Written by Josh Lantz, CRPC®/ Chief Investment Officer, Financial Advisor
All doctors need an estate plan, but in our experience very few have them. Most state it’s because they don’t know where to start or what an estate plan should include. At a minimum, doctors should look to get a basic estate plan when they initially have children. Estate planning can get complex. This quick article is meant to outline what to look for in that first basic estate plan.
Find an Estate Attorney
The first step of estate planning is finding a trusted professional. We suggest finding an Estate Attorney who’s local to you so they’re familiar with your state laws. A good place to start is by asking your colleagues who they have used and whether they had a good experience.
When you meet with an Estate Attorney, they will have you fill out a questionnaire. This is to uncover areas that might be unique to your situation. The questionnaire may ask some financial questions like what life insurance you have and the balances of your assets and liabilities. We can get those numbers for you, so make sure to reach out for help.
Typical Estate Documents
The following are the most common documents you should discuss with your estate planning attorney for a basic estate plan:
Guardianship
This selection is who will legally take care of your minor children. If you select a grandparent and they pass away, you can always select a successor who will step in next. Consider things like their values, location, parenting skills, life stage, how they handle money, etc. Selecting a guardian, or guardians, is very important. It prevents disputes among relatives and friends upon your passing and gives them clarity so no one fights over who should be in control.
Make sure to tell their potential guardian(s) and inquire if they’re up for the task. While it might not appear in your legal documents, make sure to communicate your wishes in advance. These might include how you’d like your children to be raised, what schools you’d like them to attend, important family values, nutrition, and even things like religion and morals.
Last Will and Testament
This is a document that provides instructions for what should happen to a person’s assets after their death. For many doctors the will designates where your personal property, home, and other assets go.
Revocable Trust
This is an amendable trust that you can change over time. Trusts can either be setup while you’re living or upon your death. Typically, you designate a trustee who manages your assets in the event you cannot. Trusts can help protect your privacy, avoid probate, allow you to control your assets even after death, and are easy to administer upon death ensuring your beneficiaries can access money rapidly in case they need it.
For example, many doctors will setup a trust and list their kids as the beneficiaries. If the children are minors, they might get as specific to say things like the children would only get money for health, maintenance, and support until age 18, then money for college. Then upon their 25th birthday they can take out money to buy a first-time home. Upon age 30 they can withdrawal the entire balance of the trust. This is just an example; every trust is setup differently.
On occasion doctors will name the title of their home in a revocable trust. This can add some privacy benefits. If this is important to you, make sure to bring it up as many attorneys do not cover this by default.
Durable Power of Attorney
These documents are for deciding what happens to your money while alive in the event you cannot make financial decisions yourself. In other words, if you were incapacitated. For example, let’s say you’re at the latter stages of life, age 85, and no longer able to make financial decisions. This document designates who has control over your money. Often to pay bills, withdrawal from your accounts, hire caregivers, etc. Make sure to appoint someone you can trust. The elderly are often taken advantage of, sadly even by family members. Keep in mind you can amend this document in the future.
The most common issue we see later in life is most individuals don’t want to give up control. They insist they can make financial decisions even when everyone around them knows they’re not capable. Make sure you talk with your attorney about what the triggering events for giving up this control might be. Maybe it’s a visit to see a 3rd party doctor for a neurological exam upon request of a spouse or adult child.
Healthcare Directives and Living Wills
Doctors will already be familiar with these documents. They give your loved ones and health care providers direction on what medical care you want or don’t want if you cannot communicate. It’s important to provide your loved ones with this clarity in writing so they never are forced to make decisions doubting your intentions.
Digital Estate
This is a growing area and thus evolving over time. Make sure to bring this up to your attorney for how best to handle. This area includes your online account logins, crypto currency keys, and how you wish your social media accounts should be handled upon your passing.
You want to make things as easy as possible for your loved ones upon your passing. The most important part of a digital estate plan is access and an inventory of accounts.
Beneficiary Designations
Make sure to ask your attorney who to list as your primary and contingent beneficiaries. The primary beneficiary is who the asset would go to upon your passing. The contingent is who it goes to if the primary beneficiary is not alive. Typically, attorneys will give specific instruction for retirement accounts, non-retirement accounts, and life insurance beneficiaries. Make sure to ask for clarity. Often, they will summarize their recommendations in a funding letter.
Note, your attorney will not change your beneficiaries for you. Therefore, make sure to share with us your attorney’s recommendations after you’ve met with them. We can help you implement beneficiary changes on the accounts we manage for you and share tips with how to change beneficiaries on your accounts outside of our management.
Irrevocable Trusts
Think of these as more advanced trusts. Not every doctor and their family needs one of these. Sometimes they get these types of trusts down the road. Irrevocable trusts cannot be amended. They are typically used to make irrevocable gifts to get money outside your taxable estate to legally avoid paying estate taxes either at the Federal or State level.
The attorney will need to know your current net worth and the amount of life insurance you own to decide if you’re on track to pay estate taxes. Make sure to ask the attorney whether you need to fund any irrevocable trusts.
The most common irrevocable trust we see at lower asset levels is called an Irrevocable Life Insurance Trust (ILIT). An ILIT can own your life insurance, so that the death benefits pass outside your gross estate. This allows the life insurance death benefit to avoid being subject to estate taxes.
These are common in low estate tax threshold states like MN, WA, VT, OR, MA, RI, MD, IL, and more.
Summary
As daunting as estate planning can seem, it’s an important process for every doctor and their family. Even a basic estate plan will get you started in the right direction. We encourage every young doctor to start planning around the time they start having children. Find the right Estate Attorney for you, and ask them about a Will, Revocable Trust, Durable Power of Attorney, and Healthcare Directive. Make sure to discuss guardianship, a digital estate plan, beneficiary designations, and whether to put your home in a trust. Lastly, bring up an Irrevocable trust if you potentially are going to pay estate taxes.
While we do not offer estate planning as part of our comprehensive financial planning, we are more than happy to help you gather the information you need to create an estate plan and work with your attorney’s recommendations on implementing beneficiary changes to your accounts and insurance policies.
If you want to learn more about estate planning, check out our podcast and accompanying article on estate and inheritance tax.
Josh Lantz, CRPC®/ Chief Investment Officer, Financial Advisor With over a decade of financial planning experience, Josh has worked on more than 450 doctors’ financial plans. “It’s very hard to find a doctor’s situation I haven’t seen before,” says Josh. This is only a snapshot of the expertise Josh brings to MD Financial. He was recently recognized in Medical Economics for Financial Adviser for Doctor’s in 2017-2018, as well as Dental Products Report’s Best Financial Adviser for Dentists in 2019. In 2022, Josh was recognized as a Five Star Wealth Manager Under age 40. He can be reached at Josh@mdfinancialadvisors.com.