Planning for an Inheritance as a Doctor

February 1, 2016

Physicians have important considerations when planning for an inheritance from an elderly parent. Here are a few.

I am often asked to discuss a planned inheritance from an elderly parent.  With physicians in particular, there are some very important considerations.

Many physicians have a continued exposure to malpractice liability throughout their careers.  This is superimposed on the ever present liability concerns of teenage drivers, business liability, other accident liability, and marriage.  A physician (and most other individuals with any of these liability concerns) should think twice about inheriting significant assets outright, even including an inherited IRA.

Take a scenario in which you are engaged in a lawsuit of any type. During the lawsuit, you inherit a large sum of assets left outright to you.  That inheritance is now on the table for creditors if you have a judgment that exceeds your insurance coverage. 

Instead, if the assets left to you were held by a trust for your benefit, it would be nearly impossible for creditors to attach the funds. In most cases, trusts are created during life by parents (living trusts), although they may be funded and/or formed only at death (testamentary trust).  In either case, these trusts become irrevocable at the parent's death.

Note that parents can specify what happens to these trust funds if you die prematurely.  The money could be left in trust to provide for your children or be moved to your sibling if you leave no issue.

Although there are standard clauses that might allow such a trust to protect the assets if you are both the trustee and the beneficiary, it is much stronger to include a co-trustee (a friendly one is fine) that cannot be coerced by a judge or judgment creditor to release any funds.

The same is now true in many states for inherited IRAs.  Some states offer specific protection but most do not.  If you have liability concerns in the future and are likely to inherit an IRA, ask your parent(s) to leave the IRA to a specially written trust.  Discuss your options here with a good estate planning attorney.

The point we are making here is that anyone with liability concerns and the expectation of a substantial inheritance should do some pro-active planning with their parents and with an estate planning attorney.  Doing so may make a tremendous difference in the safety of the funds when it matters most.