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• Personal Finances: Estate Planning
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• March 2011

6 Estate Planning Strategies That Every Doctor Needs

In a previous article, we discussed how the new tax law will affect doctor’s estate planning. With the estate tax exemption increased to $5,000,000 per spouse and made portable, doctors with estates of $10,000,000 or less will incur no estate tax liability in 2011 and 2012. While estate tax issues are now of far less concern, there are still numerous other estate planning issues that must be addressed in order to adequately protect the doctor’s family.

Below are six estate planning strategies that every doctor should implement:

1. Have Both Spouses Execute Financial Powers of Attorney – This legal document authorizes the remaining spouse, or another party, to act in financial matters in the event of the illness, accident, or incapacity of the other spouse. The document may be effective when signed. Alternatively, doctors can execute a “Springing Power of Attorney” which requires two physicians to state that the spouse is disabled or otherwise incapacitated before the other spouse can act on his or her behalf.

2. Have Both Spouses Execute Health Care Powers of Attorney – This legal document authorizes the remaining spouse, or another party, to make necessary decisions involving medical care in the event of illness, accident, or other incapacity of the spouse. This document may be effective when signed. Alternatively, doctors can execute a “Springing Power of Attorney” requiring two physicians to state that the spouse is disabled or otherwise incapacitated before the other spouse can act on his or her behalf. 

3. Have Both Spouses Execute a Living Will – If the Health Care Power of Attorney does not so provide, the doctor needs a separate legal document, known as a Living Will, in order to establish his intent not to be kept alive through heroic measures in the event that he is terminally ill, or in a persistent vegetative state (coma). Once this document is executed, each spouse should provide the original to their personal physician, with a copy retained for their files, to assure that their desires will be accommodated. Physicians and hospitals are not bound by the doctor’s oral intent or the wishes of another party without a Power of Attorney; therefore a Living Will is required.

4. Have Each Spouse Execute a Will – Even though estates of $5,000,000 or less will not be subject to federal estate taxes in 2011 or 2012, nevertheless each spouse needs a will for several non-tax  purposes. The will not only disposes of the doctor’s property in the manner that he desires (thereby avoiding the state doing this for him), but also appoints an executor to handle legal matters, provides guardians for the person and property of their children, and sets forth any other requests or wishes that the doctor may have.

5. Make Contingency Plans For The Practice Disposition – While practice values have been rising recently, they are highly volatile and can easily drop by 50% or more should the practice be closed for more than 60 days due to illness, disability, or death. Accordingly, we recommend that each doctor establish a Mutual Assistance Agreement, Locum Tenens Contract, or Buy-Sell Agreement to provide coverage for his practice in these events.

6. Name Surviving Spouse As Primary Beneficiary of Retirement Plan and IRA Accounts – Many doctors believe that they can dispose of (transfer) their interest in retirement plan and IRA accounts through their will. That’s not the case, since these assets are distributed in accordance with a separate designation of beneficiary form. Naming the surviving spouse as beneficiary on these forms provides the maximum flexibility to minimize federal and state income and death taxes.

25% of doctors with whom we meet for comprehensive tax and business planning have never executed any estate planning documents. Another 25% have documents which are outdated due to change in marital status (getting married or divorced), birth of children, or other changes in family and/or economic status. While tax savings may no longer be the primary motivator, the doctor still needs to properly protect his family through implementing the six fundamental estate planning strategies set forth above.

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