Trevor C. Lewis

It's easy to talk about what's new and hot in the financial industry, about the great opportunities that are out there. What's not so easy to talk about -- because it's not as much fun and not at all sexy -- is the failure of most people to take one of the most basic steps to secure their financial security.  

Put simply: People are not willing to apply discipline to their financial lives. They are not willing to do this one simple thing that can make a significant difference in their economic security. This is really the biggest, most serious, and most consistently frustrating problem that I have seen in 32 years of practice, serving multiple generations of clients.

So this month I'm climbing back on my soapbox to preach about the importance of living within your means. If you make no other resolutions for 2005, I urge you to make -- and keep -- this promise to yourself and your family.

Self-denial is easy for everyone, but Americans are among the best at it. You see examples of this in your practice every day. A patient who has not taken care of herself -- someone who has smoked, never exercised, and carried an extra 40 pounds for the last 20 years -- comes to you after she barely survives a heart attack. You may be sympathetic and put on your best bedside manner, but part of you is thinking, "Well, what did you expect?"  

The analogies to your own financial health are easy to make. You can lead a disciplined economic life -- paying yourself first by saving and investing, living within your means, and sacrificing some short-term gratification for long-term security. Or you can spend whatever you want, get deeper into debt, and just keep your fingers crossed that you won't experience some kind of financial breakdown.  

Don't misunderstand me -- I realize it's different for physicians than it is for people in many other professions, not least because of the level of debt most of you have when you start your careers. But that's all the more reason to develop fiscal discipline, and the big problem I see is that for all the academic discipline and work ethic one develops during medical school and in residency, many never develop the same type of rigor when it comes to their finances -- even when they are earning much more.

If you're saving on one side of your life -- in a qualified plan, for example -- but on the other side you're leasing autos, carrying credit card balances, and taking second mortgages on your home, you're not really saving. You're creating liabilities.

Being a self-disciplined person helps you acquire wealth -- but it also provides other advantages. I believe that people who exercise self-discipline are happier and more fulfilled.  They work because they want to, not because they have to. 

I also believe -- and this is really stepping out on a limb -- that a physician who is financially sound, solvent, and prudent actually practices better medicine than one who is preoccupied because he is financially strung out, because the financially secure physician can concentrate on his patients instead of worrying about his next financial obligation.

I apply the same standard to financial advisers, by the way. In my opinion, you're better off going to advisers who actually follow the advice that they give their clients. 

I don't choose my physicians based on their financial success, but all things being equal, I would rather not go to someone who is operating in crisis mode because of increasing rent, increasing expenses, and flattening or decreasing reimbursements.

These physicians have every right to be angry about the problems being inflicted on them by our medical system. But at the same time, their anxiety is made worse by the fact that they have been living on 100 percent or more of their income.  

The physicians who have practiced financial self-discipline, on the other hand, have some staying power. They have a sound financial basis so that they can outlast the immediate financial crisis. They have bought themselves time to come up with alternatives so that they won't be forced to sell their practices. They won't be forced into taking on some fringe healthcare medical procedures to supplement their incomes. 

I'm a great believer in setting goals and in making resolutions. That's why I urge you to make living within your means your resolution for 2005. Set yourself some goals, such as finding ways to increase revenues and making some tough financial decisions like eliminating the long-time but underperforming employee. 

Start saving money out of every single paycheck and put it aside in a place where you won't be tempted to spend it.

And don't keep these resolutions and goals to yourself -- share them with your spouse, other family members, your advisers, accountants, attorneys, and other important people in your life. Ask them to help you by holding you accountable for following through.
This group of supporters can be your "financial Weight Watchers," cheering your successes and helping you get back on track when you've gone off your plan.

There's no doubt that physicians today face many financial challenges, and that you are being wronged economically in many ways. I believe that in the long term we will come up with solutions to solve some of the more pressing problems. In the meantime, however, putting yourself in a good financial position by living within your means will help you and your practice survive the present crisis intact. 

Trevor C. Lewis is a certified financial planner and can be contacted at 

This article originally appeared in the January 2005 issue of 

Articles

How to make and keep a promise to live within your means

Live Within Your Means


This has been a tough year for the managers of some mutual funds - and their investors. If you’ve been paying attention to the news, you’ve surely heard about some managers’ -questionable - in some cases, illegal, behavior. Although the revelations are worrisome to those of us who invest in mutual funds, the result should be positive: We should end up with a much cleaner mutual fund arena and a more robust industry as a whole. 

