Doctors must understand tax planning sales tactics and fraud schemes that target them in the third quarter of every year.
September will soon be here and it's traditionally a busy time for doctors for several reasons. First, many physicians filed an extension (again) and are probably starting to scramble for the information they need to complete their returns. Second, and perhaps more importantly, it's high season for selling tax planning and life insurance to doctors.
To be clear, I'm in favor of both when they are done right, for the right individual, and have openly supported and discussed the correct use of a variety of similar tools and planning methods in past articles here. That said, the key issue is the fit of a particular strategy for your situation. Here is a summary of the good, the bad and the ugly plans that are likely to cross you desk before the end of the year.
Estate Planning Based Sales and Political Scare Tactics
This one is pretty easy. If you don't have an estate plan, you should have one. Even it's just a will of a revocable living trust, this is a great start. That said, the kind and complexity of planning you need should be appropriate to your family, net worth and goals. I'm seeing a lot of aggressively ignorant discussion on the internet about estate taxes or the "death tax" lately due largely to both it and the pending election being used as political capital. Salesmen and promoters are tapping into this discord as a tactic to sell a variety of plans with a wide range of actual value.
The Facts on Estate Tax
This year the amount you can pass to your heirs free of federal estate tax is roughly $5.45 million per person or $10.9 million for a married couple. For those of you fortunate to actually have an estate tax problem, remember that estate tax is optional. By that I mean that there are legal methods available including the use of life insurance, various legal structures, and "gifting" that can drastically reduce your estate tax exposure or eliminate it completely. Either you get professional help in using these methods or you "choose" to pay estate tax.
Another Partially True Sales Pitch: Gifting is Going Away
Recent changes to the tax laws concerning the "discounts" available on legally reported gifting of assets are also spurring some high pressure sales, but may be at least partially correct. I'm telling clients and advisors that yes, the I.R.S. gifting rules are in fact changing and that we are expecting the discounts you can take on assets transferred through a formal gifting strategy are either going to be greatly reduced or phased out completely. This means that those who either do have an estate tax exposure (or soon will) and who have assets they can legally sell or transfer to their heirs at a discount should seek experienced tax and estate planning counsel immediately. Those who wait until later in the year will find that their advisors are busy and that they will cheat themselves out of any real opportunity to explore the best options, get the best help, and do their required due diligence. Like in medicine, picking help based on who was the only person available to take a call is not a good option.
These facts in hand, look carefully at the justifications provided for any tax plan or life insurance purchase that purports to be time sensitive and is based on estate planning, estate taxes or gifting. We will continue looking at related issues in my next column, including a variety of criminal tax fraud that capitalizes on fear and politics.