Financial Advisor to high net worth individuals including physicians and those at or nearing retirement.

Julianne F. Andrews, MBA, CFP, AIF

These days, physicians face increased risk from lawsuits, judgements, creditors, and malpractice claims, yet one of the most common mistakes they make is relying solely on their insurance policies to protect them in these high-stakes situations. Not only do they overestimate just how far their personal and professional coverage will go but they also generally have no backup plan to pick up where their policies leave off.

So, how do you protect your income and estate from legal claims? By integrating a number of diversified asset protection strategies into your overall financial plan.

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, we talk about re-locating funds in such a way that they are removed them from the property of the physician or the physician’s estate. After all, that is where the risk lies. Generally, any asset in the physician’s control, or the property of the estate, is vulnerable to legal judgement.

While there are a variety of strategies that can be implemented to shield your estate from costly judgements, the 529 Savings Plan might just be the holy grail and one you probably have not considered.

Here are the basic tenets of the 529 Savings Plans:

A 529 is a tax-advantaged savings plan that is exempt from federal taxes and was designed as a way for families to save for college expenses on behalf of a beneficiary.

Any US citizen or resident alien over 18 years of age can open a 529 for the benefit of themselves, children, grandchildren, or any other relative or friend.

Monies must be used for qualified education expenses in order to be withdrawn tax-free.

Only one person can own each plan and there can only be one named beneficiary per plan.

There are no income restrictions associated with contributions, so they are a viable option for high-income earners like physicians.

Contributions can be made up to the annual gifting limit (currently $15,000) but five years of gifts can actually be made at one time into a 529 plan (currently $75,000). If the five-year strategy is used, additional gifts cannot be made into the plan for the ensuing five-year period without gift tax consequences.

Because the law sees funds contributed to a 529 as gifts made on behalf of the beneficiary, funds kept in these accounts are not considered part of the physician’s estate and are safeguarded from lawsuits and creditors… for the most part.

Since 529s are not federally regulated, but state regulated, each state can set its own legal mandates for their state-sponsored plan. Some states have built in protections from creditors, while others only offer these protections if the accounts are in the child’s name (not the parent’s). For example, the state of New York will protect all assets in a 529 if the account is owned by the child, but only $10,000 if it is owned by someone else, say a parent or grandparent.

Nineteen states have given their savings plans protection from outside suits and creditors no matter who is named as the accountholder. As a physician looking to use the 529 as a sheltering tool, you’ll want to choose a plan that offers these full protections or consider putting the account in a spouse’s name to ensure the funds are seen as independent of your estate.

Provide tax-free income and growth for educational expenses

Shelter a significant amount of funds from potential outside threat by removing it from the physician’s estate

Not only do these plans benefit the accountholder from the tax planning, estate planning, and asset protection standpoints, but will benefit the beneficiary down the road when the assets are needed, as well.

Of course, asset protection measures on their own are no replacement for insurance, and vice versa, which is why a strategic integration of both will likely be a physician’s best bet when it comes to shielding their estate from potential lawsuits.

. She specializes in working with physicians and executives in the healthcare industry. Her passion for working with physicians comes from being a pediatrician’s spouse for more than three decades. Julie has been featured on Forbes’ list of America’s Top Women Wealth Advisors since 2017 as well as Forbes’

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The basics of a diversified asset protection plan. 

Could the 529 be the holy grail of asset protection?

As a physician, you more than pay for your ability to earn a high income with decades of studying, sweat, sleep deprivation, personal discipline, and of course, money. But simply having the ability to earn a high income doesn’t grant you immunity from financial challenges-especially when your career is just getting started.

What exactly do you need to look out for when it comes to your finances? What challenges can you expect to encounter?

To a degree, some uncertainty in life is inevitable. None of us can predict the future or how it will affect our well-laid plans. The best we can do is evolve and adapt to thrive in our changing environment. 

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Unique to physicians, though, are concerns about the changing face of healthcare. How will the evolving industry affect your livelihood? How about the way you conduct business and support your family? 

With the political division over Medicare for all, physician compensation trends in value-based care, broad-based consolidations, and transparency and convenience dominating consumer preferences, the traditional model of providing care is becoming outmoded. And what’s more is that no one is certain when or where the dice will fall on many of these issues. 

We have already seen staffing shortages, an increase in the use of outpatient facilities and urgent care clinics, a rise in popularity of “telehealth” options, and accelerated mergers and acquisitions of smaller firms into larger ones. But 

How are you supposed to plan a stable future amidst these shifting conditions?

The good news is that all of these new options in the healthcare realm mean any physician can choose a career path that best fits his or her changing needs. Perhaps you will choose to travel and accumulate a healthy savings before putting down roots with a family. If a family isn’t yet in the cards, you may choose to work in a higher-risk environment or less desirable geographic location for a period of time and reap the monetary reward for doing so. 