What does all this mean to the mutual fund investor? Let’s start by reviewing the allegations, which fall into two broad categories: after-hours trading and excessive trading.

While both of these behaviors are unethical, after-hours trading is against the law. Normally, mutual funds are priced once per trading day, at the close of the market. If you attempt to buy or sell mutual fund shares after the close of the market today at 4 p.m. EST, your transaction would be based on the closing price tomorrow. Unlike individual stocks, they cannot be purchased at various prices throughout the day. But some funds allowed certain investors to buy shares after the close of the market at that day’s closing price. This is illegal.

Excessive trading involves rapidly buying and selling shares in mutual funds in order to capture short-term changes in the share price. This is not a crime - not yet, anyway - but it’s certainly questionable, to say the least. Mutual funds are long-term investments and this behavior can hurt long-term shareholders by increasing expenses and affecting performance. Many mutual funds have short-term redemption fees to discourage this action. Excessive trading would have the most impact when done by institutional investors who buy and sell very large blocks of shares. 

So, are mutual funds still a good choice for retirement investing? Is it OK to put your life savings into this type of vehicle? The bottom line is yes - but you must do your homework, or pay someone to do it for you. The advantages still far outweigh the disadvantages for most investors. The professional management, diversification, and liquidity factors available in mutual funds are impressive and necessary.    

Still scared? Think about this: A study by Investment News, a financial publication, showed that both of the questionable behaviors mentioned above have not overtly hurt mutual fund investors. In fact, compare the performance of those funds that were affected to those that were not, and in most cases there is not much difference. Frankly, the mutual fund troubles pale in comparison to the scandals at Enron and WorldCom. 

Now that you know what the hoopla was all about, should you do anything differently at this point?   

I still think mutual funds are the right investment for most people, and that the industry as a whole can only improve at this point. You can be sure that mutual funds will be more highly regulated moving forward than they were in the past. You can be sure that the “bad” funds will get caught eventually and be forced to make restitution for the error of their ways; this alone should be enough deterrent to keep the mutual funds in check.   

However, if your mutual fund choices are not monitored by a financial professional you trust, you have some work to do yourself. Pay close attention to the fund’s expenses and its policies on excessive trading. Try to find out if your fund company has a history of violating the late-trading rules and check its prospectuses to see if it has specific language describing how it stops such market-timing.

Make sure your funds are diversified - both in terms of investment choices within each fund, as well as how each fund plays its designated part in your overall asset allocation. Leave the rest of the policing to the regulatory bodies; moving forward, there should be enough policing to make everyone feel comfortable. 

You can certainly look out for yourself when it comes to fund expenses. With a basic understanding, you can be aware of what is reasonable and what is not. 

A fund’s “expense ratio” is the operating expenses of the fund (payroll, office space, mailings, etc.) divided by the average amount of assets in the fund. The expense ratio is embedded internally in the fund and will not be charged directly to you as a fee. (There’s possible legislation in progress to change this.) You’re still paying those expenses, however, so be on the lookout. The expense ratio can be found in any prospectus, and it is up to you to examine it. 

What is reasonable? That depends on the complexity of the assets managed. 


A short-term bond fund, for instance, may just invest in short-term debt obligations and wait for maturity. This type of management would not be as complicated as, say, a fund that deals with currency exchanges, derivatives, aggressive growth stocks, and more complicated issues, which can require constant, ongoing, active management. The U.S. Securities and Exchange Commission, Division of Investment Management, published the table on page 56 in December 2000:

This chart can be deceiving, however, because the categories are extremely broad. For instance, the average expense for a U.S. government bond fund in 1996 was 1.02 percent. This is higher than the “average,” based on the table above, because of the “weighting” of the various kinds of bond funds. The average expense ratio for a growth stock fund in 1996 was 1.42 percent. (Figures obtained from 

This is all rather confusing, I realize, so let me simplify it: The best way to tell if your mutual fund’s expense ratio is too high is to compare it to other funds of the same type, similar size, and similar performance. If it is within 20-50 basis points (a basis point is 1/100 of 1 percent; in other words, there are 100 basis points in 1 percent) of comparable funds in the same category, this would be reasonable. If it is much higher than its competitors, you need to ask why. It could be that a manager has had such a consistently above-average performance when compared to his peers, that the higher expense ratio is justified. Or there may be absolutely no reason for the higher charge.   

