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Estate Planning for Physicians – Your Complete Guide

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While nearly everyone can benefit from estate planning, physicians have unique needs. It’s important for doctors and their families to plan deliberately for the orderly management and distribution of estate assets and liabilities during periods of lifetime incapacity and at death. In addition to considerations about who will get what and who is in charge of the process, physicians face additional challenges including ever-present litigation risk from malpractice lawsuits, heavy student loan debt, and the complexities that come with owning or otherwise being associated with a medical practice.

Benefits of Creating a Tailored Estate Plan

Your estate plan, when tailored to your personal situation, goals, and objectives, should provide you and your loved ones with valuable peace of mind. For starters, planning how and to whom your assets will pass, and identifying who will oversee making sure your wishes are carried out, can go a long way in limiting or avoiding arguments between heirs and loved ones.

If you own an interest in a medical practice, doing some pre-planning can also help ensure continuity for your loved ones, business partners, and employees in the event you become incapacitated and cannot manage your own affairs, or if you die prematurely.

Many physicians have accumulated sizable student loan debt. If that describes you, it is critical to look at your financial, estate, and tax planning through the lens of a comprehensive plan designed to ensure your loved ones will be able to meet financial obligations no matter what the future brings.

What Does Estate Planning Entail?

Most people think of “estate planning” as little more than “getting a will.” And, while wills are certainly a part of many effective estate plans, they are generally insufficient on their own when it comes to meeting the complex planning needs physicians and their families face.

Your estate plan should contemplate two main questions:

  • What will happen if I become incapacitated?
  • What will happy to my assets, liabilities, and legacy when I die?

Planning for Incapacity

No physician wants to contemplate becoming incapacitated, becoming the patient rather than the provider. However, as a physician, you likely know that incapacity resulting from an illness or injury accident can strike any of us, at any time.

Planning for potential future incapacity means creating advance directives for health care and finances, giving a trusted family member or friend the legal authority to be your voice and handle your affairs if you cannot do so yourself.

It can also mean purchasing disability income insurance to provide a steady income stream to help keep your family’s budget healthy and creating agreements with other physicians in your practice to provide for seamless operation and continuation if one of you is alive but cannot work due to a disability.

Planning for Death

Doctors also need to carefully consider how their assets will be managed and distributed when they die. This aspect of estate planning for physicians often includes creating and funding revocable and/or irrevocable trusts with pour-over wills, carefully structuring ownership of real estate and other assets, ensuring beneficiary designations on life insurance and retirement accounts are in line with goals and wishes, and entering into buy/sell agreements with business partners to ensure there is a ready buyer for a deceased physician’s share of their medical practice can continue.

While the federal estate tax exemption is high ($11.4 million for an individual/$22.8 million for a married couple in 2019), several states have lower exemption amounts. Creating a tailored estate plan using strategies designed to minimize the impact of estate, gift, inheritance, and generation-skipping transfer taxes can result in meaningful savings for your heirs and devisees. In other words, tax planning for your estate can mean your ultimate beneficiaries inherit more of the wealth you want to pass on to them, rather than your money going to unintended heirs like the IRS and state tax authorities.

If you are charitably-minded, there are also powerful strategies you could employ using trusts, life insurance, annuities, private foundations, donor-advised funds, and more to leave a legacy to the organizations that are most important to you. Sometimes, people assume their loved ones know their charitable intentions when in reality, those wishes are not clear. Incorporating your wishes into your estate plan can ensure everyone is on the same page.

Special Considerations for Physicians with Minor or Disabled Dependents

If you have minor children or others who depend on you for support, it’s even more critical to make sure you have an up-to-date estate plan. Your plan should address who would have physical and legal custody (guardianship) for minor children if you and your children’s other parent were to both die prematurely. This provision is generally included in a will.

