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Here are some key issues to examine as advisor sales teams targeting doctors kick into high gear for end-of-year planning.
We've covered a variety of tax, legal, and financial strategies related to defending your assets and preserving your wealth over the last 130 plus articles we've shared in this column. This week we examine some key issues and due diligence required as the advisor sales push targeting doctors kicks into high gear for end-of-year planning.
Planners of all types commonly get the question, "Is strategy XX a good tool?" which, with a few very specific exceptions, is hard to answer in a vacuum, much like asking if "surgery" is good treatment without knowing the full symptoms and history of a patient and the other variables that will affect the patient’s odds of efficacy and recovery. The best answer to that question is always a question of fit, that is, the fit of a solution and its comparative value and cost effectiveness to your very specific and unique fact scenario. Both good planners and bad ones know that you are worried about taxes in particular and take advantage of the pressure of "year end" to force you to act on a scam, often at the expense of appropriate due diligence.
Some basic questions to ask about ANY strategy you are considering:
1. What is the result you are trying to achieve and what do you estimate my specific dollar benefit will be?
2. When is the legal deadline (as opposed to your quarter ending or some other artificial sales goal) to fund and implement the strategy to achieve my goals?
3. What specifics of my fact situation make you think this is a fit for me?
4. What other options are available that can achieve the same or a similar result?
5. What's the difference in the cost of those other options?
6. How long will it take me to realize a profit or advantage by implementing this strategy (i.e. what's my R.O.I.)?
7. Who is the licensed professional responsible for implementing the strategy?
8. Does his or her professional liability insurance cover any issues or damages I may incur as a result of following your advice?
9. Can you show my advisors and I the laws or IRS code sections that apply to this strategy?
Captive insurance companies or "captives," as just one specific example of many, are a huge item of discussion right now. To be clear, I'm not adverse to captives; they serve a great purpose for some businesses, including financially qualified medical practices where they fit when done right. They are certainly not, however, right for everyone.
The number of captive providers and promoters has proliferated and the "sale" is often being made without a full examination of the fit for the individual client. We've covered many key issues related to captive insurance companies before in a four-part series I authored earlier this year. Perhaps the most important of the four articles was a list of 19 basic due diligence questions to ask a captive provider. Remember that this strategy, like many, is exceptionally detail oriented and requires skill and compliance support of the highest caliber to avoid civil and criminal tax penalties in three distinct areas; formation, administration and funding (here's a tip, large amounts of life insurance, say more than 50 percent, are a red flag). I’m already hearing horror stories of captives organized by promoters using rag-tag groups of far-ranging, third-party, unskilled, or inexperienced planners selected on the basis of price rather than expertise. If one of these plans goes sideways on you, expect a lot of finger pointing and very little help and legal accountability, so know who are dealing with and exactly who the team members are.