But in general, the 1 percent to 1.5 percent on average you pay to invest in a mutual fund is well worth it. There are numerous advantages to funds that the average investor could rarely afford on his own, among them diversification, professional management, performance and financial updates, and (in some cases) liquidity. The bottom line is that you should consider the expenses as part of the selection process for mutual funds, not as the only factor. 

On top of the underlying expense ratio, you can encounter funds that are “loaded.” This simply means that there is a commission charged, which is generally deducted from your initial investment amount. Most loads are in the 4 percent to 6 percent range, but they can go as high as 8.5 percent.    

Financial professionals often recommend loaded funds. The advice in finding a suitable initial investment and the ongoing guidance you receive can be worth the extra expense. This does, however, place you at a slight disadvantage to someone who pays no load. It’s like a horserace in which the loaded horses start just a little behind all the others.   

Suppose you and your sister each have $10,000 to invest but your sister wants more guidance along the way and more help up-front. She invests in a load fund and you invest in a no-load. At the end of the year the funds’ performance is identical; both investments earn 10 percent in the first year, and you each get a 10 percent return. The difference is that if the load was 5 percent, your sister gets the 10 percent return on $9,500 to start, and you get 10 percent on the full $10,000. 

There are many types of load funds in the mutual fund investment universe. Some charge up-front as described previously, some charge on the back-end, similar to a redemption fee. The main point here is to be aware that you are paying a load and why.    

The last common mutual fund fee you may encounter is that of a 12b-1. This is a fee associated with the costs of marketing and advertising, and it’s taken directly from the fund’s overall assets rather than from the management fees. This fee typically ranges from 0.25 percent to 0.5 percent. Generally, the overall expense ratio includes the 12b-1 fee. Therefore, if the overall expense ratio seems comparable with like kind funds, the fund with this type of fee may still be a viable option. 

This article originally appeared in the November/December 2004 issue of 

Are mutual funds still a good choice for retirement investing? Is it OK to put your life savings into this type of vehicle? The bottom line is yes - but you must do your homework, or pay someone to do it for you.

Mutual Fund Madness


How many stock certificates do you have sitting in a drawer forgotten? How many mutual fund statements have you put in a “to read eventually” pile that grows taller each month? 

To put it another way, how would you identify your investing style? Are you content with achieving an average return, or do you want something more? 

There are two ways of handling your investments - passively and actively. As you might expect, I prefer taking a more active role. 

Investing runs on a continuum, with total passivity at one end and speculative activity (day trading) at the other. A prudently managed portfolio probably lies somewhere in between. 

In the textbook sense, passive investing means composing a portfolio to match the return of a certain benchmark (such as Standard & Poor’s 500). Active investing means managing a portfolio in an attempt to beat that benchmark. 

In passive investing you’re either going to purchase a stock or bond index fund, or - if you’re a big enough investor - have somebody put together a portfolio of stocks and bonds that will attempt to match your chosen index. In reality, passive investors rarely match the index, because of the costs of investing (management fees, etc.). Passive investors are content with doing about as well, or nearly as we ll, as everybody else. 

As a financial adviser, I’ve seen several cases of people losing their savings because they assumed an investment that was good when they bought it would stay that way forever. It’s a terrible idea to think that you can put a stock or bond certificate in a safe deposit box and forget it. 

In the Baltimore area where I live, we’ve had a couple of hard lessons recently in what happens when you don’t keep an eye on what’s going on. Before the early 1990s, USF&G insurance was considered a blue chip stock in Baltimore. This hometown firm had been around for 100 years - it was the oldest insurance company in the U.S. 

I know of one woman whose family had owned the stock for years; she herself had 90 percent of her savings invested in USF&G. She never looked at it or thought about it. 

That’s called a buy-and-hold strategy, in which an investor buys a stock and then just hangs onto it, ignoring market indicators, analysts’ views, financial reports, and all the other information investors need to guide their decisions. It’s one of the most reliable strategies I know for losing your shirt. 

Well, right around its 100th anniversary, USF&G started having some serious financial difficulties and the company’s stock plummeted. By the time The St. Paul Companies bought USF&G, this woman had lost almost all of her money. She died broke, and without leaving her children the legacy she had hoped to pass on. 