Your will or trust instrument should also provide for management of assets for minor or financially-irresponsible beneficiaries. You can name a trustee to manage assets, giving the trustee broad or limited discretion to use the funds for the beneficiaries’ health, education, support, and maintenance. Estate planning using trust instruments can be extremely flexible, giving you the ability to implement guardrails around how and when your assets could be used, and dictate when the beneficiaries could receive lump-sum distributions. When structured properly, these types of provisions can protect the assets you’ve worked a lifetime to accumulate from spendthrift beneficiaries or from beneficiaries who simply are not prepared to manage an inheritance while grieving your death.

Steps Involved in Planning Your Estate

Just as with practicing medicine, there are no “one-size fits all” solutions when it comes to estate planning. The right strategy for you will depend on the type, size, and makeup of your estate assets and liabilities, your distribution wishes, and goals.

In addition to considering how your financial affairs should be managed in the event of your incapacity or death, you should also spend time thinking about who is in the best position to oversee your estate plan when the time comes to implement it. This could be a trusted family member or friend, or it could be a professional fiduciary. Again, there is not any single “best” solution.

The important thing is to put some thought into your plan and work with legal, tax, and financial professionals who can help implement it. Finally, remember to review your plan regularly and adjust it as your situation changes or as major life events occur.

Florida Probate & Trust Administration Checklist

Closing an estate according to a deceased loved one’s wishes is a high honor. However, it involves extensive paperwork and careful compliance with the law. Survivors who are mourning a loss often find themselves overwhelmed, but plenty of help is available.

Understanding the Florida Probate and Trust Administration

 

Probate is a legal process that wraps up the financial affairs of deceased people. In most wills, a trusted relative or friend is appointed as personal representative of the decedent’s estate.

If you are such a representative, your job is to identify the decedent’s assets and distribute them to heirs or beneficiaries named in the will. Probate court supervises this process. It is necessary because a will itself isn’t enough to pass ownership to the beneficiaries.

If the decedent left a trust, you may have been named successor trustee. That means you’re responsible for filing a notice of trust with the court, taking an inventory of the assets, liquidating assets if necessary, paying final bills, and transferring the remaining assets to the beneficiaries named in the trust.

Common Delays and Legal Hurdles

 

Probate and trust administration take time.

Probates must remain open for three months to allow creditors to present claims against the estate. Probates lasting five to six months are not uncommon. The probate process may last anywhere from 6 months to up to a year.

In addition, there may be delays in gathering the paperwork, inventorying the assets and tracking down the beneficiaries. Personal representatives often have to sell off real estate, resolve disputes with creditors or file federal estate tax returns. They must sometimes contend with legal challenges to a will.

An experienced Florida probate attorney can help you navigate the hurdles and expedite the process.

Successor trustees may find that it’s tough to please everyone.

The owner of a trust is known as the settlor. If a settlor becomes unable to manage the trust, Florida law typically gives the successor trustee absolute discretion to use the assets in the best interest of the settlor.

For instance, the trustee may transfer assets out of the trust in order to protect them. Beneficiaries might question such a decision later on when the settlor dies.

Trustees must also identify and pay estate expenses. If an expense is not trust-related, paying it from the trust may raise questions.

For sensitive issues like those, documentation is critical. Trust mismanagement, even if it’s unintentional, could result in legal liability.

Successor trustees are strongly advised to hire qualified legal and financial counsel.

Florida Probate Checklist

 

There’s a lengthy to-do list for personal representatives. Here’s a step-by-step guide on how to proceed before, during and after probate:

  • Locate the last will and testament along with any amendments. If you can’t find the original, contact the decedent’s family members or the estate attorney.
  • Request around 10 certified copies of the death certificate from the Florida Department of Health or the funeral home.
  • Gather important documents. If you must retrieve items from a safe-deposit box, get clearance from a probate official or attorney. These are examples of documents to look for:
    • Bank or brokerage account statements
    • Property deeds
    • Life insurance policies
    • The last three years’ tax returns
    • Records of any entities the decedent owned or co-owned such as a small business
    • Funeral instructions or the funeral invoice
    • Letters of instruction for personal property like jewelry, cars or works of art
  • Secure the decedent’s property and assets.
  • If you’re authorized, close or freeze all financial accounts.
  • Create a detailed list of assets and debts. Everything from cash left in a wallet to real estate must be inventoried. For each item, note the value and location. List all financial account information with passwords if applicable.
  • List all liabilities such as mortgages, credit card balances and medical bills.
  • At this point, decide whether you can avoid a drawn-out probate process. If the estate is small enough, you may be able to request summary administration, a simpler version of formal probate. Summary administration requires less time, effort and expense, but it’s available only in certain circumstances:
    • The decedent died more than two years ago.
    • The value of the estate subject to Florida probate — not including property that is exempt from creditors’ claims — does not exceed $75,000.
    • There are no creditors’ claims pending against the estate.
    • The decedent’s will did not specify formal probate administration.

Summary administration is initiated by filing a petition in court. The petition includes a list of assets and their value as well as a plan for distributing them. Petitioners must practice due diligence to find and notify potential creditors.

Any beneficiary or the personal representative named in the will may file the petition. If there’s a surviving spouse, the spouse must verify and sign it.

If the estate doesn’t meet the conditions for summary administration, continue with the probate checklist:

  • Categorize the assets. These are examples of assets that aren’t subject to probate:
    • Assets held in a trust
    • Assets in some pension or retirement accounts
    • Assets designated as payable or transferable upon death
    • Life insurance policies, annuity contracts or individual retirement accounts payable to specific beneficiaries
  • Here are some of the assets that must go through probate:
    • Solely owned bank or investment accounts
    • Life insurance policies, annuity contracts or individual retirement accounts payable to the decedent’s estate
    • Real estate, unless it is homestead property, titled in the sole name of the decedent
  • In the absence of a will, determine who the legal heirs are. Heirs must be located and notified, so list all the identifying information you can find.
  • If you have not already done so, retain a qualified Florida probate attorney.
  • Assemble the forms and documents necessary for opening probate. There are several required forms, but the probate attorney can help.
  • When you have everything you need, file a petition for probate administration with the clerk of the county’s circuit court. The decedent’s will must also be submitted.
  • During the probate process, resolve issues as they arise. Approve or deny any creditors’ claims. File a tax return if necessary, and pay what is due. If anyone challenges the validity of the will, be prepared for litigation if it comes to that.
  • Finally, complete the legal documents that will bring about the transfer of assets to beneficiaries or heirs.

 

Trust Administration Checklist

 

Successor trustees are equally busy. Here’s a guide to help you stay organized:

  • Gather relevant documents and records like those below:
    • Several copies of the death certificate
    • Recent tax returns
    • The life insurance policy
    • Retirement account and pension records
  • Carefully review the terms and instructions in the trust. Get a feel for how much discretion you’ve been granted. Note specific limitations as well.
  • Consult with a qualified trust attorney who can explain the agreement. You need a clear understanding of your fiduciary duty and how to comply with the law.
  • Take custody of all the assets held in the trust. You’ll probably have to retitle everything in your own name in order to maintain legal control.
  • If there’s no bank account for the trust, open one right away. You’ll need it to settle debts, pay ongoing expenses and distribute assets.
  • If necessary, sell off some assets to free up capital.
  • Most life insurance policyholders designate a beneficiary. If that’s not the case, file for any death benefits that the estate is entitled to. As the funds trickle in, deposit them into the trust bank account.
  • Have your lawyer help you identify creditors and pay off debts. Hire an accountant who is experienced in estate law to file a return. Pay any taxes owed. Stay current with ongoing expenses.
  • Since assets in a revocable trust are subject to a two-year creditor claim period, you may have to settle or dispute claims.
  • Keep good records of the debts, taxes, expenses and trustee fees that you pay out of the trust, and forward copies to all beneficiaries. Transparency is crucial.
  • Follow the terms of the trust as you distribute assets and transfer ownership to beneficiaries. Your role may be ongoing if benefits are to be paid out over time. For example, you may have been given discretionary control over a spendthrift trust.
  • Once all the terms are satisfied, your trust administration lawyer can help you prepare the documentation for officially closing the trust.

