BOARD CERTIFICATION EXAM STUDY GUIDES Lower Extremity Trauma
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1. Regional banks’ plight was Morgan Stanley’s perk. The bank saw nearly $20 billion in new client assets in the wake of the banking crisis that rocked smaller banks like First Republic. Why the bank became a “destination of choice” amid the crisis.
2. Taylor Swift was the only one asking the right question on FTX. The mega star didn’t sign a $100 million sponsorship deal with the crypto exchange because, unlike seemingly everyone in Silicon Valley, she did some form of due diligence.
4. It’s starting to get scary in the housing market. Foreclosure filings were up 22% in Q1 compared to last year, and repossessions are headed in the wrong direction as well.
Finally, Fintel reports that on April 21, 2023, Goldman Sachs maintained coverage of Tesla (NASDAQ:TSLA) with a Buy recommendation. As of April 6th, 2023, the average one-year price target for Tesla is $203.14. The forecasts range from a low of $24.58 to a high of $315.00. The average price target represents an increase of 24.63% from its latest reported closing price of $162.99. The projected annual revenue for Tesla is $118,517MM, an increase of 37.75%. The projected annual non-GAAP EPS is $5.70.
The S&P 500® Index was up 3.52 points (0.1%) at 4137.04; the Dow Jones industrial average was up 66.44 (0.2%) at 33,875.40; the NASDAQ Composite was down 35.25 (0.3%) at 12,037.20.
The 10-year Treasury yield was down about 7 basis points at 3.50%.
CBOEs Volatility Index was up 0.12 at 16.89.
Real estate and financials were among Monday’s weakest-performing sectors, while energy companies led gainers thanks to a jump of about 1% in crude oil futures. The U.S. dollar index fell to about 101.37, its weakest level since mid-April, while Treasury yields eased slightly.
Assessment: Without your passwords, your loved ones may be unable to shut down your Facebook page, access your accounts, and protect your personal correspondence.
National Healthcare Decisions Day (NHDD) exists to inspire, educate and empower the public and providers about the importance of advance care planning. NHDD is an initiative to encourage patients to express their wishes regarding healthcare and for providers and facilities to respect those wishes, whatever they may be.
NHDD was founded in 2008 by Nathan Kottkamp, a Virginia-based health care lawyer, to provide clear, concise, and consistent information on healthcare decision-making to both the public and providers/facilities through the widespread availability and dissemination of simple, free, and uniform tools (not just forms) to guide the process.
NHDD is a series of independent events held across the country, supported by a national media and public education campaign. In all respects, NHDD is inclusive and brings a variety of players in the larger healthcare, legal, and religious community together to work on a common project, to the benefit of patients, families, and providers. A key goal of NHDD is to demystify healthcare decision-making and make the topic of advance care planning inescapable. Among other things, NHDD helps people understand that advance healthcare decision-making includes much more than living wills; it is a process that should focus first on conversation and choosing an agent.
As of June 2016, The Conversation Project has been responsible for the management, finances, and structure of NHDD. NHDD’s founder, Nathan Kottkamp, continues to be involved in NHDD and provides leadership by ensuring the maintenance of NHDD’s high quality resources and support for the community.
DEFINITION: What is advance care planning for financial advisors and lawyers?
Advance care planning involves discussing and preparing for future decisions about your medical care if you become seriously ill or unable to communicate your wishes with your estate planning attorney or financial advisor. Having meaningful conversations with your loved ones is the most important part of advance care planning. Many people also choose to put their preferences in writing by completing legal documents called advance directives.
What are advance directives?
Advance directives are legal documents that provide instructions for medical care and only go into effect if you cannot communicate your own wishes.
The two most common advance directives for health care are the living will and the durable power of attorney for health care.
Living will: A living will is a legal document that tells doctors how you want to be treated if you cannot make your own decisions about emergency treatment. In a living will, you can say which common medical treatments or care you would want, which ones you would want to avoid, and under which conditions each of your choices applies. Learn more about preparing a living will.
Durable power of attorneyfor health care: A durable power of attorney for health care is a legal document that names your health care proxy, a person who can make health care decisions for you if you are unable to communicate these yourself. Your proxy, also known as a representative, surrogate, or agent, should be familiar with your values and wishes. A proxy can be chosen in addition to or instead of a living will. Having a health care proxy helps you plan for situations that cannot be foreseen, such as a serious car accident or stroke. Learn more about choosing a health care proxy.
Think of your advance directives as living documents that you review at least once each year and update if a major life event occurs such as retirement, moving out of state, or a significant change in your health.
Advance care planning is not just for people who are very old or ill. At any age, a medical crisis could leave you unable to communicate your own health care decisions. Planning now for your future health care can help ensure you get the medical care you want and that someone you trust will be there to make decisions for you.
Advance care planning for people with dementia. Many people do not realize that Alzheimer’s disease and related dementias are terminal conditions and ultimately result in death. People in the later stages of dementia often lose their ability to do the simplest tasks. If you have dementia, advance care planning can give you a sense of control over an uncertain future and enable you to participate directly in decision-making about your future care. If you are a loved one of someone with dementia, encourage these discussions as early as possible. In the later stages of dementia, you may wish to discuss decisions with other family members, your loved one’s health care provider, or a trusted friend to feel more supported when deciding the types of care and treatments the person would want.
What happens if you do not have an advance directive?
If you do not have an advance directive and you are unable to make decisions on your own, the state laws where you live will determine who may make medical decisions on your behalf. This is typically your spouse, your parents if they are available, or your children if they are adults. If you are unmarried and have not named your partner as your proxy, it’s possible they could be excluded from decision-making. If you have no family members, some states allow a close friend who is familiar with your values to help. Or they may assign a physician to represent your best interests. To find out the laws in your state, contact your state legal aid office or state bar association.
Will an advance directive guarantee your wishes are followed?
An advance directive is legally recognized but not legally binding. This means that your health care provider and proxy will do their best to respect your advance directives, but there may be circumstances in which they cannot follow your wishes exactly. For example, you may be in a complex medical situation where it is unclear what you would want. This is another key reason why having conversations about your preferences is so important. Talking with your loved ones ahead of time may help them better navigate unanticipated issues.
There is the possibility that a health care provider refuses to follow your advance directives. This might happen if the decision goes against:
The health care provider’s conscience
The health care institution’s policy
Accepted health care standards
In these situations, the health care provider must inform your health care proxy immediately and consider transferring your care to another provider.
Other advance care planning forms and orders from doctors
You might want to prepare documents to express your wishes about a single medical issue or something else not already covered in your advance directives, such as an emergency. For these types of situations, you can talk with a doctor about establishing the following orders:
Do not resuscitate (DNR) order: A DNR becomes part of your medical chart to inform medical staff in a hospital or nursing facility that you do not want CPR or other life-support measures to be attempted if your heartbeat and breathing stop. Sometimes this document is referred to as a do not attempt resuscitation (DNR) order or an allow natural death (AND) order. Even though a living will might state that CPR is not wanted, it is helpful to have a DNR order as part of your medical file if you go to a hospital. Posting a DNR next to your hospital bed might avoid confusion in an emergency. Without a DNR order, medical staff will attempt every effort to restore your breathing and the normal rhythm of your heart.
Do not intubate (DNI) order: A similar document, a DNI informs medical staff in a hospital or nursing facility that you do not want to be on a ventilator.
Do not hospitalize (DNH) order: A DNH indicates to long-term care providers, such as nursing home staff, that you prefer not to be sent to a hospital for treatment at the end of life.
Out-of-hospital DNR order: An out-of-hospital DNR alerts emergency medical personnel to your wishes regarding measures to restore your heartbeat or breathing if you are not in a hospital.
Physician orders for life-sustaining treatment (POLST) and medical orders for life-sustaining treatment (MOLST) forms:These forms provide guidance about your medical care that health care professionals can act on immediately in an emergency. They serve as a medical order in addition to your advance directive. Typically, you create a POLST or MOLST when you are near the end of life or critically ill and understand the specific decisions that might need to be made on your behalf. These forms may also be called portable medical orders or physician orders for scope of treatment (POST). Check with your state department of health to find out if these forms are available where you live.
At enrollment, Medicare in the future could offer three advancedirectives with goals of care: DirectiveA: CONSENT to treat — inpatient medical treatment DirectiveB: CONSENT to comfort — home bound holistic care DirectiveC: CHOOSE against medical advice — outpatient palliative resources.
Remember, in 2023, do not trigger the US estate and gift tax. Last year’s inflation, the highest in decades, means married couples can now hand their heirs almost $26 million tax-free, $1.7 million more than in 2022 and $2.4 million more than in 2021.
The hike in the lifetime estate-and-gift tax exemption — adjusted for price growth annually by the Internal Revenue Service — is the largest since 2018, when the amount was doubled by Republican-passed legislation signed by former President Donald Trump the prior year. As a result, the individual exemption, which is easily shared between spouses, has rocketed to $12.9 million from $5 million in 2011.
But, richer Americans may be running out of time to pass on this much wealth. The exemption is slated to be cut in half in three years, when provisions of Trump’s tax law are set to expire. While even $26 million is a drop in the bucket for the ultra-rich, the exemption’s size shows why generational wealth transfers — estimated by research firm Cerulli to total almost $73 trillion in the US through 2045 — go largely untouched by the government.
Plus, financial advisors may use loopholes and leverage to multiply the amount of tax-free money available to heirs.
The decision to sell, buy or merge a medical practice, while often financially driven, and is inherently an emotional one for these impact investors who went into the profession largely because of a deep seated zeal to help others.
Still, beyond impact investing musings, there are other economic reasons for a practice valuation that include changes in ownership, determining insurance coverage for a practice buy-sell agreement or upon a physician-owner’s death, organic growth meter, establishing stock options, or bringing in a new partner; etc.
Practice appraisals are also used for legal reasons such as divorce, bankruptcy, breach of contract and minority shareholder complaints. In 2002, the Financial Accounting Standards Board (FASB) issued rules that required certain intangible assets to be valued, such as goodwill. This may be important for practices seeking start-up, service segmentation extensions, or operational funding. Some other reasons for a medical practice appraisal, and the considerations that go along with them, are discussed here.
Medical practice valuation may be required for estate planning purposes. For a decedent physician with a gross estate of more than current in-place tax limits, his or her assets must be reported at fair market value on an estate tax return. If lifetime gifts of a medial practice business interest are made, it is generally wise to obtain an appraisal and attach it to the gift tax return.
Note that when a “closely-held” level of value (in contrast to “freely traded,” “marketable,” or “publicly traded” level) is sought, the valuation consultant may need to make adjustments to the results. There are inherent risks relative to the liquidity of investments in closely held, non-public companies (e.g., medical group practice) that are not relevant to the investment in companies whose shares are publicly traded (freely-traded). Investors in closely-held companies do not have the ability to dispose of an invested interest quickly if the situation is called for, and this relative lack of liquidity of ownership in a closely held company is accompanied by risks and costs associated with the selling of an interest said company (i.e., locating a buyer, negotiation of terms, advisor/broker fees, risk of exposure to the market, etc.). Conversely, investors in the stock market are most often able to sell their interest in a publicly traded company within hours and receive cash proceeds in a few days. Accordingly, a discount may be applicable to the value of a closely held company due to the inherent illiquidity of the investment. Such a discount is commonly referred to as a “discount for lack of marketability.”
Discount for lack of marketability is typically discussed in three categories: (1) transactions involving restricted stock of publicly traded companies; (2) private transactions of companies prior to their initial public offering (IPO); and, (3) an analysis and comparison of the price to earnings (P/E) ratios of acquisitions of public and private companies respectively published in the “Mergerstat Review Study.”\
With a non-controlling interest, in which the holder cannot solely authorize and cannot solely prevent corporate actions (in contrast to a controlling interest), a “discount for lack of control,” (DLOC), may be appropriate. In contrast, a control premium may be applicable to a controlling interest. A control premium is an increase to the pro rata share of the value of the business that reflects the impact on value inherent in the management and financial power that can be exercised by the holders of a control interest of the business (usually the majority holders). Conversely, a discount for lack of control or minority discount is the reduction from the pro rata share of the value of the business as a whole that reflects the impact on value of the absence or diminution of control that can be exercised by the holders of a subject interest.