There are many reasons for this kind of passive investing. Some people just never get around to looking at their holdings. They have good intentions, but don’t follow through. They’re immobilized by inertia. 

Other investors don’t want to pay the expenses associated with trading stocks and bonds; they’d rather sit on a stock then pay someone else money to sell it. (An excellent example of being penny-wise and pound-foolish.) 

Finally, some investors are attached to certain stocks for emotional reasons. I had one client whose husband had died earlier than they expected. Almost all of the couple’s savings was tied up in stock and stock options for the company where her husband had worked for many years. It took a lot of persuasion to convince her that she needed to sell some of that stock and diversify her portfolio. On some level, selling that stock seemed to her like a betrayal of her husband. 

Active investors, as you might expect, take more responsibility for their investments, either personally or by hiring an investment expert to assist them. They’re knowledgeable about what they own and what they hope to accomplish. They’re ready to make changes when it’s appropriate to do so.   People who actively manage their portfolios know their strengths.   If they have areas of special insight or expertise, they add value to their portfolios by making decisions about which stocks or bonds to buy or sell in those areas. In other areas - for lack of interest, qualifications, or tools - they are content with matching the index, assuming a more passive position. Most institutional portfolios are constructed this way.     

Active investing includes the concept of personalizing a portfolio to your needs. You don’t hold onto a stock or a bond because 30 years ago your favorite uncle died and left it to you. You are re-examining, on a frequent and regular basis, your investment strategy, deciding how much money you’re willing to invest, how much income you need, and when you need the money back. You think about the risk return on the various funds (and your ability to tolerate risk). You consider the tax implications of the funds you choose. 

With active management, you can structure your portfolio to take taxable gains at a time of your choosing, whether that means taking them this tax year or deferring them until the next. 

Two words of caution on active investing, however: as Clint Eastwood once said, “A man’s got to know his limitations.” Just as no physician is expert in everything - you wouldn’t go to a thoracic surgeon for a knee replacement - no one person can be an expert in every area of the market. 

Actively manage those parts of the portfolio where you or your portfolio manager has an edge. In areas where you’re less knowledgeable, your best option is probably to try to match the average return (be passive or use an index fund). That’s OK, as long as you’ve gone through an active process of deciding on that strategy. 

Also, keep in mind the caution that you read on every investment prospectus: “Past results are not guarantees of future earnings.” If you find a fund with a manager who has had a superlative record in the last five years, the data show that they’re not likely to repeat. Remember, active investment doesn’t mean following the same path that everyone else is following. It’s using some differential insight that allows you, or your investment adviser, to see something in the market that others do not see and using that insight to your advantage. 

Most physicians have the largest part of their assets in qualified plans such as pension plans or profit-sharing plans. In many cases - when they set up a 401(k) for office employees, for example - they may also have fiduciary responsibility for these funds. 

If you have this responsibility and in some way are not actively managing (or at least actively monitoring), you could be opening yourself to a lawsuit if you lose money, or even if you don’t earn as high a return as someone invested in the plan thinks you should have. 

The Employment Retirement Income Security Act of 1974 (ERISA) spells out your responsibilities as a fiduciary. You must have an investment policy statement and you have to monitor results compared to an index that you have chosen as a benchmark. Total passivity doesn’t cut it when other people’s money is involved. 

And it really shouldn’t cut it when it’s your money, either. 

A passive investment style guarantees that you will underperform the market. Why would you settle for mediocrity or worse? Most investors want at least the opportunity to have higher, better returns. 

If you’re a passive investor - whether it’s because you’re intimidated by investing, too busy to get around to it, or simply not interested enough to take the time to do a good job - I urge you to seek professional advice. Working with a good investment adviser will provide the discipline you need to become an active investor. You’ll be given the structure and the guidance necessary to identify your needs and objectives, to think about your risk tolerances and tax preferences, and to have all of these factors reflected in your portfolio. 

You’ll have someone else reminding you when it’s time to rebalance and fine-tune your portfolio. You will be an involved and active investor, and that’s a good thing. 

This article originally appeared in the October 2004 issue of 

There are two ways of handling your investments - passively and actively.

Know Where Your Money Is?


If you were building a new office for your practice, would you have the carpeting tacked in place or glued to the floor? This may seem a matter best left to your builder or decorator, but you might actually want to consult your accountant. Believe it or not, the difference could save you as much as 21 cents in taxes on every dollar you pay for that carpeting.

