For most retina specialists, estate planning is likely one of the least attractive of all areas of wealth management. Building assets through investing or reducing taxes bring to mind more excitement than stopping to consider what will happen when you pass away or become incapacitated. Despite the distasteful subject matter, estate planning is a crucial area of your financial health and something all physicians, regardless of their stage in life, should address.

ESTATE PLANNING DEFINED

The term estate planning refers to three different categories of planning:

  • Incapacitation planning: decision-making regarding legal, financial, and medical issues if you are unable to make decisions for yourself.
  • Estate distribution planning: deciding what happens to your assets upon death.
  • Transfer tax planning: address and plan for the various gift, estate, and other taxes that may be triggered under state and federal law when transferring wealth during life or at death.

In this article, we dive into the details of the first two areas of estate planning.

INCAPACITATION PLANNING

Planning for your own potential incapacitation (ie, when you are not able to make decisions for yourself) is never a pleasant endeavor, but it is always important.

As an example, consider what might happen if you are hospitalized and cannot express your wishes regarding decisions that need to be made about your medical care. Many people assume that their family members would automatically be able to make decisions in this scenario. However, rules surrounding this decision-making process vary significantly from state to state. In some cases, the health care providers and institutions in charge of your care are the ones tasked with those decisions. Also, consider what may happen if such decisions can be made by your family members but they do not all agree on the best course of action.

There are several key documents that every physician should have in place to address these concerns. The exact names and requirements of these documents can vary because they are controlled by state law. Typically, estate planning attorneys prepare these at the same time they draft other important documents, such as wills and trusts. These documents should be part of every doctor’s overall planning and might include the following:

  • A living will is a written record of the type of medical care you would want in specific circumstances.
  • A health care proxy is a document that names someone you trust as your proxy, or agent, to express your wishes and make health care decisions on your behalf if you are unable to speak for yourself.
  • An advance directive often refers to a combination of the living will and health care proxy documents.
  • A power of attorney is a document that names someone you trust as your agent to make property, financial, and other legal decisions on your behalf.

ESTATE DISTRIBUTION PLANNING

Before we address the foundational estate planning documents most physicians should employ, consider what occurs if you die without any will or other estate planning document in place. You might be surprised to find out that you already have a will, even if you have never written one or had an attorney draft one. If you die without a will, your property will pass down based on the scheme that your state legislature has written for its citizens. This is known as dying intestate.

There are various negative consequences of dying intestate. While the precise rules vary between the 50 states, the overarching laws are rigid and formulaic. Usually, your nearest relatives get a certain portion of your property and no one else—not friends, cousins, or charities. Furthermore, no one gets more than the state-allotted share, even if that seems unfair.

Often, this all-too-common scenario ends up hurting a surviving spouse. For example, the decedent’s grown children may get some of the money meant for the surviving spouse, even if it means the surviving spouse has too little to live on. With larger estates, this could have the impractical effect of creating an estate tax payable when the first spouse dies, if the children’s share of the estate exceeds the federal or state exemption amount. Moreover, intestacy may lead to expensive and lengthy court battles between family members contesting the division of assets.

Perhaps the most upsetting thing about intestacy occurs if the scenario involves children who are minors. In this case, if both parents die intestate, the courts decide who becomes the legal guardian of the children. What parents would want to have an unknown judge decide who will care for their children after they pass away? Furthermore, any minor children will receive their share of the estate when they turn 18, rather than at an age that you deem appropriate and can specify with proper planning.

Wills and Living Trusts

While estate planning documentation is completely state-dependent, having a will is always better than not having a will, regardless of the state in which you live. However, in many states, your entire estate will be stuck in the probate process if a will is all that you have prepared. Probate is the court-controlled process by which the state administers your will.

In most states, knowledgeable estate planning advisors recommend combining a living trust with a short will called a “pour-over will”; this combination ensures that much of an estate avoids probate. Depending on the state, probate can be time-consuming, public, and very costly. It many states, the goal is to avoid this process as much as possible.

The Living Trust: A Foundational Document

Living trust is a common term used to describe a revocable trust (meaning you can revoke it or amend it at any time during your life). Such trusts are also sometimes called family trusts or revocable family trusts.

Regardless of its name, the living trust is a revocable trust that provides direction for the use of your assets while you are alive and at the time of your death. During your life, you control the assets transferred to the trust, as the trustee, just as if you owned them in your own name. When you die, these trust assets automatically pass to whomever you designated in the trust, without having to go through the probate process. Other benefits of the living trust include:

  • avoidance of the unintentional disinheritance caused by joint tenancy;
  • prevention of court control of assets if you become incapacitated;
  • protection of beneficiaries with special needs; and
  • the ability to nominate guardians to take care of your children if you are incapacitated (but still alive) or if you die while they are still minors.

For these reasons, many physicians should use a living trust as the foundational document in their estate planning.

ESTATE PLANNING IS A MUST FOR ALL PHYSICIANS

Incapacitation planning is essential for physicians of any age, and estate distribution planning is valuable for those with even minimal assets. Every retina specialist should engage in basic estate planning as soon as they begin practice.

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