Several empirical studies have been done to attempt to quantify DLOC from its antithesis, control premiums. The studies include the Mergerstat Review, an annual series study of the premium paid by investors for controlling interest in publicly traded stock, and the Control Premium Study, a quarterly series study that compiles control premiums of publicly traded stocks by attempting to eliminate the possible distortion caused by speculation of a deal.
Buy-Sell Agreements
The ideal situation is for physician partners to put in place a buy-sell agreement when practice relationships are amicable. This establishes the terms for departure before they are required, and is akin to a prenuptial agreement in the marriage contract. Disagreements most often occur when a doctor leaves the group, often acrimoniously. Business operations of the practice decline, employee and partner morale suffers, feuding factions develop spilling over into the office, and the practice begins to implode creating a downward valuation spiral. And so, valuations should be done every 2-3 years, or as the economic circumstances of the practice change. Independence and credibility are provided, and emotional overtones are purged from the transaction.
Physician Partnership Disputes
Medical practice appraisals are often used in partnership disputes, such as breach-of-contract or departure issues. Obvious revenue declinations are not difficult to quantify. But, revenues may not immediately fall since certain Current Procedural Terminology [CPT®] code reimbursements may actually increase. Upon verification however, lost business may be camouflaged as the number of procedures performed, or number of patients decrease after partner departure.
Physicians getting divorced should get a practice appraisal, and either side may hire the appraiser, although occasionally the court will order an expert to provide a neutral valuation. Such valuations should be done in light of both court discovery rules and IRS requirements for closely held businesses. Generally, this requires the consideration of eight elements:
• Practice specialty and operating history
• Economic and healthcare industry condition
• Estimates of practice risks and future returns
• Book value and financial condition of the practice
• Practice future earning capacity
• Physician bonuses, dividends and distributions
• Intangible assets
• Comparable practice sales
Sometimes, the non-physician spouse may even desire a lifestyle analysis to evaluate the potential for under reported income, by a forensic accountant, or appraiser. A family law judge is often the final arbiter of different valuations, and because of varying state laws there may be 50 different nuances of what the practice is really worth.
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DEFINITION: The Pew Research Center defines the middle class as households that earn between two-thirds and double the median U.S. household income, which was $65,000 in 2021, according to the U.S. Census Bureau. 21 Using Pew’s yardstick, middle income is made up of people who make between $43,350 and $130,000.
The American middle class is facing the biggest hit to its wealth in a generation going into the midterm election, although it is also entering the vote richer than it has ever been thanks to a decade of cheap money and the wealth boom it fed.
That’s the conclusion of a Bloomberg News examination that paired new wealth data with an exclusive Harris Poll of attitudes of the 100 million adults who sit at the core of the US economy and its politics ahead of the election.
More on End-of-Life Political Decisions from a Different Perspective – Since 2009
By Dr. David Edward Marcinko; MBA, CMP™
[Publisher-in-Chief]
The controversial booklet Your Life, Your Choices begins by saying,
“There’s only one person who is truly qualified to tell health care providers how you feel about different kinds of health care issues—and that’s you. But, what if you get sic; or injured so severely that you can’t communicate with your doctors or family members? Have you thought about what kinds of medical care you would want? Do your loved ones and health care providers know your wishes?
Many people assume that close family members automatically know what they want. But, studies have shown that spouses guess wrong over half the time about what kinds of treatment their husbands or wives would want. You can help assure that your wishes will direct future health care.”
Contents
The booklet, initially produced by the VA Health System and now under revision, includes two areas of focus: 1] Planning for Future Medical Decisions, and 2] How to Prepare a Personalized Living Will.
Now, insofar as doctors, nurses and some other medical professionals are concerned – decisions of life, death or dismemberment are not an unusual or particularly contentious topic except for the lunatic fringes.
Yet, when taken in the context of HR-3200, they seem to be provoking wild outrage with talk of “killing grandma”, “government death squads”, etc all within the Obama Administration’s talk of healthcare reform. Still, this is not the point of my diatribe as I remain a neutral observer and pass no value judgment at this time.
What is the Point?
Just this! As a financial advisor for more than a decade, estate planning to reduce taxes, along with living wills and advanced directives are usual topics of discussion with clients. In fact, they are fairly boring and rote topics for estate planners, tax attorneys and accountants, too.
My wife and I have a living will, for example. And, although I am not sure that I could “pull her plug”; I did watch as she and her mother did so for my father-in-law [both wife and mother-in-law are Master-Degree prepared RNs]. So; why the impolite town-hall meetings and related controversy, now! Is it mere politics as usual, unusual, or is it something else?
Assessment
The onerous pages of this booklet seem to be page 21 and page 53. Take a look and decide for yourself.
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
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With the PP-ACA, increased compliance regulations and higher tax rates impending from the Biden administration – not to mention the corona pandemic, venture capital based healthcare corporations and telehealth – physicians are more concerned about their retirement and retirement planning than ever before; and with good reason. After payroll taxes, dividend taxes, limited itemized deductions, the new 3.8% surtax on net investment income and an extra 0.9% Medicare tax, for every dollar earned by a high earning physician, almost 50 cents can go to taxes!
Introduction
Retirement planning is not about cherry picking the best stocks, ETFs or mutual funds or how to beat the short term fluctuations in the market. It’s a disciplined long term strategy based on scientific evidence and a prudent process. You increase the probability of success by following this process and monitoring on a regular basis to make sure you are on track.
General Surveys
According to a survey from the Employee Benefit Research Institute [EBRI] and Greenwald & Associates; nearly half of workers without a retirement plan were not at all confident in their financial security, compared to 11 percent for those who participated in a plan, according to the 2014 Retirement Confidence Survey (RCS).
In addition, 35 percent of workers have not saved any money for retirement, while only 57 percent are actively saving for retirement. Thirty-six percent of workers said the total value of their savings and investments—not including the value of their home and defined benefit plan—was less than $1,000, up from 29 percent in the 2013 survey. But, when adjusted for those without a formal retirement plan, 73 percent have saved less than $1,000.
Debt is also a concern, with 20 percent of workers saying they have a major problem with debt. Thirty-eight percent indicate they have a minor problem with debt. And, only 44 percent of workers said they or their spouse have tried to calculate how much money they’ll need to save for retirement. But, those who have done the calculation tend to save more.
The biggest shift in the 24 years has been the number of workers who plan to work later in life. In 1991, 84 percent of workers indicated they plan to retire by age 65, versus only 9 percent who planned to work until at least age 70. In 2014, 50 percent plan on retiring by age 65; with 22 percent planning to work until they reach 70.
Physician Statistics
Now, compare and contrast the above to these statistics according to a 2018 survey of physicians on financial preparedness by American Medical Association [AMA] Insurance. The statistics are still alarming:
The top personal financial concern for all physicians is having enough money to retire.
Only 6% of physicians consider themselves ahead of schedule in retirement preparedness.
Nearly half feel they were behind
41% of physicians average less than $500,000 in retirement savings.
Nearly 70% of physicians don’t have a long term care plan.
Only half of US physicians have a completed estate plan including an updated will and Medical directives.
Thoughts to Ponder
And so, to help make your golden years comfortable and worry free, here are ten important retirement questions for all physicians to consider:
How much money do you need to retire?
What is your retirement cash flow?
What is your retirement vision?
How to stay on retirement track?
How to maximize retirement plan contributions such as 401(k) or 403(b)?
How to maximize retirement income from retirement plans?
What are some other retirement plan savings options?
What is your retirement plan and investing style?
What is the role of social security in retirement planning?
How to integrate retirement with estate planning?
The opinion of a competent Certified Medical Planner® can assist.
ASSESSMENT: Your thoughts, comments and input are appreciated.
Even if you work with a financial planner, there are times you may also need the services of a financial specialist such as an attorney, accountant, or insurance agent.
Conflicted
In a situation where the specialist’s advice may seem to conflict with the suggestions of your financial planner, as a rule the specialist always has the last word. After all, they are the experts. Their particular knowledge is the reason your generalist financial planner recommended consulting them in the first place.
Occasionally, however, a specialist’s recommendations may not be in your best interest. Most are skilled professionals who are very good at their jobs and provide a great service to their clients in moving the financial planning process forward.
However, as in any profession, there are exceptions.
One example of this is when a specialist’s knowledge doesn’t adequately cover the particular needs of a client’s situation.
Another example is a specialist who has a conflict of interest because of receiving commissions for the sale of financial products.
Both of these may be more likely to occur when specialists are chosen less because of their skills and more because of a prior relationship with the client.
While most specialists are open to listening to another point of view, acknowledging errors, or learning new information, some are not. It’s those specialists who lack needed knowledge and are unwilling to admit errors that cause financial planners to lose sleep.
A Choice
If a planner disagrees with the client’s specialist and says so, this can put the client in a difficult and unenviable position of having to choose between two trusted professionals, one of whom may have some incorrect information.
Unfortunately, the client usually doesn’t have the training or knowledge to know which. If the client is forced to side with one professional against the other, at best this damages the ongoing ability of the professionals to work together and at worst it finds the client firing one or both.
Planners who choose to keep silent about the disagreement and defer to the specialist can save face as well as retain working relationships with both the client and the specialist. They can only hope that the apparent poor advice the specialist has given the client works out in the long run.
Most planners I know will weigh the severity of the issue, as well as the strength of the client’s relationships with them and the specialist, when deciding how forcefully to oppose poor advice. If the consequences are significant, many financial planners will risk losing their relationship with the client to point out a specialist’s error.
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To Do List
What can you do to encourage your planner to level with you if one of your specialists is giving you advice that doesn’t serve you well?
I don’t have a definitive answer to this difficult question.
One thing I can suggest is that communication is essential. It’s important that you fully and openly explore any disagreement a planner expresses, no matter how insignificant it sounds.
My second suggestion is to minimize the chances of getting poor advice in the first place. Avoid anyone who might have a conflict of interest, especially if they receive commissions for selling you something. Don’t assume a professional you’ve worked with in other areas is qualified for this particular concern.
Assessment
Make sure your planner has thoroughly researched the specialist’s expertise, and don’t be afraid to ask questions about anything you don’t fully understand. Partner with your financial planner to choose a specialist carefully in the beginning, and you increase the likelihood that all of you will be able to work effectively as a team.
Conclusion
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
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One of the challenges in financial planning is the strong taboo in our society against talking about money. Another powerful taboo is talking about death when someone has a serious illness.
When someone is diagnosed with cancer, for example, the focus is almost always on treatment and recovery. Rarely is there any discussion of what happens if the treatment doesn’t work. There seems to be an unspoken belief that if we don’t talk about it, it won’t happen.
For example, in a recent presentation to financial advisors at the Insiders Forum in Phoenix, she pointed out that many doctors shy away from talking about dying until the very end.
Given this strong reluctance to talk about both money and dying, how can you work with a financial advisor to deal with the financial and emotional issues that go along with a family member’s serious illness?
Here are some suggestions based on Dr. McClanahan’s talk:
Don’t expect someone facing a serious illness to give you an accurate prognosis of their disease, as they are often in denial. McClanahan suggests turning to “Dr. Google” for accurate information. Specifically, she recommends the National Institutes of Health (www.nih.gov), which has statistics on every disease imaginable.
Learn to interpret what doctors say. For example, when a cancer patient is told chemotherapy has a 25% chance of working, the average patient hears “working” as “being cured.” “Working” actually means there is a 25% chance of the tumor shrinking. Often the chances of being cured are far less than 25%, and the physical effects of chemotherapy can be devastating to one’s remaining quality of life. McClanahan says, “Most of what we do to people at the end of life is unnecessary torture.”
Find out early about options for palliative care. This is multidisciplinary care focused on treating the symptoms of treatment, relieving suffering, and improving the quality of life. Because of denial and unwillingness to talk about what happens if they don’t get better, many patients never get into palliative care or get into it way too late. Similarly, most patients wait too long to get into hospice care. The average time in hospice care, according to McClanahan, is just 19 days.
Share your money concerns with the advisor. McClanahan says that anxiety over having enough money to pay for their care and the resulting effect on the family finances are two of the top concerns patients have. Interestingly, most financial advisors focus instead on whether advance directives, estate documents, and funeral plans are in place.
Call the advisor’s attention to signs that a person’s illness is advancing. These can include a shortened attention span, not remembering details of conversations, word-finding difficulties, inability to multitask, mental fuzziness, and depression. Ask advisors to deal with these symptoms: meet early in the day, address the most important issues first, keep meetings short, include family members as appropriate, and put action items in writing.