Since the tax law changes of 2001, owners of commercial property have been able to accelerate the rate at which they deduct from their taxes the depreciating value of certain building components. In other words, they may deduct the depreciation for personal property in an earlier tax year. 

This is good news for commercial building owners: The more depreciation you take, the less you pay in taxes, and the more money you have in hand. There's a catch, however: only personal property, not real property, is eligible for the accelerated depreciation. 

Personal property, in this sense, means items or assets that are used for a specific business; real property refers to elements of the building that are considered an integral part of the commercial structure. You can't take advantage of the new rules unless you know how to make the distinction, a process known as cost segregation.

These rules may seem arcane, even silly, but understanding them - or hiring someone who does -- can save you thousands if you own your commercial property or are thinking of buying. The depreciation for the building itself is 39 years; other assets can be depreciated over a shorter period. For example, the law allows depreciation over 15 years for improvements such as landscaping, trees, and parking lots; seven years for some types of flooring and millwork; and five years for business-related equipment. 

Your accountant can give you some guidance on the rules and regulations for determining whether your building's assets fall into the five-, seven-, 15-, or 39-year depreciation category. But you probably should not stop with that information alone, because most likely he'll be working with general information and won't go out and view the actual building. 

That's why I recommend most property owners consult a firm that specializes in conducting cost segregation studies (CSS), which identify specific assets that can be classified as tangible personal property for tax purposes, rather than being lumped together as part of the commercial structure.

Mark Rohde and Bill Champion of EMG, a Baltimore-area firm that provides real estate due diligence services, including detailed cost segregation studies, told me that a CSS can provide property owners with verifiable, objective evidence in case a question about accelerated depreciation ever arises. That's information you can take to an audit, should it come to that. 

"We physically go on site and assess the property; we look at the actual lighting system, and the actual landscaping. These are elements that [an accountant] won't get looking through a file on the desk," says Champion. "That's not disparaging the accounting firm. However, we believe that you'll get a real benefit to a CSS if you take a two-fold approach, with your accounting firm and an experienced due diligence firm combining to provide maximum benefit under the tax rules."

One place a due diligence firm can help is with the construction of a new building. That carpeting I mentioned? If it is glued down, the IRS considers it a permanent part of the building, and it has to be depreciated over 39 years. If you tack it down, however, it is considered removable, and can be depreciated over just seven years. "It's intricate items like that that can save a building owner a substantial amount of money over the years," Champion says.

But even with existing buildings, he says, "where we're really able to help is in cases where there are issues that require engineering judgment. For example, suppose you have an electrical distribution system in which half of the power supports an X-ray machine and the other half supports the building lights. It will take a highly skilled architect or engineer to determine which portion of that system is supporting each component -- but you may be able to depreciate 50 percent of the lighting faster."


The fee for a CSS depends on several factors, including the size of the building, but is in the $10,000 range. That may seem like a lot, but in most cases a CSS pays for itself many times over, says Rohde. "We estimate that employing a firm like ours can bring an additional 5 percent in tax relief based on depreciation levels. If you have a $5 million property, that's accelerated tax relief of $250,000."

Once you have a cost segregation study, it's easy to adjust it for changes in the property like remodeling or equipment failure. "If a water heater goes out during the course of a year, our detailed reports allow either us or the accounting firm to go in and look at line 35, cross off that water heater, and fully depreciate it," Champion explains. The company will do an annual update if requested.

Occasionally, owners will want to slow the rate of depreciation -- especially those who will have to pay the dreaded Alternative Minimum Tax, which could render big deductions moot. Such owners might be better served spreading their deductions out over several years. So in the case of that water heater, it might be wise to depreciate it over seven years, rather than the five that is allowed by law. 

Champion says a CSS can be helpful to a building owner 99 percent of the time. Still, he says, "It may not be beneficial to have a study if you've already done some prior accelerated depreciation or if you're in a tax bracket that no matter what you do you're going to owe taxes. We will not do a study until we understand your current tax situation, checked whether or not you have accelerated any depreciation, and what your expected use of the building is." 


The tax legislation also offers an advantage to property buyers; they, too, should strongly consider having a CSS performed on the property they've purchased, because they are not bound by the previous owner's cost segregation. 

And depreciation is retroactive; someone who bought a building in 2000, for example, can claim depreciation all the way back to 1986.

