Estate planning for physicians, sure, it is not the most exciting topic, but it is vital! We are going to take the “morbid” topic and make it more digestible. We will start with six common mistakes you should look to avoid and then we will follow it up with four essential estate documents you must have in place now (like yesterday!).
Most of our clients are Gen X & Gen Y physicians, and many of our clients end up having their estate documents completed before their parents. Heck, sometimes before their grandparents!
Why? Well we know from stories and experiences that contrary to popular belief, we are not immortal or invincible and sh*t can happen. Now, most of the time we have to nag our clients a few times before they get these items completed because truthfully, who wants to plan for death or being incapacitated. Not me! This is why people frequently leave the matter to the very last minute and then make rushed decisions with bad information. No surprise, common mistakes occur that are oftentimes very avoidable with a bit of planning and thinking a bit earlier.
🚨 Free Workflow: What Issues Should I Consider When Reviewing My Estate Planning Documents? 🚨
Let’s get started!
Avoid These Six Estate Planning Mistakes
1. Have a Plan
It’s an absolute train wreck for your family and estate not to have some kind of a plan in place at all. Even a simple will is far better than completely nothing. Ignoring the matter means that your entire estate will be decided by a probate court. And that means the judge involved could transfer your assets to just about anyone who makes a good argument in the required probate hearing.1 Do everyone a favor and at least prepare a basic will designating a default beneficiary for all your assets if nothing else. While many assume their spouse will take over everything, consider point two below, which is a common occurrence.
2. Think Beyond a Single Beneficiary
Don’t assume the first party designated as a beneficiary will be around by the time your estate plan takes effect. Life happens and doesn’t stay frozen in time just because an estate plan designates one specific person to be a key beneficiary. Go a second or third layer deeper as a contingency if the first person chosen is no longer available and choose one or two more. You will be making your executor’s task much easier to do by getting your assets distributed properly.
Pro Tip: Mark “per stirpes” which will allow that asset to pass to the next generation. This is on many beneficiary forms but most don’t know what it means. In the event your primary beneficiary predeceases you, a per stirpes beneficiary designation provides that the share he or she would have received goes to his or her heirs. Example: Client A wants to leave his account to his son, but unfortunately his son predeceases him. However, since client A marked “per stirpes” his account will now go to his two grandchildren (the children of his son).
3. Regularly Update Your Will, Estate Plan, or Trust
If you have a will, estate plan, or trust already, make sure it is regularly updated. Your financial situation and universe of beneficiaries is regularly changing and oftentimes growing. Big changes that should be adjusted for include new children joining a family, inheritance of assets from someone else, changing large assets such as homes and cars, and designating inheritance of new financial accounts (bank accounts, brokerage accounts, investments, etc). Not updating regularly means that when the plan is needed, it may not match or apply at all to extra assets gained after the fact or new beneficiaries not previously identified being left out.
4. Think About Your Own Health
People don’t think about their health when they plan an estate. Very often a surviving spouse may need health support or your own condition may trigger a disability. These translate into costs that have to be addressed for medical services. Not having a clear path for the power of attorney and health directives can be big issues if someone needs to make health decisions for you. Again, plan ahead and anticipate these challenges with solutions.
5. Transferring Assets as a Gift
An easy way to transfer assets early without taxes is a gift, but people hardly use it while alive. Any individual can transfer up to $18,000 (2024 Limit) without taxes on the amount or value annually to any other individual. This is an easy, simple way to liquidate parts of an estate early without the transfer having to go through the estate distribution process after a person passes away. Even better, you are entirely in control of the asset and transfer as opposed to relying on an executor.
6. Choose an Executor
Choose an executor who is capable of handling the task of managing your estate, which includes a lot of paperwork and legalities.3 People frequently choose a sibling or a close relative to execute an estate. However, that doesn’t mean the person has the fortitude to do the job. Choose someone with the maturity and backbone who is willing to deal with the challenges involved, including appearing at hearings and fending off relatives.
What Estate Documents Do I Need as a Physician?
Whether you’re 18 or 78, we include estate planning in every WealthKeel plan. Now at 78, estate planning should be a no-brainer, but you would be shocked on how many have neglected to complete these essential documents because they thought they were only for the wealthy or procrastinated for 60 years. The majority of Americans (67% from CNBC) still don’t have a will.