Realize that sharing your emotions is part of financial planning. Serious illness affects people in many different ways, but the underlying concerns are always emotional. Discuss those concerns with the advisor, and work together to create a comprehensive plan addressing both death and recovery. Remember that, as McClanahan put it, “preparation for a negative outcome does not reduce the risk of cure.”
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The role of the financial planner
The role of a financial planner is to help clients prepare for the future, including the end of life. When that future becomes “now,” don’t hesitate to ask for the planner’s emotional support as well as financial advice.
Conclusion
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:
You’ve got a sense of your ideal retirement age. And you’ve probably made certain plans based on that timeline. But what if you’re forced to retire sooner than you expect? Aging baby-boomers, corporate medicine, the medical practice great resignation and/or the pandemic, etc?
Early retirement is nothing new, but it’s clear how much the COVID-19 pandemic has affected an aging workforce. Whether due to downsizing, objections to vaccine mandates, concerns about exposure risks, other health issues, or the desire for more leisure time, the retired general population grew by 3.5 million over the past two years—compared to an annual average of 1 million between 2008 and 2019—according to the Pew Research Center.1 At the same time, a survey conducted by the National Institute on Retirement Security revealed that more than half of Americans are concerned that the COVID-19 pandemic has impacted their ability to achieve a secure retirement.2
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There’s no need to panic, but those numbers make one thing clear, says Rob Williams, managing director of financial planning, retirement income, and wealth management for the Schwab Center for Financial Research. Flexible and personalized financial planning that addresses how you’d cope if you had to retire early can help you make the best use of all your resources.
So – Here are six steps to follow. We’ll use as an example a person who’s seeing if they could retire five years early, but the steps remain the same regardless of your individual time frame.
Step 1: Think strategically about pension and Social Security benefits
For most retirees, Social Security and (to a lesser degree) pensions are the two primary sources of regular income in retirement. You usually can collect these payments early—at age 62 for Social Security and sometimes as early as age 55 with a pension. However, taking benefits early will mean that you get smaller monthly benefits for the rest of your life. That can matter to your bottom line, even if you expect Social Security to be merely the icing on your retirement cake.
On the Social Security website, you can find a projection of what your benefits would be if you were pushed to claim them several years early. But if you’re part of a two-income couple, you may want to make an appointment at a Social Security office or with a financial professional to weigh the potential options.
For example, when you die, your spouse is eligible to receive your monthly benefit if it’s higher than his or her own. But if you claim your benefits early, thus receiving a reduced amount, you’re likewise limiting your spouse’s potential survivor benefit.
If you have a pension, your employer’s pension administrator can help estimate your monthly pension payments at various ages. Once you have these estimates, you’ll have a good idea of how much monthly income you can count on at any given point in time.
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Step 2: Pressure-test your 401(k)
In addition to weighing different strategies to maximize your Social Security and/or pension, evaluate how much income you could potentially derive from your personal retirement savings—and there’s a silver lining here if you’re forced to retire early.
Rule of 55
Let’s say you leave your job at any time during or after the calendar year you turn 55 (or age 50 if you’re a public safety employee with a government defined-benefit plan). Under a little-known separation-of-service provision, often referred to as the “rule of 55,” you may be able take distributions (though some plans may allow only one lump-sum withdrawal) from your 401(k), 403(b), or other qualified retirement plan free of the usual 10% early-withdrawal penalties. However, be aware that you’ll still owe ordinary income taxes on the amount distributed.
This exception applies only to the plan (including any consolidated accounts) that you were contributing to when you separated from service. It does not extend to IRAs.
4% rule
There’s also a simple rule of thumb suggesting that if you spend 4% or less of your savings in your first year of retirement and then adjust for inflation each year following, your savings are likely to last for at least 30 years—given that you make no other changes to your withdrawals, such as a lump sum withdrawal for a one-time expense or a slight reduction in withdrawals during a down market.
To see how much monthly income you could count on if you retired as expected in five years, multiply your current savings by 4% and divide by 12. For example, $1 million x .04 = $40,000. Divide that by 12 to get $3,333 per month in year one of retirement. (Again, you could increase that amount with inflation each year thereafter.) Then do the same calculation based on your current savings to see how much you’d have to live on if you retired today. Keep in mind that your money will have to last five years longer in this instance.
Knowing the monthly amount your current savings can generate will give you a clearer sense of whether you’ll have a shortfall—and how large or small it might be. Use our retirement savings calculator to test different saving amounts and time frames.
Step 3: Don’t forget about health insurance, doctor!
Nobody wants to spend down a big chunk of their retirement savings on unanticipated healthcare costs in the years between early retirement and Medicare eligibility at age 65. If you lose your employer-sponsored health insurance, you’ll want to find some coverage until you can apply for Medicare.
Your options may include continuing employer-sponsored coverage through COBRA, insurance enrollment through the Health Insurance Marketplace at HealthCare.gov, or joining your spouse’s health insurance plan. You may also find discounted coverage through organizations you belong to—for example, the AARP.
Step 4: Create a post-retirement budget
To make sure your retirement savings will cover your expenses, add up the monthly income you could get from pensions, Social Security, and your savings. Then, compare the total to your anticipated monthly expenses (including income taxes) if you were to retire five years early and are eligible, and choose to file, for Social Security and pension benefits earlier.
Take into account various life events and expenditures you may encounter. You may not pay off your mortgage by the date you’d planned. Your spouse might still be working (which can add income but also prolong certain expenses). Or your children might not be out of college yet.
You’re probably fine if you anticipate that your monthly expenses will be lower than your income. But if you think your expenses would be higher than your early-retirement income, some suggest that you take one or more of these measures:
Retire later; practice longer.
Save more now to fill some of the potential gap.
Trim your budget so there’s less of a gap down the road.
Consider options for medical consulting or part-time work—and begin to explore some of those opportunities now.
To the last point, finding a physician job later in life can be challenging, but certain employment agencies specialize in this area. If you can find work you like that covers a portion of your expenses, you’ll have the option of delaying Social Security and your company pension to get higher payments later—and you can avoid dipping into your retirement savings prematurely.
When you retire early, you have to walk a fine line with your portfolio’s asset allocation—investing aggressively enough that your money has the potential to grow over a long retirement, but also conservatively enough to minimize the chance of big losses, particularly at the outset.
“Risk management is especially important during the first few years of retirement or if you retire early,” Rob notes, because it can be difficult to bounce back from a loss when you’re drawing down income from your portfolio and reducing the overall number of shares you own.
To strike a balance between growth and security, start by making sure you have enough money stashed in relatively liquid, relatively stable investments—such as money market accounts, CDs, or high-quality short-term bonds—to cover at least a year or two of living expenses. Divide the rest of your portfolio among stocks, bonds, and other fixed-income investments. And don’t hesitate to seek professional help to arrive at the right mix.
Many people are unaccustomed to thinking about their expenses because they simply spend what they make when working, Rob says. But one of the most valuable decisions you can make about your life in retirement is to reevaluate where your money is going now.
This serves two aims. First, it’s a reality check on the spending plan you’ve envisioned for retirement, which may be idealized (e.g., “I’ll do all the home maintenance and repairs!”). Second, it enables you to adjust your spending habits ahead of schedule—whichever schedule you end up following. This gives you more control and potentially more income.
Step 6: Reevaluate your current spending
For example, if you’re not averse to downsizing, moving to a less expensive home could reduce your monthly mortgage, property tax, and insurance payments while freeing up equity that could also be invested to provide additional monthly income.
“When you are saving for retirement, time is on your side”. You lose that advantage when you’re forced to retire early, but having a backup plan that anticipates the possibility of an early retirement can make the unknowns you face a lot less daunting.
Digital Messages for Loved Ones From Beyond the Grave
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No one wants to die. Even people who want to go to heaven don’t want to die to get there.
And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because death is very likely the single best invention of life.
It is life’s change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away.
Beginning in 2022, there will be few situations in which a patient can receive a bill for out-of-network care they believed would be covered by their insurance company. This new rule should especially benefit patients in emergency situations who don’t have the time or luxury to dig up the details on every provider they encounter.
The No Surprises Act also requires insurance companies to provide patients with at least 90 days of coverage if an in-network provider moves out of network. That way, patients aren’t forced to switch providers immediately if such a move happens while they’re in the middle of a treatment plan.
Now, the No Surprises Act does have its limitations. Patients can still get a bill for out-of-network care if they visit an urgent care clinic for non-emergency purposes. Also, if consumers are informed that the care they’re about to receive is out of network and they give written consent to move forward, then they may get billed for that care even once the new rule takes effect.
By MIT Technology Review
One Main Street
Cambridge, MA 02142
Technology has changed the way we grieve, but it’s also starting to make a difference to the way we deal with death’s logistics, too.
The New York Times reports that startups—often run by millennials, it drily notes—are increasingly creating digital tools that help people plan for their demise.
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Assessment
Though for those determined not to admit defeat, cryogenics is still an option:
KrioRus, the only company outside of the U.S. prepared to put your head on ice after you die, will do so for a modest $12,000. It still doesn’t know what to do further down the line, though.
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Here are eight things to keep in mind as you prepare to file your 2021 taxes.
1. Income tax brackets have shifted a bit
There are still seven tax rates, but the income ranges (tax brackets) for each rate have shifted slightly to account for inflation. For 2021, the following rates and income ranges apply:
Tax rate
Taxable income brackets:Single filers
Taxable income brackets:Married couples filing jointly (and qualifying widows or widowers)
10%
$0 to $9,950
$0 to $19,900
12%
$9,951 to $40,525
$19,901 to $81,050
22%
$40,526 to $86,375
$81,051 to $172,750
24%
$86,376 to $164,925
$172,751 to $329,850
32%
$164,926 to $209,425
$329,851 to $418,850
35%
$209,426 to $523,600
$418,851 to $628,300
37%
$523,601 or more
$628,301 or more
Source: Internal Revenue Service
2. The standard deduction has increased slightly
After an inflation adjustment, the 2021 standard deduction has increased slightly to $12,550 for single filers and married couples filing separately and $18,800 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction has risen to $25,100.
3. Itemized deductions remain the same
For most filers, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. But if you have enough tax-deductible expenses, you might benefit from itemizing.
The following rules for itemized deductions haven’t changed much for 2021, but they’re still worth pointing out.
State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
Mortgage interest deduction: The mortgage interest deduction is limited to $750,000 of indebtedness. But people who had $1,000,000 of home mortgage debt before December 16, 2017, will still be able to deduct the interest on that loan.
Medical expenses: Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2021.
Charitable donations: The cash donation limit of 100% of AGI remains in place for 2021, if donations were made to operating charities.1
Miscellaneous deductions: No miscellaneous itemized deductions are allowed.
4. IRA and 401(k) contribution limits remain the same
The traditional IRA and Roth contribution limits in 2021 remain the same as in 2020. Individuals can contribute up to $6,000 to an IRA, and those age 50 and older also qualify to make an additional $1,000 catch-up contribution. If you’re able to max out your IRA, consider doing so—you may qualify to deduct some or all of your contribution.
The 2021 contribution limit for 401(k) accounts also stays at $19,500. If you’re age 50 or older, you qualify to make an additional $6,500 catch-up contribution as well.
5. You can save a bit more in your health savings account (HSA)
For 2021, the max you can contribute into an HSA is $3,600 for an individual (up $50 from 2020) and $7,200 for a family (up $100). People age 55 and older can contribute an extra $1,000 catch-up contribution.
To be eligible for an HSA, you must be enrolled in a high-deductible health plan (which usually has lower premiums as well). Learn more about the benefits of an HSA.
6. The Child Tax Credit has been expanded
For 2021, the American Rescue Plan Act (ARPA) has temporarily modified the Child Tax Credit requirements and amounts for household incomes below $75,000 for single filers and $150,000 for married filing jointly.
First, the ARPA has raised the age limit for dependents from 16 to 17. In addition, the child tax credit has increased from $2,000 to $3,000 for children age 6 through 17 and up to $3,600 for children under 6. If your income exceeded the above limits but was below $200,000 for single filers or $400,000 for joint filers, you’ll receive the standard child tax credit of $2,000 per child.