A CSS can also help an owner determine the right time to sell a property, says Rohde. "Many times companies will own a building for 15 years, and at that point they have lost all of the 15-year items, all of the seven-year items, and all of the five-year items. Cost segregation studies encourage you to actively manage your real estate, including the timing of renovations and the timing of disposition of that particular asset."

Rohde says that whatever a building owner's business is, there are opportunities to save money. The relationship his business has with your accountant or lawyer, he explains, is analogous to that between a primary care physician and specialists.

"To have a good relationship with their patients, doctors need a network of referral people behind them," he says. "We provide one of those network links to the accountant and to the property owners that helps them get a full view and a full assessment of how they can maximize what they're trying to do from a real estate perspective." 

This article originally appeared in the September 2004 issue of 

The more depreciation you take, the less you pay in taxes, and the more money you have in hand.

Spend a Little; Save a Lot

Have you ever worried about whether your children or grandchildren will carry on the values you've tried to instill in them after you're gone? 

You might have assumed that you'll be powerless to control your heirs' behavior and choices when you're no longer around to monitor them. Guess again. 

Value-based wills set up conditions that beneficiaries have to meet before they can receive an inheritance -- or that they must continue meeting to continue to receive payments. These conditions are often based upon expectations for lifestyles -- the heirs must attend church, for example, or finish their education, or even avoid divorce to get the money from the estate. 

It's often a parent or grandparent who says, "I'll give you money for a down payment on a car, but you won't get a cent if you buy a motorcycle." Or, "I'll pay for your trip to Europe if you can get a B-plus average this semester." It's one thing to place such conditions on a monetary gift while you're still alive, but imagine being able to pull those strings even after you're gone. Through the magic of trust agreements and legal documents, your values can be mandates.

I have mixed feelings about such wills, but I do admire the ingenuity of those who want them drafted. I am constantly amazed by the creative solutions people find to any problem, and value-based wills provide benefactors a workable solution to a difficult challenge: ensuring (or at least improving the odds) that the money they have worked hard to accumulate and pass on is spent in a way they would approve of.

At the legator's death, a trust is created to contain the money in the estate. The distribution of that money would depend on certain conditions being met. An heir might get all the money in a trust providing she graduates from college. Another person might stipulate that his heirs receive a distribution each year provided they volunteer a certain number of hours in their communities. 

Incorporating such limitations in wills isn't a new idea; many people who bequeath sizeable sums to charitable organizations have directives on how the money is (or is not) to be used. What's different is the frequency with which value-based wills are being used -- just 10 years ago, I had never even heard of one being drawn up. Today they are not uncommon.

Value-based wills have stood up to court challenges as long as they are drawn up properly and do not contain provisions that are illegal or violate public policy. (An example of one such will that did not hold up was a bequest made by a Baltimore physician to a long-term care facility. The trust was designed to construct a building "to house white patients." A secondary beneficiary filed suit, claiming that the facility was not fulfilling the terms of the bequest since it did not serve only white patients. The courts ultimately ruled in the facility's favor, since the restrictions on the bequest were illegal.)

When I first heard about these wills, I have to admit that I thought they were ridiculous. As the years have passed, I've changed my opinion somewhat. I still don't think they're always a great idea -- but from talking to people who have made such arrangements, I have a greater understanding of why they felt compelled to do so. 

People who have worked hard to acquire their wealth often see value in work itself.  While they want to leave something to the next generation, they do not want that generation to miss the gratification that comes from earning their own success. They also don't want their wealth squandered.

In one case I know of, the legator felt strongly that people who don't work are not contributing to society, are not growing personally or professionally, and are not using the gifts that God had given them. 

Under the terms of his will, his heirs got nothing until they earned at least $50,000 by their own efforts; after that, they got a matching dollar for every additional dollar they made. The more successful they were, the greater the match. Talk about a work incentive plan!

Or take the case of parents whose child is a drug and alcohol abuser. The parents are reluctant to cut her completely out of their wills. On the other hand, they are adamantly opposed to providing, after their deaths, money that she could use to finance her destructive addictions. So their estate will be put into a trust for their daughter. To receive payouts from that trust, she will have to be certified -- by a physician of the trust's choosing -- as drug- and alcohol-free.