As a young doctor, you can use the changing landscape to your advantage, but will need to mind your future plans, as well, in order to gain the financial footing necessary to carry you there. 

 Every career path comes with its own balance of risks and rewards, challenges, and payoffs. Young doctors, though, must pay hefty education and residency dues upfront long before entering the workforce and beginning to earn an income.

When the time finally comes to put their education to work and start seeing a positive cash flow, many of their peers have already begun building their lives, starting families, and stashing money away in retirement accounts. In reaction to this reality, we have seen many young doctors go one of two routes: (1) they either forego savings to “catch up” to those around them, buying homes and cars in lieu of saving (2) or they begin saving but fail to recognize that they have fewer years to accumulate the appropriate income to live a comparable lifestyle in retirement. 

The unfortunate result is that many physicians today are too financially strapped to retire with their peers. Physicians earn above average incomes for the majority of their careers, but they also face heavier income tax burdens, contend with student loan debt, are forced to pay high premiums for a host of different personal and professional insurance policies, and lose out on many precious years when compound interest could have been working its magic on invested principal. 

As you read this article, scores of baby boomer physicians are currently working into their seventies and unsure when they will be secure enough to finally start phasing out of their careers. Not only are they struggling with workplace burnout, but are contending with the very real possibility that they may be forced to live a diminished lifestyle in what was supposed to be their “golden years.”

In order to avoid this commonplace reality, you will have to do some serious strategizing. You will be need to balance paying off student loan debt and financing the life you desire with making heftier retirement plan contributions. Keep in mind, you’ll want to begin making these larger contributions as early as possible in order to make up for the precious compounding years that were lost while you were in school. 

While some physicians are lucky enough to receive scholarships, grants, or familial support to help offset the costs of their education, most physicians enter the workforce carrying a significant amount of debt on their shoulders.  According to the Association of American Medical Colleges, the average medical student debt balance for graduating students in 2018 was $196, 520 

 With total undergraduate debt, this number could easily tally anywhere in the $200-400K dollar range. 

Physicians are faced with a two-fold problem: they don’t start earning an income until later in their lives (likely into their thirties), and once they finally begin seeing a cash flow, they are already in a deficit due to student loans. Depending on a new doctor’s plans and goals for the future, he or she will need to map out short and long term priorities in order to decide where and in what proportions to allocate income to satisfy building a life (and/or practice), paying off debt, and saving for the future.

As a physician, you must pay close attention to your finances right out of the gate. Your late start, student debt, and changing industry demand it. 

. She specializes in working with physicians and executives in the healthcare industry. Her passion for working with physicians comes from being a pediatrician’s spouse for more than three decades. Julie has been featured on Forbes’ list of America’s Top Women Wealth Advisors since 2017 as well as Forbes’ 

High incomes don’t grant immunity from financial challenges.

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From the time you started preparing for the MCATs to wherever you are in your medical career today, it’s likely that the healthcare landscape has dramatically changed, challenging your pre-conceived notions about patient care and everyday business operations.

Politically, healthcare continues to be a hot-button topic, dividing voters on the issues like Medicare-for-all. Additionally, some states have made significant legislative moves to expand Medicaid while other states are enacting laws which seek to provide their residents with more affordable healthcare options. Overall, the nation’s outlook on future healthcare provisions is uncertain. 

Beyond the political landscape, changing consumer preferences about care and an increased reliance on technology likely will most impact the top healthcare trends affecting the clinical, operational, and financial realities physicians will face. 

So which healthcare trends should physicians look out for in 2020 and beyond? 

Today’s healthcare consumer is not only frugal, but technology-reliant and convenience-driven. Consumers are searching for their care online and basing their healthcare choices on online reviews, availability of care, and transparently published pricing. The result? An increased reliance on retail clinics and urgent care providers that are giving larger practices a run for their money. Some physicians are opting to add urgent care services to their practice while others are offering mobile consultations. 

Not only are small hospitals being acquired by larger healthcare systems, but many private practices are selling ownership to hospitals or larger practices in order to re-focus their energies on patient care. For some, these moves may seem to be an indicator of better care at more affordable prices to come, but for others, the accelerating rate of mergers and acquisitions may feel like a healthcare game of monopoly with industry giants emerging to claim the largest share. Will a private practice be able to survive in this evolving climate? At what cost? How will a physician be able to differentiate his or her value to consumers over these larger, more streamlined models?

Value-based care is an alternative to fee-based care whereby a physician or hospital is compensated in relationship to outcomes, rather than amount of services provided. The Centers for Medicaid Services (CMS) has introduced a handful of value-based models aimed at holding physicians accountable and in turn promoting better care, improving overall population health, and reducing healthcare costs; however, this model is not without its own problems. For example, medical professionals may feel compelled to order additional tests and labs to demonstrate the efficacy of their medical treatment plans. 