The IRS began sending monthly advance Child Tax Credit payments to eligible families in July and sent its last advance in December. If your dependent didn’t qualify for the child tax credit, you may still qualify for up to $500 of tax credits under the “credit for other dependents” (see IRS Publication 972 for more details). Tax credits, which reduce the tax you owe dollar for dollar, are generally better than deductions, which reduce your taxable income.
7. The alternative minimum tax (AMT) exemption has gone up
Until the AMT exemption enacted by the Tax Cuts and Jobs Act expires in 2025, the AMT will continue to affect mostly households with incomes over $500,000. Still, the AMT has investment implications for some high earners.
For 2021, the AMT exemptions are $73,600 for single filers and $114,600 for married taxpayers filing jointly. The phase-out thresholds are $1,047,200 for married taxpayers filing a joint return and $523,600 for all other taxpayers.
8. The estate tax exemption is even higher
The estate and gift tax exemption, which is indexed to inflation, has risen to $11.7 million for 2021. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn’t act.
The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, stays at $15,000 per recipient.
Don’t get caught off guard
As you prepare to file your taxes for 2021, here are a few additional items to consider.
If you’re not retired, the 10% early withdrawal penalty that was waived for retirement account distributions in 2020 has been reinstated for 2021.
If you’re age 72 or older, make sure you’ve taken your required minimum distribution (RMD) from your retirement accounts or else you face a 50% penalty on any undistributed funds (unless it’s your first RMD, in which case, you can wait until April 1, 2022).
If you haven’t contributed to your retirement accounts already, now is the time. Review your earnings for the year and take advantage of any deductions that can lower your tax bill. Also, keep an eye on Washington for any last-minute tax changes that could affect your return before you file. Tax season will be here before you know it, and it’s never too early to start preparing.
1Operating charities, or qualifying public charities, are defined by Internal Revenue Code section 170(b)(1)(A). You can use the Tax Exempt Organization Search tool on IRS.gov to check an organization’s eligibility.
Bundle Charitable Giving Through Donor Advised Funds
By Rick Kahler CFP®
With changes to standard and itemized deductions under the new tax law, many CPA’s and tax attorneys are recommending a strategy of bunching or bundling deductible spending into alternate years. I wrote about this approach a few weeks ago.
One way to bundle charitable deductions efficiently and effortlessly is through a Donor Advised Fund (DAF).
Here’s how it works
Suppose you budget $15,000 a year for charitable donations. Around half of this goes to local charities you support regularly. The rest you give in different ways, depending on the needs you become aware of throughout the year.
You could double your denotations to charities you support regularly and give directly to them every other year, but you would lessen your ability to give spontaneously. Giving through a DAF allows you to keep that spontaneity. A DAF allows you to make a large, tax-deductible gift in one year, but decide in the future (a day, ten years, or 100 years later) when and how to distribute that gift. The money stays with the DAF, which invests it, until you instruct the DAF to disburse the funds to the charity of your choice.
New tax laws
With the advent of the new tax law, DAFs have become all the rage in charitable giving. According to an article in Advisor Perspectives by Ken Nopar, the senior philanthropic advisor for the American Endowment Foundation, there are now 300,000 DAF accounts. This is twice the number eight years ago and nearly four times the number of private foundations. But all DAFs are not equal, so establishing one should be done only after some thorough investigation.
Some of the areas the article suggests that you explore with your financial planner or tax preparer are:
1. What is the appropriate amount to donate to a DAF account? Donate too much or too little, and you may not realize the maximum benefit from your gift. Be sure to check with your tax preparer.
2. With some DAF sponsors, it’s possible for your financial advisor to continue to manage your assets in well-diversified, low-cost investments. Otherwise, you may be forced to choose from a very limited number of funds with higher expenses—funds your advisor would be unlikely to recommend. Management by your advisor, in many cases, can produce greater returns, actually allowing you to donate more.
3. Investigate these things before choosing a DAF: The fees they charge, whether they appear to have enough staff and experience to administer the DAF properly, how promptly they send out grants, whether they can accept complex assets like appreciated real estate, and whether you could transfer the fund to another DAF sponsor if you should want to do so.
4. Also ask about limitations and requirements. Some DAFs may limit how much you can give each year to individual charities. Others require a certain percentage (sometimes 50% or more) to be donated to the DAF sponsor itself. A DAF’s rules may require the entire balance to be distributed to the DAF sponsor upon a donor’s death.
As Advisor Perspectives notes, many CPAs and attorneys are providing wise advice in recommending that clients establish DAF accounts. It would be a good idea to take that advice one step further and consult your financial advisor first. Otherwise you might end up with a DAF sponsor that may not be the best fit for your needs or those of the charities you support.
Assessment
As good as bundling donations to a DAF can be, don’t make a decision to use one based on the tax advantages alone. Just as with any investment, it’s important to do your research carefully before you write a check.
Conclusion
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Dr. David Edward Marcinko MBA CMP® enjoys personal coaching and public speaking and gives as many talks each year as possible, at a variety of medical society and financial services conferences around the country and world.
These have included lectures and visiting professorships at major academic centers, keynote lectures for hospitals, economic seminars and health systems, keynote lectures at city and statewide financial coalitions, and annual keynote lectures for a variety of internal yearly meetings.
His talks tend to be engaging, iconoclastic, and humorous. His most popular presentations include a diverse variety of topics and typically include those in all iMBA, Inc’s textbooks, handbooks, white-papers and most topics covered on this blog.
David Swensen, the chief of Yale’s endowment fund, died Wednesday evening at 67 after a nine-year battle with cancer.
Known for laying the groundwork for the modern venture capital- and private equity industries, Swensen made Yale’s endowment office the hottest place on campus. He diverted Yale’s money from just stocks and bonds into more alternative assets like hedge funds, real estate, and even timber (he knew).
Swensen’s strategies grew Yale’s endowment from $1.3 billion in 1985 → $31.2 billion in 2020. It’s currently the second largest university endowment, trailing only Harvard’s.
In 2019, Yale’s endowment accounted for about a third of its entire operating budget.
The “Yale model.” Boasting returns better than some top hedge fund managers, Swensen could have traded it all in for a glamorous Wall Street high rise and a cartoonishly eye-popping salary, but he remained dedicated to the university. Swensen instilled the same principles in his mentees, who were scouted by private sector firms before ultimately following in his higher-ed footsteps.
In A Christmas Carol, Charles Dickens has a scene where two charity workers raising funds for the poor approach Ebenezer Scrooge on Christmas Eve.
” What shall I put you down for?” “Nothing!” Scrooge replied. “You wish to be anonymous?” “I wish to be left alone,” said Scrooge.”
Scrooge may not be alone in his desire to be left alone. With 60% of Americans supporting presidential candidates’ proposals for wealth taxes, financial transaction taxes, higher capital gains tax rates, and increases in income taxes, many of our affluent neighbors are just not feeling the love this Christmas.
Nevertheless, there are still millions more who want to give. Charitable giving, though, can be more complicated than it was in Scrooge’s time. For example:
Are you bunching your itemized deductions into every other year and would like to give a substantial amount to charities this year, but you haven’t had time to research which charity you want to support or you want to spread the giving out over time as opposed to giving it all this month?
Do you support a number of charities and would like to support even more, but find the IRS requirements for documenting your gifts to be burdensome?
Would you like to set aside a sum of money for your favorite charities that could generate an annual income forever, but forming a foundation or charitable trust is beyond your reach?
All the above are possible with a donor-advised fund.
Let’s say you wanted to give small amounts to fifty different charities. Rather than write fifty checks and obtain fifty receipts, you can make one gift to the fund, which distributes the money to the fifty charities. You only have to provide one receipt to the IRS.
You can also make a charitable gift to the donor-advised fund that qualifies as a deduction on your 2019 tax return, but you can delay the distribution of the funds until sometime in the future. This gives you time to explore the various causes you may want to support.
What really sets a donor-advised fund apart from other types of charitable giving is that you can decide how your donations are used, much as you would if you set up your own foundation. You can even create either an endowed or a nonpermanent fund for a particular purpose, such as a specifically-designated scholarship fund in memory of a loved one.
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Case Example:
One example of a donor-advised fund is the Black Hills Area Community Foundation. The BHACF supports scores of local charities and special projects. However, almost all financial institutions like Fidelity, TD Ameritrade, and Schwab have relationships with donor-advised funds.
While DAFs create an easy-to-establish, low-cost, flexible vehicle for charitable giving as an alternative to an expensive and complex private foundation, they are not hassle-free or without costs. Many charge a combination of fixed quarterly fees and an annual percentage of the undistributed funds. There is also a reasonable amount of administrative work involved. One DAF that I use assesses a penalty of $500 if the account is closed in under a year. They work best when a person anticipates significant contributions and a long-term giving plan.
Every donor-advised fund has different charities, minimums, processes, and costs, so it’s important to do your homework. Research whether the fund approves of the charities you want to support, as well as the costs involved.
Assessment
A donor advised fund may be a good way to take a large deduction this year, reduce the administrative hassles and costs of setting up a foundation, and still give to causes you choose to support.
Your thoughts are appreciated.
BUSINESS, FINANCE, INVESTING AND INSURANCE TEXTS FOR DOCTORS:
One important component of estate planning is a document, usually called a medical directive, which can include a living will, that sets out your wishes for end-of-life care and a health care power of attorney that designates someone to make medical decisions if you are unable to do so. A medical directive addresses important issues that are inevitable, but that most of us don’t want to think about or talk about. Consequently, many people leave their family members and medical providers with no guidance.
If you have not executed a medical directive, I strongly recommend doing so. If you do have a living will, I suggest you review your document periodically to be sure it still provides the best options for carrying out your wishes.
Example:
Recently I’ve encountered two situations where medical directives that had been perfectly valid and appropriate at the time they were executed had become potentially useless. In both cases, a family member designated to make end-of-life decisions had subsequently developed dementia that affected their competency to make those decisions.
This possibility is one reason why, if your medical directive designates your spouse, it’s wise to name an alternate as well. Your spouse, aging along with you, may not be the most capable person to make hard decisions when the time comes.
It’s also a good idea to communicate your specific wishes to both your primary and alternate designees. Discuss with them, as well, whether they believe they will actually be able to carry out your wishes. Unfortunately, I have seen cases where family members, with the most loving of intentions, were so hesitant to make decisions that their inaction violated their loved ones’ last wishes.
These conversations are not easy. Yet they are essential. One of my clients recently was faced with the possibility of making end-of-life decisions for her father. Several years earlier, he had executed a medical power of attorney and living will document naming her as his designated agent. At that time, the two of them had talked about his wishes, so she knew the choices he would want her to make.
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For now, my client was spared the necessity of making these difficult decisions because her father recovered. But, faced with the reality of “someday” contingencies becoming “right now” hard choices, she felt capable of doing what had to be done. She told me that what gave her the strength she needed was not the responsibility of being designated in the living will document. It was the conversations she and her father had had, both at the time he signed the document and during his recent illness.
“I made him a solemn promise that I would make the choices he needed and wanted me to make,” she said. “It felt like a vow that I couldn’t ever go back on.”
It may not be especially difficult for a family member to agree to become the designated representative in a medical directive. If the agent named in a healthcare power of attorney is in good health, the need to make hard decisions is somewhere in the future and can feel theoretical.
But at the time of a medical emergency or a draining final illness, a family member who is frightened, grieving, and exhausted may find actually making those decisions to be the hardest thing they’ve ever had to do.
Assessment
Giving your family members the clarity and direction to make end-of-life decisions for you requires more than putting their name into a document. It requires choosing someone who is willing to carry out your wishes, communicating your wishes to them through conversations, and checking periodically to make sure they are still willing and able to carry out the solemn promise that a living will entails.
Conclusion
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Fiduciary, client-centered financial planning is dynamic, ongoing, and evolving. The collaboration between client and planner is a relationship that often lasts for a client’s’ lifetime.
Sometimes that relationship even extends beyond a client’s lifetime if they have children or leave money to a foundation. It’s not uncommon for clients’ children to become the stewards of their parents’ financial legacy via an inheritance or being appointed the overseers of a trust fund. Nor is it unusual for the children to become clients of the financial planner, either as they create their own financial success or as they inherit from their parents.
