http://www.nolo.com/legal-encyclopedia/massachusetts-estate-tax.html 

3 http://www.wilkersoncpa.com/minnesota-estate-tax.html.aspx and https://www.nolo.com/legal-encyclopedia/minnesota-estate-tax.html 

4 https://blog.pennmutual.com/10-tips-ensure-beneficiary-designations-square-estate-plan/   

5 www.investopedia.com/university/estate-planning/estate-planning5.asp#axzz1vjRm6aP