For most doctors, the second step taken in personal financial and legal planning after setting up retirement accounts is some basic estate planning, typically in the form of a will or a revocable living trust. Below are some of the common issues that negatively affect physicians and their families if not properly addressed. The good news? They are easy to fix with the help of your estate planner and financial advisor.
Not acting. The number one issue we see with physicians’ estate plans that they put it off and tend to issues that they feel are more time-sensitive like taxes, earnings, and investments. Estate planning is there to address unexpected events, events you can’t typically predict or plan for, so “just in time” solutions don’t exist for most people. This lack of predictability means today is always the right time and tomorrow is often too late.
Old documents. We often see physicians with sophisticated legal and tax planning relying on old documents that don’t accurately account for their present success, assets, family structure, etc. The number one omission I see is that the estate plan has not been updated after the birth of a child. A related issue is not creating special needs provisions that may be required for the ongoing care of a particular child or not differentiating between children and their natural skills and differing levels of financial acumen. They don’t all need to get their inheritance the same way, at the same time or under the same controls. Don’t plan for just the highest or lowest common dominator and personalize the instruction left for each child.
Anther common issues with “old” documents includes selection of trustees and guardians. Many young professionals name their own living parents as trustees and guardians for their children but have never updated to account for the death or advanced age of a parent or their mental capacity to act as the administrator of your estate or to raise your young child. Make sure you know who is serving what role and re-appraise those choices periodically.
Keeping it a secret. In some cases this is accidental, where one spouse is primarily responsible for the legal and financial planning and the other handles other family details. We routinely talk to physicians and their spouses where one party knows that these issues have been “taken care of” but don’t have knowledge of where the document is, who drafted it, or who to turn to for legal support in the event of a death. Make sure your spouse knows where the document is, at least what their general rights are, and who to call. Your children and other beneficiaries don’t need to see the fine print in advance and we understand that many parents don’t want children to know what they are inheriting to avoid interfamily conflicts or “trust-fund syndrome” that may make them unproductive in anticipation of a windfall. That being said, they too should at least know that a plan is place and who the trustees are when they are of an appropriate age to understand these basic issues. When is that age? It depends on your child, but we see many people at least tell their children a plan exists when they are of junior high-age.
Not updating beneficiaries of accounts. Think of all the bank, investment, retirement, and savings accounts you have in place. Each one required a beneficiary to be listed when opened. Have those been updated and do you fully understand the tax implications of, for instance, an inherited IRA, either one you leave or one that a parent may leave to you? If not, make your financial advisor earn some of their fee by asking them for a list of all accounts, who the listed beneficiaries are and for an explanation of the tax exposures your heirs face. You may be surprised by the big savings that small changes can produce. Finally, put that list with your estate plan.
Forgetting the digital assets. Many professionals have increased their personal efficiency and reduced paperwork by moving to online-only statements and account management. Make sure that someone knows the passwords and which e-mail account alerts are going to and that they can get into it. If you have information or correspondence in that account you don’t want everyone having access to when you are gone, consider setting up “clean” e-mail accounts for family business use only.
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