Children often form partnerships with a parent’s financial planner as their parents age and they become caretakers of their parents’ financial affairs. It’s very common that at some point, a child will have a durable power of attorney. This responsibility includes not just paying bills, but maintaining the investment portfolio, selling real estate, and making a plethora of other financial decisions that are crucial to the parents’ wellbeing. If children don’t have good money skills or don’t know about the specifics of their parents’ finances, the task can be overwhelming. A planner’s help can be invaluable.
Evolution lack
Sometimes, however, that next generation of relationships doesn’t evolve. I once had a long-time client who developed dementia. My financial planning meetings were now with his children, who had no understanding of the history I had with their father or the investment philosophy of the portfolio. They questioned everything I was doing: the investments, our fees, our philosophy.
Eventually, the children suggested I liquidate the portfolio and loan the money to them to use in their business. Even though they had the legal right to direct me to do that, I resisted.
This created a real emotional conflict of interest. Even though my client had legally passed the decision-making on to the children, what they wanted was not in his best interest. And knowing my client as I did through our long relationship, he would have not agreed in the least to what they requested. I decided I would rather face a judge as a result of acting in the best interest of my client instead of following the requests of the children. Fortunately, they didn’t persist.
Example:
When the client passed away, almost immediately the children called and asked me to liquidate their father’s investments and distribute cash as quickly as possible. Before long, I heard that much of the father’s estate was being squandered. After I had worked closely with this man for so long and helped him build that estate, this saddened me.
Yet this client’s legacy was no longer my concern. When children become stewards of their parents’ legacies, the money belongs to them. They might feel chained by guilt and obligation to carry out a parent’s wishes. They might squander a parent’s legacy on ill-advised pursuits, spending, and investment schemes. Ideally, they will have developed enough financial and emotional intelligence to follow a more balanced middle path.
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To help children find that middle path, perhaps the best legacy parents can leave is their values. This can be done by teaching children about finances, family businesses, and family history, by leaving ethical wills, and above all by example.
Assessment
Those values and the financial legacies to support them start a new cycle. Inheritances are meant to support children’s own dreams and quests for meaning. Unless the funds are left to a trust, the decision-making is literally and figuratively out of the hands of both the parents and their financial planner. The planner, as a torchbearer for clients, has the responsibility to pass that torch to the next generation.
Conclusion
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
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The last few weeks of the year are often a mad rush so we thought that it is a good time to share this checklist of important items to consider before the calendar year ends, all related to your investments and finances so that you can reach your goals and dreams faster.
1. Review your IRA – 401(k) / 403(b) retirement accounts – Are you on track for a comfortable retirement?
2. Start tax planning! It’s not too early to think about taxes – Asset location & Tax efficiency
3. Rebalance your portfolio
4. Harvest your capital losses
5. Check your emergency fund
6. Review your insurance policies
7. Contribute to your Health Spending Account
8. Take your Required Minimum Distribution
9. Contribute to your 529 Plan
10. Determine your net worth
11. Check your credit score
12. Check your beneficiaries
13. Update your estate plan
14. Maximize your business deductions
15. Spending and automated savings – You want to look ahead
Assessment
Short and sweet.
Conclusion
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As inevitable as death is, given the way we avoid planning for it we seem to believe we will evade it if we don’t talk about it. Two-thirds of Americans don’t have a will or a health care advanced directive.
Financial planners like myself often preach that everyone must have both. However, there are exceptions to most rules, as well as times that the best preparation in the world goes awry.
No will
Here are some scenarios where you may not need a will.
First, you have no minor children and you don’t own anything of value or that you want to bequeath to someone.
Second, you do have assets, but all of them are transferable without a will. These include retirement accounts, annuities, assets like homes or bank accounts that are owned jointly, and assets like brokerage accounts or real estate that will Transfer on Death (TOD) to a named beneficiary.
Health care advanced directives
What about a health care advanced directive (HCAD)? This is any document that gives instructions or appoints someone to give direction about your health care. Living wills and Health Care Durable Powers of Attorney are two of the most popular HCADs.
Many people think you must use a state-provided form for a HCAD to be effective. According to the Commission of Law & Aging, most states do not require a form but do require your HCAD to be properly signed and witnessed. It’s best to have your directive drawn by an attorney, as most forms are too general or include generic options that may not apply to your needs or wishes.
Another myth is the notion that HCADs are legally binding on health care providers and their institutions. They are not. An advanced directive just gives healthcare providers immunity if they follow your instructions. The healthcare providers can refuse to comply with your directive. This is especially true in an emergency situation where the attending EMS must attempt to resuscitate you and get you to a hospital. In some states, if you and your doctor have signed a special form and you wear a special identification bracelet the attending EMS may choose not to resuscitate you.
Also, just giving your directive to your doctor is no guarantee that the directive will show up in your medical records. You, or your proxy, must check with each institution you visit or are transferred to and be sure it’s on file.
Some people fear that naming a health care agent means that you give up your right to make health care decisions. That is not true. A person retains the right to make all their own healthcare decisions unless they become incompetent.
Many people don’t do directives because they think they must understand all the choices and be crystal clear about their wishes. This is not necessarily the case. If nothing else, a directive appoints a person you trust to make decisions. And as with any legal document, you may always change your directive when you wish.
If all your relatives who can legally make healthcare decisions for you agree, you may not need an HCAD to stop treatment near the end of life. Still, a living will can make the decision less difficult. It becomes very important in the event your closest relatives disagree on what is best for you.
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Not today – DEATH!
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Like any good estate planning, the best strategy for both wills and HCADs is to focus on what you would like to happen today, rather than anticipating events and circumstances into the future. Then, as well as communicating your wishes verbally, put your thoughts in writing and provide copies to your doctors and loved ones.
Conclusion
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It’s not uncommon for people to assume that having a will in place is enough to ensure their assets will pass to their named beneficiaries in the manner they desire. However, certain financial assets, including 401(k) and IRA retirement accounts, as well as life insurance policies bypass a will or trust.
One benefit is that when the account owner dies, the assets go directly to the beneficiaries named on the accounts, bypassing the probate process. However, because these beneficiary designations override your will, they need to be carefully coordinated with your overall estate plan.
Some of the most common mistakes people make in regard to beneficiary designations include:
Forgetting to update named beneficiaries in the event of divorce. If your previous spouse is still listed as the beneficiary on your retirement account or life insurance policy at the time of your death, the assets will go to your ex, regardless of whether he or she is a named beneficiary in your will.
Naming minor children as beneficiaries or contingent beneficiaries. In the event you and your spouse predecease your children, they could directly inherit large sums of money from retirement accounts or life insurance policies—assets that are not governed by stipulations you may have included in your will or trust documents. Avoid leaving assets to minors outright. If you do, a court will appoint someone to look after the funds which can be a time consuming and expensive process.
Using beneficiary forms that don’t allow your assets to pass “per stirpes,” or equally among the branches of a family. For example, let’s say you name your three adult children as the beneficiaries of your IRA. If one of them predeceases you, you might want that child’s share to go to his or her children. However, many standard beneficiary forms don’t include per stirpes provisions and only allow per capita provisions where your two remaining adult children would share the assets. In certain cases, you can ask to include non-standard language to the beneficiary form, but make sure the financial services company actually has the capabilities in place to manage per stirpes distributions first.
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Assessment
An estate planning attorney or financial advisor with experience in estate and legacy planning can help ensure your beneficiary designations are up-to-date and aligned with your wishes and preferences.
Conclusion
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One area that few seniors prepare for is arranging for someone else to handle their financial affairs when they can no longer fully care for themselves.
This is easy to put off, for three primary reasons.
First, there are a lot of difficult emotions involved with the thought of losing our cognitive ability and the inherent freedom to financially care for ourselves. This is something we have done for ourselves all our lives, so it’s very hard to imagine not being able to do so.
Second, for many of us the loss of cognitive ability is slow and almost unrecognizable. There isn’t an urgency that suggests we need to do anything soon. Often by the time we do realize we need help, it’s too late for us to arrange for it.
Finally, while we’re in good health we tend not to consider the possibility of a sudden catastrophic health event. Yet such a crisis can leave us without a plan and no way in which to have any say in what happens.
National Association of Personal Financial Advisors
Fortunately, if you are reading this you have time to prepare. The following information is based on the work of Carolyn McClanahan, MD CFP®, particularly a presentation given to the National Association of Personal Financial Advisors in May of 2016.
She suggests the major questions to answer are:
Who will be in charge?
Are the right documents in place?
How will you monitor your decline?
Do you have a written investment policy?
How will the transition occur?
Who will be in charge?
Choosing a trusted third party to take over bill paying, investment management, and financial caretaking is essential. Options include a spouse, a child or other relative, a friend, a professional bookkeeper, or a financial planner. For couples, the odds are that both partners won’t lose their ability to handle financial affairs at the same time. If one spouse handles most of the money matters, it’s important that the noninvolved spouse becomes involved in the bill paying routine and understands the basics of the couple’s finances. If you are the caretaking or surviving spouse, or if you are single, designating a financial caretaker is crucial.
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Are the right documents in place?
The most important document is your power of attorney that names the person or organization who will be in charge of your finances. If the bulk of your net worth is in retirement accounts, annuities, and jointly owned, another option is to create a living trust, place everything you own individually in it, and identify the successor trustee who is in charge when you can no longer make decisions.
How will you monitor your decline?
It’s important to have some written agreement in place—even if for no one but yourself—that lists the triggering events which will indicate to you the time has come to transfer the control to someone else. It’s up to you to determine what these triggers are and to self-assess every few years.
Do you have a written investment policy?
And is it current? This is a good time to review your investment policy, making sure it’s been updated to reflect your changing cash flow needs and asset allocation. You might also evaluate your ownership of any complicated and illiquid assets like real estate or closely held business interests. It may be wise to simplify and liquidate them while you’re still capable of managing them, before it’s time to pass responsibility to a surrogate.
Assessment
Once you’ve answered these four questions, it’s time to consider the last step that will be addressed in a future ME-P: how the transition should take place?
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If you want to fix the problem of rising costs in the U.S. healthcare system, or at least reduce the looming Medicare/Medicaid entitlement burden, there’s a surprisingly easy solution.
Washington
In Washington policy circles, it has been estimated that more than 80% of all the dollars spent on healthcare in the U.S. are incurred in the last nine days of a person’s life. Many times, the money is spent keeping a person alive in a vegetative state, prolonging an incurable illness or painful conditions where there is little to no chance of recovery. The money is not just wasted; it may actually be used to prolong suffering when recovery is not an option. It doesn’t have to be this way.
Forbes
In an ongoing blog on the Forbes website, emergency room physician and financial planner Carolyn McClanahan MD tells us that doctors are among the best at avoiding this dismal fate at the end of their lives by taking a few simple recautions.
Dying like a doctor, she says, starts with understanding that we all get sick and die. Most people know this, but don’t realize it deep down, which is why individuals who experience near-death experiences–making death a more prominent part of their awareness–often choose to live more vital and productive lives thereafter, determined to make every second count.
As McClanahan says,
“When we live with no regrets, death isn’t scary.”
Doctors also see first-hand situations in which an unconscious person goes through a battery of procedures that keeps them alive until Friday, when they otherwise would have died the previous Tuesday.
McClanahan recommends that laypersons get a closer look at the transition from life to death by volunteering at your local hospice. Finally, doctors understand the power of documentation. They make sure they have a living will that describes how they want to be treated when faced with a serious accident or illness. They’ll have an advance directive which provides written instructions regarding their medical care preferences. In an earlier blog post, McClanahan stated that it is best to focus on outcome rather than actions.
Her favorite example is the routine question: “Do you want CPR?” –which, she says, seldom works at the end of life, will crush the bones in your chest and will become just another charge on the “superbill” the hospital sends the insurance company after your death.
The Flip
If instead you turn the question around, and make it: “What type of lifestyle is acceptable to you?” –then you might answer, “As long as I can use my brain, even if I can’t move, I want to be kept going.” That means you would be okay being a quadriplegic, but don’t want to be kept alive in a persistent vegetative state. Both of these documents will be entrusted to members of the family, or placed in a safe place that is accessible to your loved ones. They’ll go alongside a medical power of attorney, which empowers a friend or relative to make financial decisions when you are unable to.
Doctors also know to designate a health care agent who understands their wishes and will act accordingly when the hospital medical team presses for permission to keep them alive when there is little chance of recovery.