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With an aging population, doctors and nurses in the healthcare industry are retiring at a rate faster than they are being replaced, causing a staffing shortage across the board. And with technology-based, on-demand services that can connect physicians and nurses to temporary positions on an as-needed basis, some candidates are choosing to forego the traditional practice setting for this type of “freelance-esque” work option. This is great option for single practitioners looking to pocket some cash and travel while working, but it has made hiring qualified candidates in the traditional setting more difficult.

A by-product of the accelerating rate of technology changes along with the widespread adoption of electronic medical records is mounting concern regarding information protection. More data breaches are targeting medical companies and exploiting private healthcare records for financial gain. Our increased reliance on technology raises questions for both providers and patients alike, including: ‘How do we know our information is safeguarded?’, ‘What protections can a provider put in place to insulate their patient’s sensitive information?’, ‘What insurances might a provider need to carry to this type of risk management?’, and ‘What will that insurance cost?’

The consumer inclination toward fast, easy, and affordable is making telehealth, or remotely offered care via video, a popular choice for both the busy working professional as well as the rural farmer who might find it difficult to make it to a doctor in person. With so many options available, physicians will have to decide which makes the most personal and fiscal sense for their life, their medical practice and their financial situation. 

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Many medical procedures are being shifted to outpatient centers, not only to meet patient preferences, but to help save both the hospital and the patient money. Advances in anesthesia and the rise of minimally invasive procedures have made it possible for individuals to return home shortly after routine procedures, lowering overall reliance on inpatient care. Not only does this allow providers to see more patients per day, but reduces their overhead. 

The healthcare space is constantly evolving and physicians looking to provide excellent patient care while remaining financially viable and personally fulfilled will need to adapt to these ever-changing conditions. Understanding the current climate and emerging trends will help you prepare for the future and put a financial plan in place that accounts for the industry’s uncertainties. The upside? With so many options available, you’re sure to find a niche that will cater to your ideal lifestyle and still provide a desirable income. 

Changing consumer preferences and tech reliance will affect clinical, operational, and financial realities of physicians.

7 healthcare trends that will impact physicians 

The tax law changes in 2018 dramatically reduced the deductibility of many expenses and increased the standard deduction dramatically.  However, these same tax reforms cleared the way for individuals and families to continue to support the causes they believe in while still potentially minimizing their taxes. However, this new approach requires planning ahead and an understanding of how “bunching” deductions work.

The Tax Cuts and Jobs Act of 2017 (TCJA) increased the standard deduction for those filing jointly to $24,400 in 2019 and $12,200 for those filing a single return.  In addition, the TCJA put a cap of $10,000 on the deductibility of state and local income taxes (including real estate taxes).  The combined effect of these two changes will mean that many more taxpayers will use the standard deduction moving forward instead of itemizing.  However, the only way to deduct charitable contributions, is to itemize.  So, what is the solution if you want to continue to support your favorite charities year after year?

By “bunching” deductions and funding two (or more) years of charitable giving in a single year, taxpayers may be able to choose to itemize deductions in alternating years and use the standard deduction in other years. The following charts show how charitable donations and itemized deductions work. The first chart shows the tax impact without bunching, while the second features the tax advantages associated with bunching:

Scenario 1: Itemized deductions without bunching (married filing jointly)

Scenario 2: Itemized deductions with bunching (married filing jointly)

Although bunching contributions does create higher deductions, those who have consistently given to charities on an annual basis, may be concerned about making a substantial donation one year and giving no support to their causes the following year. However, establishing a donor-advised charitable account provides a tax deduction in the year the money was set aside while allowing the donor to specify when the funds are to be distributed. Funds residing in the donor-advised account can be invested (for preservation or growth) while they await distribution. Donor-advised funds (DAFs) offer charitable givers a way to make annual donations to the charities they support and reap maximum tax advantages at the same time. DAFs are easy to open and generally require an initial minimum contribution of $5,000.  Once established, most DAFs can accept as little as $500 and can distribute grants as low as $50.

For more information about how you could benefit from a DAF, consult your financial advisor and your tax professional to help make sure you are able to support your favorite charities and take maximum advantage of the tax savings available to you.

Julianne F. Andrews, MBA, CFP, AIF is a principal and co-founder of Atlanta Financial Associates. She specializes in working with physicians and executives in the healthcare industry. Her passion for working with physicians comes from being a pediatrician’s spouse for more than three decades. Julie has been featured on Forbes’ list of America’s Top Women Wealth Advisors since 2017 as well as Forbes’ Best-in-State Wealth Advisors since 2018. Julie can be reached at jandrews@atlantafinancial.com.

Recent tax reforms cleared the way for individuals and families to continue to support the causes they believe in while still potentially minimizing their taxes

Author | Julianne F. Andrews, MBA, CFP, AIF

Financial Advisor to high net worth individuals including physicians and those at or nearing retirement.

Articles

Could the 529 be the holy grail of asset protection?

Top 3 financial challenges young doctors face

7 healthcare trends that will impact physicians

How to maximize the deductibility of charitable contributions