 

Participating in probate or trust management is a big responsibility. Educating yourself and getting organized in advance will pay off.

No one savors the idea of a lengthy legal process, but you don’t have to shoulder the burden on your own. The Florida Probate and Trust Administration exists to help personal representatives and trustees carry out their loved ones’ wishes.

Are Estate Planning Fees Tax Deductible in 2019?

interaction of florida estate planning and taxes

 

Not long ago, this was a complicated question. Prior to the Tax Cuts and Jobs Act of 2017, some personal legal fees were tax deductible, though most were not. Those that were deductible were, for the most part, deductible as “miscellaneous expenses,” which meant that they were deductible only if they exceed 2% of your adjusted gross income. In other words, it could be difficult to determine which fees were and were not deductible. And, if you had deductible legal fees, you could claim them only if you itemized deductions.

The 2017 law simplified the question, but not in the way you may be hoping. Miscellaneous deductions, including many types of legal fees, have been suspended. So, Jacksonville residents won’t be able to claim an income tax deduction for estate planning fees in 2019.

Notably, the suspension of miscellaneous deductions is temporary under the current law. These deductions have been eliminated for tax years 2018 through 2025. However, without further action, the deductions will be restored for tax year 2026.

 

How Does The 2017 Tax Reform Impact Florida Residents?

 

Although the elimination of deductions is never good news for a taxpayer, this change likely won’t have much effect on most Florida taxpayers engaging in estate planning. Most of the core legal services performed by an estate planning lawyer were non-deductible even before the law change. These include:

  • Creation of a will
  • Drafting of a codicil to a will
  • Creation of a healthcare directive
  • Creation of most powers of attorney

Even before the law change, only a handful of estate-related services were considered deductible expenses. These included services such as:

  • Tax planning advice and services
  • Legal fees relating to income-production, which could include trust matters

Since estate planning services are often comprehensive, it was sometimes difficult for taxpayers to break out and document the amount of fees paid for deductible services. And, of course, claiming those expenses depended on reaching a certain threshold and then itemizing deductions.

 

Are Any Estate Planning Legal Fees Still Deductible?

 

Deductions for personal legal fees have largely been eliminated for the time being, including well-known, longstanding deductions like the costs of tax-related advice and tax preparation. There are a few exceptions, but they fall outside the area of estate planning. These include some legal fees related to employment disputes, such as discrimination claims.

 

Are Legal Fees Considered Business Expenses?

 

It’s important to note that legal fees remain deductible as trade and business expenses. Thus, the legal costs of doing business such as assistance in structuring a business entity, contract review, and even legal fees incurred in defending most lawsuits against a company remain deductible. These costs of doing business can typically be deducted even if the taxpayer is operating a sole proprietorship and so filing only an individual tax return.

 

The Good News about Estate Planning and Taxes

 

Estate planning services aren’t tax deductible in 2019, but that doesn’t mean those services won’t cut down your tax bills—at least, for the future. One of the many benefits of a comprehensive estate plan is that your estate lawyer and financial professionals can advise you as to the best way to structure your holdings, gifts, bequests, and other transactions to minimize tax debt.

A carefully-considered estate plan also protects assets and the value of your estate in many other ways, including:

  • Ensuring that your loved ones receive the property you choose to pass to them
  • Ensuring that your assets are well managed and preserved if you are incapacitated
  • Ensuring that your trust structure and chosen trustee will profitably manage trust assets
  • Reducing the possibility of costly estate litigation after your death
  • Preventing dissipation of family assets through divorce or death

 

The bottom line is that, tax deductible or not, estate planning services provide a wide range of benefits to you and your family. In addition to the purely financial considerations listed above, your estate planning attorney can assist you with the creation of healthcare directives, nomination of a guardian for your minor children, and structuring and titling of assets during your lifetime.

If you haven’t created a comprehensive estate plan or your estate plan may be out of date, it is in your best interest to speak with an experienced Jacksonville estate planning lawyer as soon as possible.