McClanahan tells the story of her own father, who was diagnosed with lung cancer. The doctors recommended chemotherapy and radiation. When he decided to forego this painful treatment, the doctors were indignant, and predicted he would be dead within six months. He lived three more years, and the hospice was a blessing at the end. He was one of the few non-physician Americans who had the knowledge and the documentation to die with dignity.
Assessment
Like a doctor.
Conclusion
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It’s not pleasant to think about the possibility of being unable to make your own medical or financial decisions; even for doctors and financial advisors.
That may explain why many people don’t take the time to draw up appropriate documents expressing their wishes.
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Supposedly, the most frightening words one spouse can hear from the other are, “Honey, we need to talk.” Even more frightening, however, is, “Honey, we need to talk about estate planning.”
What can you do if you want to get serious about estate planning, but your spouse doesn’t?
Here are a few suggestions:
Consider ways to persuade a reluctant spouse to participate
First, give up nagging. In my years of financial planning, I’ve seen how ineffective it is from either an advisor or a spouse.
Instead, it might be worthwhile to do some research and show your spouse some of the specific consequences of not planning. Depending on the complexity of your circumstances, you may find it worthwhile to consult an attorney, accountant, or financial advisor. You can also find a great deal of helpful information, such as state probate and intestacy laws, online.
If you have no wills, find out how your state laws distribute assets when someone dies without a will. Show your spouse how that distribution would affect your family. In many cases, intestacy laws are still designed around a traditional one-marriage-with-children family structure. They may fail to provide for members of families that don’t fit that mold—for example, by disregarding stepchildren and step grandchildren.
If you have wills but made them years ago, take a close look at their provisions. Show your spouse—with numbers, if you can—exactly who would benefit and who would not. Your spouse may be persuaded to take action if he or she sees the specific ways that yesterday’s wills don’t provide for today’s family. Even if this accomplishes nothing beyond convincing your spouse to destroy an outdated will, it may be worthwhile. An outdated will, in some cases, can be worse than none at all.
It’s quite likely that neither of these approaches will succeed. This leaves you with the next-best option.
Do what you can on your own
With your own separate property, you can do any estate planning you want, including executing a will and setting up a living trust. I would also strongly encourage you to execute powers of attorney for financial and health decisions.
However, you might be surprised at the limits on estate planning for assets you consider yours. One important provision is that married people cannot name anyone except each other as beneficiaries on retirement plans without the spouse’s permission. Suppose, for example, you would like to name your children from a previous marriage as beneficiaries on a retirement account as a way of providing fairly for them if your spouse died intestate. You would need your spouse’s consent to do so.
Also, a will executed by one spouse does not affect assets held jointly or in trust, annuities, retirement plans, or individually held bank or brokerage accounts that have a TOD (transfer on death) provision.
Assuming you cannot persuade your spouse to participate in estate planning, and assuming you have done whatever individual planning you can, there’s one more step you can take.
Educate yourself.
Do your best to create and maintain a complete inventory of assets you and your spouse hold jointly, as well as your separate retirement accounts, insurance policies, and other individual assets. Include account locations, approximate balances, and access information. Having this information will be invaluable if you end up as the administrator of your spouse’s estate.
Ironically, the person who benefits most from your separate estate planning may be your non-planning spouse. Yet doing whatever you can-will also help you be prepared, just in case you need to deal with the consequences of your spouse’s lack of planning.
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Assessment
Some basic; but important thoughts.
Conclusion
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If you are not reading our subscriber “comments”, you are not getting all you can from each Medical Executive-Post. And, if you are not reading the links in each post, you are not getting all you can from the ME-P.
Industry Specificity
Then, purchase our textbooks, white-papers, handbooks, dictionaries and CDs for deeper integrated and peer-reviewed industry specificity.
Consulting Too!
And, we are now scheduling private consultations, events and corporate engagements, too. Online and on-ground seminars and private appointments are also available! But for now, read and learn from the “comments“ tab. It’s fast, free and secure!
Conclusion
So, there are several ways to interact with the ME-P, and more are scheduled in the future.
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It’s not easy, but the medical treatments you would want near the end of life need to be discussed with others. If you never bring up the topic and you were unexpectedly incapacitated and unable to speak for yourself, your medical wishes would never be known.
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Important Topic
Despite the topic’s importance, only 27% of Americans report having talked with their families about end-of-life care. The best way to make your medical wishes known is to create an advance directive and share it with your family and your doctor.
An advance directive is actually two legal documents that enable you to plan and communicate your end-of-life wishes. When you create your advance directive, you are being proactive about your medical care and sparing your loved ones from having to make difficult medical decisions in a time of crisis.
Don’t wait for a crisis. Create your advance directive, share copies with your loved ones and doctor and keep your copy in an accessible location others can find.
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Channel Surfing
Have you visited our other topic channels? Established to facilitate idea exchange and link our community together, the value of these topics is dependent upon your input. Please take a minute to visit. And, to prevent that annoying spam, we ask that you register.
Would they know what you want if you couldn’t talk? Do you know what you would want near the end of life? Find your own answers. Then open the conversation with the people you love. You are giving everyone a priceless gift.
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Physicians have more complex liability challenges to overcome in their lifetime, and less time to do it, than other professionals. Combined with a focus on practicing their discipline, many sadly fail to plan for their own future. They need trustworthy advice on how to effectively protect themselves, families and practice, from the many overt and covert risks that could potentially disrupt years of hard work.
Fortunately, this advice is contained within RISK MANAGEMENT, LIABILITY INSURANCE, AND ASSET PROTECTION STRATEGIES FOR DOCTORS AND ADVISORS [BEST PRACTICES FROM LEADING CONSULTANTS AND CERTIFIED MEDICAL PLANNERS™]. Written by Dr. David Edward Marcinko, Nurse Hope Rachel Hetico and their team of risk managers, accountants, insurance agents, attorneys and physicians, it is uniquely positioned as an integration of applied, academic and peer-reviewed strategies and research, with case studies, from top consultants and Certified Medical Planners™. It contains the latest principles of risk management and asset protection strategies for the specific challenges of modern physicians. My belief is that any doctor who reads and applies even just a portion of this collective wisdom will be fiscally rewarded. The Institute of Medical Business Advisors has produced another outstanding reference for physicians that provide peace of mind in this unique marketplace! In my opinion, it is a mandatory read for all medical professionals.
When discussing end-of-life care, it’s a delicate issue that has to be handled carefully – and one in which mHealth can play an important role.
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“There are serious communication challenges around advance care planning and they contribute to the emotional and financial burdens on patients, their families and their caretakers,” Geri Lynn Baumblatt, executive director of patient engagement for Emmi Solutions, said in a press release.
“Empowering people to make decisions about their own care before reaching a point where they can no longer speak for themselves can shift that experience from one of stress and confusion to one where everyone involved including the family and care team is readily prepared to follow the person’s wishes.”
“In a study of ICU patients with terminal conditions, only 12 percent of patients with an advance directive had received input from their physician in its development while another study showed that between 65 and 76 percent of physicians whose patients had an advance directive were not aware that it existed,” Nathan Kottkamp, founder of NHDD, in the release.
“These findings show that there is a huge communication gap between patients and their doctors around end of life care, NHDD’s mission is to help close that gap while Emmi Solutions’ program is a useful tool for doing so.”
For a closer look at how mHealth figures into advance directives, take a look at this infographic from Emmi Solutions.
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[Click image to enlarge]
Conclusion
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An infographic to show the key statistics from our recent report which highlights how the growing use of digital channels in our daily lives can cause additional stress for bereaved loved ones.
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[Click to Enlarge]
Conclusion
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Estate planning can be one of the most emotionally difficult aspects of financial planning. One often-overlooked aspect of estate planning is talking with your heirs about your legacy plans.
While most of us probably accept in theory that these conversations are important, actually carrying them out can be terribly difficult.
Suggestions
Here are a few suggestions that may help.
Communicate your values about money in a larger context with both words and behavior. Our estate plans often reflect lifelong values such as a commitment to charitable giving or a wish to provide first for our families. If children are familiar with your values, chances are they will have a good idea of what to expect from your estate.
Evaluate your children’s money skills. Just because kids grow up in the same family doesn’t mean they will have the same knowledge and attitudes about money. Especially if children will inherit significant amounts, conversations about estate planning can become part of larger conversations designed to help teach them how to manage and become comfortable with their legacies.
If your estate plan does not treat children “equally,” for whatever reasons, it’s best to share that information well in advance and to communicate it privately to each child. There are many reasons why treating children differently in an estate plan can be the fairest thing to do, but that doesn’t mean it’s wise to let them learn the specifics when a will is read. If parents and individual children can discuss these provisions and the reasons for them ahead of time, there is less likelihood of conflict between siblings after the parents are gone.
Don’t allow children to assume they are inheriting more than is the case. If most of your estate will go to charity, don’t keep it a secret. Not telling the kids may avoid conflict now, but it will sow seeds for deeper conflict and resentment after your death.
Prepare children for large or unexpected inheritances. I’ve worked with heirs who were stunned to receive legacies much larger than their parents’ lifestyles had led them to expect. If you have a substantial net worth that’s “below the radar,” perhaps in the form of land or business ownership, your children may be totally unprepared for what they will inherit. Find ways to help them learn more about both the financial and the emotional aspects of managing inherited wealth. You might also consider options, such as giving more to the children during their lifetime, to help reduce the impact of a sudden inheritance.
Acknowledge your own fears. Although it is seldom expressed, perhaps the strongest reason for not discussing estate plans with family members is fear. It’s natural for parents to be afraid that children will be angry or disappointed, will build too much on their expectations for an inheritance, or will be resentful of other heirs.
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Communications
Talking to family members about estate planning and legacies can be difficult and even painful. Those discussions, however, will almost certainly be less painful in the long run than the stories children may make up about your decisions after you are gone.
Role of Planners and Coaches
Financial planners and financial coaches can play an important role that goes beyond providing financial advice. They may also be helpful in facilitating the family conversations. In especially difficult circumstances, the help of a financial therapist can also be invaluable.
Assessment
Using the available resources to help you discuss your wishes with family members can be an important aspect of estate planning. Having those difficult conversations is one way to enhance the legacy you want to pass on to your family.
Conclusion
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A couple years ago you posted an earlier version of the attached Asset Protection Outline. I updated it to include quite a bit more discussion of different protection levels for various kinds of accounts, and included more discussion of states other than Ohio, including a 50 state chart with IRA/403b protections.
So please delete the old one and replace with this one which contains more topics, including some substantial discussion of issues regarding current class action litigation jeopardizing asset protection for Schwab and Merrill Lynch IRAs.
Regards Ed
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The Importance of Asset Protection as Part of Financial and Estate Planning for Doctor’s and Medical Professionals
Asset Protection has become a ubiquitous buzz-word in the legal and financial community. It often means different things to different people. It may encompass anything from buying umbrella liability insurance to funding offshore trusts.
What is most likely to wipe out a client’s entire net worth? An investment scam, investment losses, a lawsuit, divorce or long-term health care expenses? “Asset Protection” may be construed to address all of these scenarios, but this outline will cover risk from non-spousal creditors as opposed to risk from bad investments, divorce, medical bills or excessive spending. Prudent business practice and limited liability entity use (LP, LLP, LLC, Corporation, etc) is the first line of defense against such risks. Similarly, good liability insurance and umbrella insurance coverage is paramount.
However, there is a palpable fear among many of frivolous lawsuits and rogue juries [especially among physicians and medical professionals]. Damages may exceed coverage limits. Moreover, insurance policies often have large gaps in coverage (e.g. intentional torts, “gross” negligence, asbestos or mold claims, sexual harassment).
As many doctors in Ohio know all too well, malpractice insurance companies can fail, too. Just as we advise clients regarding legal ways to legitimately avoid income and estate taxes or qualify for benefits, so we advise how to protect family assets from creditors. Ask your clients, “What level of asset protection do you want for yourself?
For the inheritance you leave to your family?” Do any clients answer “none” or “low”? Trusts that are mere beneficiary designation form or POD/TOD substitutes are going out of style in favor of “beneficiary-controlled trusts”, “inheritance trusts” and the like.
Table of Contents
While effort is made to ensure the material is accurate, this material is not intended as legal advice and no one may rely on it as such. Sections II(d), II(i), V, VI and XI were updated Feb 2012, but much of the material and citations have not been verified since 2010. Permission to reprint and share with fellow bar members is granted, but please contact author for updates if more than a year old.
