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Doctors Dealing with Financial Favor Requests

Staff Writers

Physicians who have earned wealth – or recently acquired new wealth – often receive numerous requests from family, friends, acquaintances and others for financial assistance.

These requests may take the form of requests for loans, gifts, contributions and/or “investments.” They often come at a time when the doctor is most vulnerable to requests for assistance, especially when resources are new or far in excess of his or her previous experience. 

Just Say “No” – Initially

It is often advantageous to make no transfers [whether as outright gifts or investments and loans from which there is the expectation of an ultimate return of the funds] until after both short-term and long-term cash flow models have been constructed.

Within the framework of existing or the newly wealthy doctor’s short-term and long-term needs, transfers can then be considered and/or incorporated. With a cash flow model, total annual transfers can be forecasted and planned for, much the same as with any other anticipated disbursement. 

Example:

To illustrate within the context of the short-term and long-term projections of the newly wealthy, the doctor may want to incorporate -say- $50,000 per year of intra-family assistance. Both the timing and amount of this type of disbursement can be planned for, in much the same way as the purchase of replacement automobiles can be planned. 

Construct an Action Plan

Having a definitive, written action plan [or charitable foundation] can reduce the emotional demands placed upon a newly wealthy individual.

A written plan provides the framework for making informed, timely, disciplined transfers, rather than mere reactions to emotional pleas for assistance. 

For example, the affluent doctors may find it advantageous to adopt a policy that no transfers will be made until at least six months after the first request. This waiting period can provide the doctor time to consider whether or not the transfer meshes with his or her long-term desires and investment policy.

Retain a “Third-Person” Intermediary

It also is common to use a trusted financial advisor – or personal health economist – as an initial screening mechanism for requests, as a sounding board to discuss merit, and as a potential “bad guy” onto whom the ramifications of denying a request can be shifted. 

Just as this advisor or third-person intermediary can play an important role in being the deal breaker when appropriate in the corporate setting, he or she can be equally effective in taking the blame for the doctor, who then can maintain personal interaction with the party requesting a transfer. 

Depending on the personality of the wealthy physician, the intermediary can also serve an important role in preventing the individual from sharing too much.

Adhering to established formal written guidelines [IPS = Investment Policy Statement] that outline the parameters of an individual’s long-term financial plan can be an effective backstop to the untimely depletion of an asset base. 

Transferring the Right Way

When financial or other asset transfers are made they may take the form of outright gifts, investments, or loans. And, always be sure to do it correctly, formally and thru your intermediary. For example:

• Gifts must be examined in the context of associated gift tax liabilities.
• Investments should be accomplished within the framework of the individual’s written investment objectives document.
• Personal loans should be implemented as legally enforceable transactions. 
• Don’t forget charitable intent and philanthropic giving. 

Conclusion 

Feel free to comment and discuss your experiences with the above? 

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Filed under: Financial Planning |