When you’re a physician, your life is defined by long hours, major responsibilities, and a focus on the health and well-being of your patients. Though dedication to your practice is commendable, planning for the future is likely also on your to-do list, as well;  a comprehensive estate plan is part of planning for the future.

Estate Planning Needs of Physicians

1. High Earning Potential: Physicians, particularly specialists, may accumulate substantial wealth over the course of their career. Managing and protecting assets is a component of most estate planning. A comprehensive plan can help safeguard wealth for future generations and minimize the impact of taxes and other liabilities.
2. Business Interests: Many physicians own their practice or are partners in a group practice. Estate planning for a business owner can provide a smooth transition in the event of death, disability, or retirement. This might include succession planning, buy-sell agreements, and considerations for the continuity of patient care.

3. Liability Risks: Given the potential for some physicians to face lawsuits in the course of their career, physicians may want to plan for these liability risks. Malpractice insurance or umbrella insurance will cover some liabilities, but an estate plan can also include strategies intended to protect assets from potential claims.

4. Healthcare and Disability Planning: Planning for the possibility of incapacity, for both themselves and their practice, is another part of many physicians’ estate planning.

Key Components of an Estate Plan

A physician’s estate plan will often have several components to distribute assets and protect their family members and their practice in the event of death or incapacity.

I. Will

A will outlines how assets will be distributed after a death. It names a personal representative, sometimes referred to as an “executor,” who will manage the estate. Many physicians include specific provisions for their medical practice, such as who will take over patient care or handle the financial operations. If a revocable living trust is the primary vehicle by which an estate will pass, there is likely a “pour-over will,” which is fairly simple and leaves everything to the trust, so the dispositive provisions in the trust will govern the assets.

II. Trusts

Trusts are an effective tool for managing and protecting assets. Various types of trusts can be tailored to a person’s specific needs. For instance:

• Revocable Living Trust: This allows a person to retain control of their assets during their lifetime while providing a mechanism to transfer assets upon death without having to go through probate. For physicians who own their own practice, their trust will often include provisions that relate to their practice and patient records, with the goal of the business being managed in accordance with all appropriate legal requirements until sold or distributed, and the patient records being handled in a manner that complies with all health care information privacy laws.
• Irrevocable Trusts: These are often used to protect assets from creditors and lawsuits, while also providing for beneficiaries—a significant consideration for physicians. An irrevocable trust can also reduce estate taxes by removing assets from the taxable estate. These trusts are typically formed in consultation with an attorney who is experienced in the preparation of advanced or high-net-worth estate plans so that all of these complex issues are carefully considered.
• Special Needs Trust: When a person has a child or family member with special needs, a trust can provide that individual financial support, with the goal of allowing continued eligibility for government benefits.

III. Power of Attorney

In estate planning, a person can grant a power of attorney (POA) to another person to give them authority to act on their behalf if they become incapacitated. This document ceases to be effective upon their death. There are two main types:

• Financial Power of Attorney: This authorizes a designated agent to manage their financial affairs, such as to pay bills, handle investments, and file taxes. The POA may be structured narrowly to cover specific purposes and powers, or be quite broad. It can also be designed as a “springing” power of attorney, where the agent’s power does not take effect until some triggering event occurs (e.g., incapacity); or it can be made a “durable” power of attorney, which is immediately effective and does not lose effect upon incapacity.
• Healthcare Power of Attorney: In Washington, this document designates a person to make medical decisions for a person if they’re unable to do so. In Oregon, this power is a part of the Advance Healthcare Directive, described below, which serves as a healthcare power of attorney.

IV. Healthcare Directives

In Washington, a Health Care Directive is a legal document that specifies a person’s wishes regarding life-sustaining treatment in the event they become terminally ill or permanently unconscious.

In Oregon, an Advance Directive for Healthcare combines a Health Care Directive and Healthcare Power of Attorney into one document. In this document, a person may appoint someone to make healthcare decisions for them and express their wishes regarding medical treatment in the event they are unable to do so. Such conditions often include terminal illness, advanced progressive illness, or a permanently unconscious state.

V. Life Insurance

For physicians who have dependents or significant financial obligations, many find life insurance to be a means of providing financial security for loved ones. It can be used to pay for estate taxes or outstanding debts upon death. Life insurance can also be used to fund buy-sell agreements for a physician’s practice or as part of the continuity planning for a physician’s practice. An irrevocable trust can also be prepared to own the life insurance policy outside of an estate so that the policy proceeds can be used according to the terms of the trust and not subjected to estate taxes.

VI. Tax Planning

Estate taxes and income taxes can have a significant impact on a person’s estate, particularly if they have substantial wealth or business assets. Many physicians elect to work with an estate planning attorney and a tax advisor to develop a strategy to minimize taxes, which may include gifting assets during their lifetime or setting up trusts to shelter assets from estate taxes.

The Importance of Succession Planning for A Medical Practice

Physicians who own their practice or have an interest in a group practice may want to consider succession planning as part of their estate plan. Succession planning with an experienced business or succession planning attorney can provide continuity for the practice after a physician’s death or retirement, which may be a goal for the physician’s family and patients. A buy-sell agreement can outline how the practice will be valued, who will have the right to buy shares, and what the terms of sale will be. This type of agreement can also address what happens in the event of disability or death.

Conclusion

Physicians at all stages of their career may benefit from estate planning. When complex financial and legal matters are in play, an experienced estate planning attorney may be able to help pursue important goals, such as protecting assets, providing continuity to a medical practice, and preparing loved ones for the future.

This article summarizes aspects of the law. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.