T.O.C. [Page Number]
I. Importance of Asset Protection 2
II. State and Federal Protections Outside ERISA or Bankruptcy 4
a. Non-ERISA Qualified Plans: SEP, SIMPLE IRAs 5
b. Traditional and Roth IRAs, “Deemed IRAs” 7
c. Life Insurance 9
d. Long-Term Care, Accident/Disability Insurance 13
e. Non-Qualified Annuities 13
f. Education IRAs (now Coverdell ESAs) 16
g. 529 Plans 17
h. Miscellaneous State and Federal Benefits 18
i. HSAs, MSAs, FSAs, HRAs 18
III. Federal ERISA Protection Outside Bankruptcy 20
IV. Federal Bankruptcy Scheme of Creditor Protection 26
V. Non-Qualified Deferred Comp – Defying Easy Categorization 30
VI. Breaking the Plan – How Owners Can Lose Protection 32
(incl Prohibited Transactions and Schwab/Merrill Lynch IRA problems) 35
VII. Post-Mortem – Protections for a Decedent’s Estate 51
VIII. Post-Mortem – State Law Protections for Beneficiaries 52
IX. Post-Mortem – Bankruptcy Protections for Beneficiaries 54
X. Dangers and Advantages of Inheriting Through Trusts 56
XI. Piercing UTMA/UGMA and Other Third Party Created Trusts 59
XII. Exceptions for Spouses, Ex-Spouses and Dependents 61
XIII. Exceptions when the Federal Government (IRS) is Creditor 62
XIV. Fraudulent Transfer (UFTA) and Other Exceptions 68
XV. Disclaimer Issues – Why Ohio is Unique 69
XVI. Medicaid/Government Benefit Issues 71
XVII. Liability for Advisors 72
XVIII. Conflicts of Law – Multistate Issues 73
XIX. Conclusions 75
Appendices
A. Ohio exemptions – R.C. §2329.66 (excerpt), §3911.10, §3923.19 78
B. Bankruptcy exemptions – 11 U.S.C. § 522 excerpts 80
C. Florida IRA exemption – Fla Stat. § 222.21 (note-may be outdated) 85
D. Sal LaMendola’s Inherited IRA Win/Loss Case Chart 86
E. Multistate Statutory Debtor Exemption Chart 88
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Assessment
This outline will discuss the sometimes substantial difference in legal treatment and protection for various investment vehicles and retirement accounts, with some further discussion of important issues to consider when trusts receive such assets.
Beware of general observations like: “retirement plans, insurance, IRAs and annuities are protected assets” – that may often be true, but Murphy’s law will make your client the exception to the general rules. The better part of this outline is pointing out those exceptions.
Mr. Edwin P. Morrow III, a friend of the Medical Executive-Post, is a Wealth Specialist and Manager, Wealth Strategies Communications Ohio State Bar Association Certified Specialist, Estate Planning, Probate and Trust Law Key Private Bank Wealth Advisory Services. 10 W. Second St., 27th Floor Dayton, OH 45402. He is an ME-P “thought leader”.
Constructive criticism or other comments welcome.
Conclusion
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Many doctors are aware that when the owner of a taxable asset passes away, the party that inherits that asset does so at a stepped-up cost basis.
For example, suppose a husband owns a stock in a taxable investment account that he purchased for $100,000 but is now worth $150,000. If the husband sells the stock, there will be taxes due on the $50,000 of growth, or the difference between the current value and the cost basis.
However, if the husband passes away and a wife inherits the stock, the wife’s cost basis gets increased to the full $150,000, the value of the account on the date the husband passed away. This enables the wife to sell the stock and keep the full $150,000 of value without paying taxes.
Jointly Owned with Rights of Survivorship
However, what happens to assets that are owned jointly with a right of survivorship when one spouse passes away? Did you know in this scenario, it is possible for assets to receive a ½ step-up in basis? The formula looks like this:
(Date-of-death fair market value + Old basis) / 2 = New Basis
In a practical example, suppose John contributes $10,000 to a joint account with a right of survivorship and Jane contributed $5,000 to the same account. When John passes, the account is valued at $20,000. This will cause Jane to get a step-up in basis to $17,500 on the taxable account.
($20,000 + $15,000) / 2 = $17,500
Jane receives a ½ step-up in basis on each position within the investment account. She is unable to claim a full-step up on one stock within the account and no step-up on other assets.
Unique to Spouse
Notice that even though the spouse’s contributed different amounts to the account, they each share a full 50% share of the property for inclusion in their estates. However, this is unique to spouses with right of survivorship and the issue is more complex if the parties involved are not married.
Assessment
To be clear, this step-up only occurs on taxable assets like physical property or taxable investment accounts. A step-up does not occur on tax-deferred investments like IRAs or 401(k)s.
Conclusion
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The heart of estate planning, for many of us, comes down to one issue: taking care of family. We do our best to make decisions that we hope will be right for surviving spouses and children.
Such decisions are especially challenging for parents of children with special needs. The question of “Who will take care of this child after we’re gone?” can be heart-wrenching. There are financial planners who specialize in this area, and the best option for many families might be to ask a generalist planner like me for a referral to one of them.
The following suggestions, then, are intended as starting points or a very general framework on which to build.
The Framework
A fundamental tool in providing for a special-needs child is a trust. My suggestion is to have this trust handled by a trust company that does not manage money, rather than a bank. It will charge a flat fee for its service, typically in the range of $3,500 to $10,000, and the trust need not be in the millions of dollars. The parents can empower the trust company to hire an appropriate investment advisor to manage the money. I suggest the trust require using an advisor who is a fiduciary to the trust and is compensated by fees rather than commissions. This, along with the trustee looking over the advisor’s shoulder, provides a good system of checks and balances.
Then, the parents can appoint an advocate for the beneficiary who serves as a co-trustee. This person does not manage the money, but is the trustee’s eyes and ears to make sure the trust is meeting the beneficiary’s specific needs. When the advocate can no longer serve, the corporate trustee can appoint a new advocate.
Example:
Advocates might be family members or representatives from an agency that provides care to the beneficiary. In Rapid City, for example, a nonprofit organization called Black Hills Works serves people with a variety of special needs. Many of its clients receive services throughout their lifetimes, and some of them are supported by trusts. An agency like this will not serve as a trustee for clients’ funds, which would be a conflict of interest, but it can serve as an advocate for a client who is the beneficiary of a trust.
Separation of Responsibilities
The basic approach I’m suggesting is to separate the responsibilities of caring for a special-needs child among several professionals, family members, or friends, according to their competencies and the child’s needs. A corporate trustee, not an individual, coordinates their functions. This goes a long way toward assuring consistent and coordinated support throughout the beneficiary’s lifetime.
Estate Planning
I also suggest not thinking of this approach only in terms of estate planning, but also to provide for a child as the parents age. As they become unable to provide care or manage funds themselves, they can turn responsibilities over to the corporate trustee, advisor, and advocate.
Making sure a handicapped child is taken care of may take all the parents’ assets, which could raise the question of fairness to other children. While the issue of what is fair depends on each family’s situation, my observation is that it isn’t necessarily a problem. Many siblings, rather than feeling deprived, are pleased to know the special-needs child is provided for. As with other estate planning concerns, clear communication about the parents’ intentions is crucial.
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Assessment
My final suggestion regarding a trust is to make sure you design it to allow the beneficiary as much flexibility and participation in decisions as is appropriate for his or her abilities. Ideally, the trust will not limit the beneficiary’s independence, but will support it.
Conclusion
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In estate planning, “equal” isn’t necessarily the same as “fair”. I rarely see an estate plan that does not treat children equally. When I do see inequality, it’s usually because a parent is estranged from one child and leaves him or her nothing. So, “equal” isn’t necessarily “fair”.
Some call this the “placebo of estate planning equality”.
Psychologists
Many experts on the psychology of estate planning recommend that parents divide their estates equally among children. The main reason is to help enhance sibling relationships after the parents’ deaths. The goal is to eliminate the potential for hurt feelings and perceived injustice if parents favor one sibling over another financially.
Estate Division
Dividing an estate into equal shares for each child might seem to be the obvious way to treat children fairly. However, that usually only works if you’ve treated them equally during your lifetime. If you have given more to one child during life, it’s usually smart to level the playing field at death.
The Financial Samurai
I was reminded of this principle late last year in a post by a blogger who goes by the name Financial Samurai, who tells this story:
He perceived that his parents couldn’t afford to send him to a private college. To help them financially, he chose to go to a public university. His younger sister chose a private university costing eight times as much. After graduating, he worked hard to save enough to repay his parents. When he offered them the money, ten years after graduation, he was shocked when they declined it. Only then did he learn they had saved equal amounts for his and his sister’s educations. When he chose the less expensive school, they transferred what they saved on his tuition to help pay for his sister’s more expensive private education.
While he tries his best in the balance of the article to take the high road, assuring readers this injustice really doesn’t bother him, it’s clear that it does, a lot.
“No-Talk” Rules
The amazing thing about this story is that this family never discussed the financial aspects of college. The parents never told their son they were saving for his college education or communicated their intent to pay for it. He never asked, assuming that paying for college was his responsibility. The unspoken “no-talk” rule around money that so many families follow was rigidly in place.
College funding is far from the only way parents treat children differently. Another common one is bailing out one child who has financial struggles, either self-inflicted or caused by outside circumstances. Parents may also lend or give one child some money to start a business. Or they may feel they owe more to a child who has been the one to take care of them in old age.
Many of these inequalities can be compensated for in estate planning. One strategy is to subtract any excess paid to one child from his or her portion of the inheritance. It’s important here to provide for inflation, such as adjusting the amount paid to the child upward by the cumulative increase in the Consumer Price Index (CPI) from the date of the payment to the date of death.
[The “Placebo” of Equality]
Assessment
If parents feel it’s fair to leave more to a child who has cared for them, it’s best to establish that amount carefully, based both on tangible factors like the market value of the care and on intangibles like the relationships among the siblings.
So, no matter what adjustments you make in your estate plan to equalize what children may have received during your lifetime, it’s crucial to talk about those adjustments. Clear communication about what is “fair” goes a long way to maintain strong sibling relationships long beyond the parents’ lives.
Conclusion
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An ethical will is a document designed to pass ethical values from one generation to the next.
It was first postulated in 1998 by Barry K. Baines MD in his EthicalWill Resource Kit.
He then founded the www.EthicalWill.com website, now known as www.CelebrationsofLife.net His hospice care experience provided the impetus for developing resources to help people write and preserve their legacy of values at any stage of life [personal communication].
By 2005, Andrew Weil MD promoted ethic wills as a “‘gift of spiritual health”’ to leave family members. The goal is to link a person to both their family and cultural history, clarify ethical and spiritual values, and communicate a legacy to future generations.
Today, ethical wills are written by both men and women of every age, ethnicity, faith tradition, economic circumstance, and educational level. For FAs, an ethical will can open the door to start a bigger conversation about estate planning. Susan Turnbull, a principal with Personal Legacy Advisors in New Hampshire is author of The Wealth of Your Life: A Step By Step Guide for Creating Your Ethical Will, a document that some financial advisors offer their clients as a template for creating them.
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Assessment
In recent years, the practice has been increasingly used by the general lay public and medical professionals. In fact, the American Bar Association [ABA] described it as an aid to estate planning in health care and hospice and as a spiritual healing tool.
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In recent ME-P columns I reported on a survey done by the financial services company HBSC that found only 59% of US parents intend to leave their children an inheritance, the lowest of the 15 nations in the survey. The fact the US is last came as no surprise to me. What did surprise me was that 59% seemed high.
My Average Clients
My average client is someone who has saved over one million dollars. I am guessing that less than 2% of them have any intention or goal of constraining their current lifestyle in order to maximize their kids’ inheritance. Consuming their last penny of savings about the time they take that last breath is their spending plan of choice. There is even a name for these folks: “Die Brokers.”
If they did a good job of planning for retirement, however, most Die Brokers will leave something behind. Almost all of these I work with intend to divide what remains equally among their children. The point is that leaving an inheritance just isn’t a priority or a goal that constrains their current spending. As a side note, I rarely see any intention to leave any significant portion of their estate to charity.