Even some of the wealthiest and most famous individuals neglected to complete these documents: Jimi Hendrix, Pablo Picasso, Sonny Bono, Michael Jackson, Steve McNair and Abraham Lincoln to name a few.
In their defense, it is never exciting to pay an attorney to plan how to distribute your assets once you’re dead, or layout what to do or not to do with your body if you are incapacitated.
We recommend four essential estate documents to all of our clients: Will, Living Will, Health Care Power of Attorney and Financial Power of Attorney. If you have minor children, you should also name guardians as part of your essential estate documents.
Let me provide a clear disclosure: Seek advice from a legal professional for your particular situation, and for all of the documents we are going to review. Also, understand that each state will have specifics to each of the documents. This blog is not a how-to on drafting your estate documents, it is meant to give you a basic understanding of a few essential legal documents. I am a financial planner, not an estate attorney. I would have failed miserably at law school.
Great, now what do these documents do?
Vital Estate Document 1:WILL
The fancy term is, “last will and testament.” Most of you have probably heard of this but never completed it based on our stats from above. Your will is also where you would name guardians for your minor children.
The primary purpose of this document is to outline who will receive your assets after your death. You will also designate an executor to oversee/carry out your instructions.
Without a will, your assets will have to proceed through probate which could cost money and time, and at the end of it, a judge will decide how your assets are distributed. I don’t know about you, but that does not sound like an ideal situation. A will allows you to lay out your plan for your assets.
Vital Estate Document 2: LIVING WILL
Here is where estate planning becomes vital for everyone at every age. A living will would provide guidance for your loved ones regarding your preferences for end-of-life medical treatments, assuming you can’t communicate or are incapacitated.
A living will is not a fun document to complete because you are going to lay out details/instructions for life-prolonging treatments, life support, feeding tubes and do-not-resuscitate orders.
Completing your living will is an unselfish act, imagine how hard it would be for your spouse, parent or children having to make these types of decisions for you. With a living will, you provide your family with your wishes so that they don’t have to guess between life or death.
Make sure your primary doctor and family members can access this document quickly and easily. We ask our clients for a copy and tell them to notify their family that we have a copy, and it can be sent when needed anywhere at a moment’s notice.
Vital Estate Document 3: DURABLE FINANCIAL POWER OF ATTORNEY
This is also referred to as a financial power of attorney. Simply put a power of attorney grants another person the ability to make financial decisions if you become incapacitated.
A financial power of attorney can include everything from paying your bills to calling to liquidate your investments. Here is a list of traditional authorities with a durable power of attorney.
Make sure you give this some thought because whoever you name as financial power of attorney will have full control of your financial life if you are incapacitated.
Vital Estate Document 4: DURABLE HEALTH CARE POWER OF ATTORNEY
Take all the information from the financial power of attorney, but instead of financial decisions, they are now medical decisions while you are incapacitated.
Again, make sure your primary doctor and family members can access this document quickly and easily.
A health care power of attorney allows someone else to make health care decisions for you while a living will delineates your wishes.
In Closing
We call those the four essentials because every person should consider these documents no matter what! Estate planning can get much more in-depth with net worth, but those four documents are needed for everyone, even if your net worth is $0 (or negative, thanks student loans…).
We recommend you have these documents completed via an attorney, preferably an estate attorney. I know you think you can write your will on a napkin at Chick-fil-A, and as long as you sign it with honey mustard it’s legit, but you are walking a fine line. Even the low-cost online options are failing in some courtrooms across the US. You won’t realize how important these documents are until you are incapacitated or deceased. Take the time and money to do it right with an attorney, saving a couple of bucks won’t mean anything if your estate documents are not legit.
Ask your family and friends for a referral for an estate attorney, and don’t be scared to shop around. You should be able to call and ask for a flat rate fee to complete those four documents.
Drafting the proper estate plan is easier than you think. Stop procrastinating and get these documents completed! Don’t wait until it is too late.
Once finished, make sure you stay up to date. Every 3- 5 years would be a good time to review and contact your attorney to confirm no significant legal changes have occurred since the last draft was completed. Any major life events (marriage, divorce, kids, etc.) or major financial events (new home, sold a business, retirement, etc.) are good reasons to review your estate documents.
Looking for a more thorough, all-in-one spot for your financial life? Check out our free eBook: A Doctor’s Prescription to Comprehensive Financial Wellness [Yes, it will ask for your email 😉]