So is a value-based will a good idea? Let me give you an analogy as my answer. When my wife and I were first married, we would observe the behavior of the children of our friends and relatives and say to each other, "Our kids will never do that." Needless to say, when we did have children, they did all that and a lot more.

What troubles me is not the use of value-based wills but the abuse of them. Is it a good idea to insist that your child stay in an unhappy marriage to receive a legacy from you? Or to never get a tattoo? It depends on your values. Before setting up any such conditions, consider the emotional legacy that you will be leaving. How do you want your heirs to think of you after you are gone?

You may be thinking to yourself right now that this column doesn't apply to you since you never expect to be in this position. 

But even if you never have the need for a value-based will, there are undoubtedly circumstances in your life that would benefit from some creative problem solving when it comes to planning your estate. You don't have to settle for an off-the-shelf solution when it comes to leaving your legacy.

Each of us faces some kind of dilemma when it comes to drawing up a will. You may have a disabled child who will need care long after you have died. How can you provide for that child without hurting your other children?

You may have one child who is extremely successful financially and another who has been less fortunate but is no less deserving. Should you give them equal shares of your estate, or more to the one who has less?  

Whatever your situation, when you do your estate planning I urge you to drop all your preconceived notions about what is possible to do and what isn't. Remember, where there's a will there's a way -- and I mean that literally. No matter what you want to accomplish in leaving your estate, there's likely to be some methodology that will help you do it. (Whether you should do it is another story.)

When's the last time you looked at your will? If it's been more than five or six years, from a practical standpoint it's out of date. Even if your will is current, does it really do what you want it to do?

When drafting your will, don't settle for just any attorney. Contact the National Association of Estate Planners and Councils at (866) 226-2224 or online at 

. This organization represents a multidisciplinary group of people who specialize in estate planning issues. 

Although a value-based will may not be right for you, your will should reflect your values. Work with a creative and experienced professional to make sure it does. 

This article originally appeared in the July/August 2004 issue of 

Value-based wills set  conditions beneficiaries have to meet before they  receive an inheritance

Value-Based Wills

If you're a practicing physician, you're always aware of the possibility that a dissatisfied patient might sue you. What you may not expect is a lawsuit from a source much closer to you: your own employees. Unfortunately, in the litigious society we live in, what goes on in your office today may come back to haunt you tomorrow in the form of a lawsuit.  

But there's an increasingly popular type of insurance coverage that can help you deal with this possibility -- it's called Employment (or Employers') Practices Liability Insurance (EPLI).

After years of working with physicians, I've found that most are not as tuned in to business or practice management issues as perhaps they could be. That's understandable -- you probably already spend hours outside the office trying to keep your medical knowledge and skills up-to-date. 

But your employees are not working with the same handicap. They've heard about the medical assistant who sued a former boss for sexual discrimination, about the secretary who was laid off and got even by bringing a wrongful discharge lawsuit, about the employee in his 50s who brought an age discrimination suit against a physician group.

If you still believe you can hire and fire at will,  it's time to come out of the Dark Ages. That period is long past, and your employees know it. 

But, you ask, aren't many employment arrangements "at will"? Many are. This model allows employers to terminate employees at any time, for any legal reason, or for no reason at all. However, many employers who have invoked the at-will clause after terminating a staff member have found themselves facing a discrimination or wrongful termination claim.

Even if you're not aware of what's going on in your front office --  if you're making rounds when the staff is picking on an unpopular coworker, or the male tech in your practice is making inappropriate comments to your medical assistant --  you, as the employer, are accountable for those actions.  

Whether the employees' claims are justified or not, they can sue you, and it will cost you money to defend yourself. Keep in mind, too, if you end up going to trial, the deck (e.g., the jury) may be stacked against you, the "wealthy physician" who has somehow mistreated the "poor employee."   

When I advise physicians about getting Employment Practices Liability Insurance, I often hear, "I already have liability coverage." But your physician liability policy does not cover employment-related issues. Or they say, "I can't believe that I would really need this. It won't happen to me." Unfortunately, it does. Our office has handled several claims against physician employers in the past two years. They didn't expect to get sued, nor did they realize the level of accountability that they had for the actions of their employees.
It's a problem that affects businesses of every size and type. 

According to the Society for Human Resource Management, three out of five companies are sued by former employees every year. Although some experts estimate that less than 1 percent of all employees go to court, the median compensatory jury award in such cases has risen from just over $146,000 in 1999 to $200,000 in 2002, according to Jury Verdict Research.

A quick Internet search will reveal many examples of lawsuits against employers. For instance:

Employees offended by the nature of jokes told or photos displayed in an office. Even if the jokes aren't told directly to them, or the photos aren't in an area in which they usually work, employees can sue --  and the courts have held their employers liable. 

Employees who are told --  even in a joking way --  that they are "too old" or "not young enough" to handle a particular job. 

Women or minority candidates who are passed over for promotion or who are paid less than a coworker doing a similar job.

Employees who are terminated without previous warnings or without a thorough (and written) explanation of the reasons behind the dismissal.

The list of examples goes on and on and includes many situations less clear-cut than these. 


Insurers started offering EPLI policies about 10 years ago, and the demand for this product has risen each year -- as have the costs for a policy.

EPLI policies cover "intentional acts" that a business makes in hiring, firing, and supervising employees. It provides coverage for claims brought by past or present employees, job applicants, and third-party or government agencies (such as the Equal Employment Opportunity Commission) against the organization and its directors, officers and/or employees. 

Discrimination (based on age, sex, race, or religion) in hiring, firing, or treatment at work;

Discrimination against those with disabilities (protected groups under the Americans with Disabilities Act);

Issues surrounding employees involving the Family Medical Leave Act;

Failure to employ (yes, you can even be sued by someone you decided not to hire).

The cost of EPLI varies with the size of your practice, the number of employees you have, and the limits, deductibles, and copayments that you choose. If you're thinking about buying EPLI coverage, it's important to carefully review the policy's language to check for coverages and exclusions. For example:

Does it cover investigative and defense costs? The costs of an appeal? Does the insurer provide a lawyer, or do you select your own? Do you make payments and then receive reimbursement?

Who decides whether to settle a claim or take it to court -- you or the insurer?  

Does the policy exclude acts that occurred before the policy was in effect? (It is sometimes possible to get extended coverage.)

Does the policy offer you assistance if the employee goes to a government agency such as the EEOC or a similar administrative board?

EPLI policies do not usually cover the costs of punitive damages or civil or criminal penalties.

As the number of employment-related claims and lawsuits rise, insurers have become more particular about whom they will accept as policyholders. That means when you apply for coverage, you will be expected to show that you have policies and procedures in place to serve as your first line of defense against these types of claims.

Good employment practices start with the hiring process. Interview candidates thoroughly and do background checks on them. (Have they actually worked where they say they've worked? Do they have the educational credentials they claim?) Include skills testing as part of the process. Ask other employees to sit in on at least some of the interview so that they can get a sense of how the applicant might fit in with coworkers.

Even if your office is small, it's a good idea to have protective legal documents including an at-will employment agreement and written personnel policies and procedures that cover issues such as sexual harassment, the right to arbitration, and grievance policies. 

 Don't ignore smoke signals. If you hear an employee complaining about discrimination, you'd better start talking about it right away. Acknowledging problems the moment they surface may prevent them from spinning out of control. Keep good records about the problem or complaint and what you do to resolve it. (For more information on investigating actions within your practice, visit our Web site, 

 to access "Take a Look at Yourself," by Paul Angotti, September 2003 issue.)

Request an exit interview when employees leave voluntarily. Ask why they are leaving to see if there were problems you weren't aware of. Document everything.

Get help when you need it. In a small practice, it's unlikely you have a dedicated human resources (HR) person who has expertise with employment practices. For help, visit Web sites for free information, like 

 and hrpowerhouse.com; or hire an HR consultant. If you're the target of an employee complaint, it can help to have someone to talk to. 

Finally, make an appointment to talk with your insurance agent or financial adviser about Employment Practices Liability Insurance. Ignoring the need for it may expose you and your practice to serious financial risks. 

Trevor 'Chip' Lewis, Jr., CFP, is Managing Director of PSA Financial Center, Inc. in Lutherville, Md. He was designated one of the Top 250 Financial Planners in Worth magazine in 2001, and the Top 150 Best Financial Advisers for Physicians in Medical Economics in 2002. Among other professional organizations, Mr. Lewis has been active in the leadership of the National Financial Planning Association and the National Association of Planned Giving. He can be reached at 

This article originally appeared in the June 2004 issue of 

Employment Practices Liability Insurance (EPLI) protects against lawsuits by employees