The Survey
Why did the survey find such a high number of parents who intend on leaving their kids an inheritance, as compared to my observations that almost none intend to? My experience is that most people have a money script of, “Good parents should leave something to their children.” It is similar to another money script of, “Good parents should pay for their children’s college education.” These are seen as things “good” parents do. My hunch is that when most respondents answered the survey question, they let their money script do the talking, rather than their true intention.
The Explanation
Still, this does not explain why US parents intend to leave their children less than parents in any other country. One reason could be that more parents in other countries have money scripts that it’s necessary to leave their kids an inheritance.
One of the most common themes among my affluent clients is a desire to see their children “make it on their own.” Over 90 percent of these clients are first-generation wealth builders, meaning they didn’t inherit their money but accumulated it from saving, investing, or building a business. They value hard work and frugality and feel leaving a large inheritance to a child is more hurtful than helpful.
First Generation Millionaires
Many of these first-generation millionaires also feel accumulating wealth in the US is very attainable with hard work, discipline, and frugality. This is not the case worldwide. In many countries, it doesn’t matter how hard you work or how frugal you are, confiscatory taxes and oppressive regulations insure that those people not fortunate enough to be born into money will never have a chance to become affluent. The only way to have a comfortable net worth in many countries is to either inherit it or work for the government.
Sadly, the US is closer to adopting a model that makes accumulating wealth increasingly difficult. I can’t name a politician currently campaigning who advocates lowering income taxes on wealth builders. Yet I can name scores who are running on increasing taxes on “the rich.”
Assessment
Affluent parents in the US may soon begin to feel that, without an inheritance, their children may never have the means to get ahead. If more US parents begin believing this, we will probably see increasing numbers intending to leave money to their kids. The money script of “Good parents should leave something to their children” might become the truth.
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Previously on this ME-P, we explored three fears that stop adult children from talking with parents about their estate plans, even though such conversations could greatly benefit both generations.
These are: “It’s none of my business,” “I don’t want them to think I am greedy,” and, “It will ruin our relationship.”
Parents Fear, Too!
Children aren’t alone in their fear of approaching this topic. Most parents are just as reluctant—and for the same basic reasons. In my experience, parents’ biggest reasons for not talking with kids about legacy intentions are: “It’s none of their business,” “If I share financial information, they will take advantage of me,” and “Talking about money will hurt our relationship.”
“It’s none of their business.” This is certainly true, unless you’ve made it their business. If you name a child as an executor of a will, a successor trustee of a trust, or an agent in a Durable Power of Attorney, you have made it that child’s business to know your business.
Shared Decision Making
To throw a child into suddenly having to make financial decisions in your best interest without knowing what they must manage, where assets are held, and what your wishes are is unfair to both you and your child. Any time you put someone in a position of authority in any of your estate documents, it’s essential to carefully go through the document with them and to disclose details of the assets they will make decisions on. Start with showing them your financial statements, the contact information of your trusted advisors, and a listing of where you hold all your accounts.
If you feel you can’t trust a child with such information today, then why do you feel you can trust them as your agent or executor tomorrow? If you don’t trust a child, you’re better off to name a bank trust office or trust company to these positions.
“If I share financial information, they will take advantage of me.” This fear may be justified if your child has a history of taking advantage of you. If not, they probably aren’t going to start now. Preparing a child for an inheritance is not only prudent, it’s also a loving act of kindness you can give your child.
Sudden Money
I have worked with several families where children had no idea of their parents’ net worth. In every case, it was much higher than the kids ever imagined. Suddenly, they learned they were about to inherit hundreds of thousands or millions of dollars in various investments they knew nothing about. I witnessed these heirs try to cope with a plethora of emotions and money scripts, in addition to needing to learn the mechanics of managing a portfolio of investments. Without proper preparation, it’s not uncommon for what parents intended as a loving gift of wealth to turn into a destructive force of misery.
“Talking about money will hurt our relationship.” Parents are just as terrified to have money conversations with their kids as kids are afraid to talk with them. And no wonder—it’s parents who teach kids the no-talk rule in the first place.
Parental Wisdom
As parents, you can exercise the wisdom of age and begin the family money conversations. It may be helpful to have the first meeting with your financial planner or estate attorney, or engage the help of a financial therapist. You might be amazed to find that talking with your kids about money in a straightforward and healthy way can actually help your relationships.
Do your kids a favor and break the no-talk rule. It’s a gift to both generations.
Conclusion
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Talking about money is taboo in the US. If you don’t believe me, next time you’re at a social gathering ask everyone these two questions:
1. “What was your taxable income last year?”
2. “What is your net worth?”
Well, it’s not a recommended way to make new friends.
The Money Taboo
The taboo on money conversations can cause real difficulties when it extends to families. My experience as a financial planner suggests most families in the US have a “no-talk” rule around money. While a lot of family members know each other’s earnings, fewer know family members’ net worth. Even fewer have asked about their parents’ estate planning.
Many don’t intend to ever ask. A blogger who calls himself the Financial Samurai wrote: “I never want to have the inheritance talk with my parents unless they initiate the conversation.”
Based on the responses to his article, he isn’t the only person holding this opinion. Most children recoil at even the thought of asking their parents about the particulars of their estate plans.
None of My Business
In my experience, the most common reasons for not talking to parents about their inheritance plans are these: “It’s none of my business,” “I don’t want them to think I am greedy,” and, “It will ruin our relationship.”
Why Not Ask?
Let’s look at each of these reasons:
1. “It’s none of my business.” It’s true that parents have no obligation to disclose their finances and estate plan to their children. Yet it could quickly become your business if you are named as an executor in their wills, a successor trustee in a trust, or an agent in their powers of attorney. Asking whether you are designated as any of these roles is totally reasonable. If you are, then knowing the particulars of their estate plan and finances would be helpful for you to know. It is such a reasonable request that, if your parents are not willing to discuss the details, you may be best served asking them to name someone else.
2. “I don’t want them to think I am greedy.” If you’ve had your hand out to your parents most of your life, asking them how much you’re going to get when they kick off may not evoke a loving response. However; if you have never asked your parents for money – or – if you have asked for money and have paid them back; then you probably don’t have much to worry about! If you approach the topic from the standpoint of wanting to be fully prepared to carry out any duties bestowed upon you, I seriously doubt your parents will suddenly think you’ve morphed into a greedy, money-sucking leach.
3. “It will ruin our relationship.” One of the strongest money scripts around talking about money is that doing so will permanently harm a relationship. The Financial Samurai wrote, “I hate thinking about money and family because so often money tears relationships apart.” While money issues can certainly tear apart a relationship, so can abusing alcohol, sex, drugs, work, power, and a host of other things.
Assessment
What I’ve seen is that keeping secrets about money is more harmful to relationships than talking about money. When the no-talk rule is in effect, family members make up their own stories about what is real. Those stories are rarely true, and the assumptions around them can cause misunderstanding and mistrust.
Being the first to break a family’s “no money talk” rule isn’t easy. Yet having the courage to start money conversations can be a service to the whole family. In my experience, it ultimately leads to better estate plans, more trust, and stronger relationships.
Conclusion
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Stroll through a retirement camping resort or pass an RV on the highway, and you might see this bumper sticker:
“We’re spending our children’s inheritance”
No Joke
Apparently, this isn’t a joke. A December 13, 2013, article in CNN Money reported on a recent survey by the British-based international financial services company HSBC which asked more than 16,000 people in 15 countries about their estate plans. The US ranks last in the percentage of retired parents (56%) that intend to leave money to their kids. This is significantly below the 15-country average of 69% and far below the leading percentage of 86% in India.
US Rank
The US also ranks sixth in the amount of money ($177,000) that parents expect to pass on. This is behind Australia ($501,000), Singapore ($371,000), the UK ($234,185), France ($233,699), and Taiwan ($191,039).
No doubt there are many reasons for the country-by-country differences in what parents expect to leave their children. These may include differences in cultures, beliefs about family responsibilities, and attitudes toward charitable giving.
Contributing Factors
Other contributing factors, however, are differences in countries’ economic strength and tax laws. In a December 13 interview with The Australian, Graham Heunis, the head of retail banking and wealth management for HSBC Australia, credited some of the large inheritances there to the country’s unbroken 22 recent years of economic prosperity. Australian household wealth grew 7.6 per cent a year over the past decade, making it one of the richest nations per capita in the world.
Heunis also said, “In markets like the UK and US, inheritance and estate tax may cost heirs upwards of 40 per cent of an inheritance. With no inheritance tax in Australia, it’s no surprise the value and proportion of inheritance among Australian retirees is exponentially higher than the rest of the world.”
A Good Thing
It’s refreshing to see that accumulating and keeping wealth is still looked upon as a good thing in some countries. I doubt it’s a coincidence that most of those countries have strong economies, similar to what the US enjoyed in the past.
According to the 2013 Index of Economic Freedom, Singapore and Australia, the top two countries for inheritances, are two of the only three countries considered to have “free economies.” (The third is Hong Kong, where the average amount parents expect to pass on to kids is $145,943.) The US, considered the third top “free economy” in 2000, now sits at tenth as a “mostly free economy.”
Survey
This survey is not good news for baby boomers hoping to retire on inheritances from their parents. According to CNN Money, “About two-thirds of U.S. respondents said the inheritances they receive will at least partly fund their retirement, and 10% said they will rely on their inheritance completely to retire.”
If two-thirds of middle-aged Americans expect substantial inheritances, but only about half of elderly retired parents expect to leave inheritances, somebody is going to be disappointed.
Still, for those, like the majority of baby boomers, who are unprepared for retirement, every little bit helps. While an inheritance of $177,000 won’t put anyone on Easy Street in retirement, it could pay off a home mortgage or, if invested wisely, generate a monthly income of $450 for life.
Another Problem
One last problem for potential heirs, of course, is that just because parents expect to leave an inheritance doesn’t mean they will be able to do so. Medical expenses or other unanticipated costs might well eat up parents’ resources during their lifetimes.
Assessment
Ultimately, relying on an inheritance for your retirement is never a wise move. It’s far wiser to use your own resources, start retirement planning early, and build your own financial security.
Conclusion
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You could delete the outdated ME-P sections on EGTTRA and replace them with some of this (although it may be too much for doctors and laypeople, so I’ve also toned-it-down similar to the shorter version above).
Also, you should cover captive insurance companies if you have not already. Which physician/practice owners should consider it? How do you start? How do you choose a captive manager and attorney? What should you watch out for? I could do that too, I think I have some material.
Mr. Edwin P. Morrow III, a friend of the Medical Executive-Post, is a Wealth Specialist and Manager, Wealth Strategies Communications Ohio State Bar Association Certified Specialist, Estate Planning, Probate and Trust Law Key Private Bank Wealth Advisory Services. 10 W. Second St., 27th Floor Dayton, OH 45402. He is an ME-P “thought leader”.
This essay is based on presentation by the author at the Wealth Management Conference at Columbus on June 13, 2013.
Conclusion
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When passing wealth to your kids, some medical professionals should consider creating a trust to limit the later generation’s ability to tap into the principal. Several astute readers suggested this strategy after my recent column citing research that shows 90% of inherited wealth is gone by the third generation.
Preserving Wealth
There is no question that a trust, done correctly, can go a long way to preserve wealth after the death of the wealth accumulator. Let’s explore what “done correctly” means.
1. Trust law is complex. Engage an accountant and attorney with strong skills and expertise in trusts.
2. Be sure the assets you intend to go into the trust will actually transfer.
Retirement plans like IRA’s, 401(k)’s, and profit sharing plans will pass to whomever you listed as the beneficiary. This must be the trust. In addition, the trust must include a number of special provisions in order for a retirement plan to be distributed according to your wishes and not as a fully taxable lump sum.
Annuities, insurance policies, and accounts with a TOD (transfer on death) clause will also pass to the named beneficiary.
Assets held in joint tenancy will not pass to the trust. Many married couples jointly own most of their major assets, such as the family home, investment real estate, brokerage accounts, or bank accounts.
3. Be sure there are enough assets in the trust to justify the trustee fees. Most professional corporate trustees charge $3,500 to $10,000 annually, or up to 1% of the trust assets. If a trust with $100,000 incurs an annual fee of $3,500, your hard-earned estate will benefit the trustee as much as your heirs. A trust probably doesn’t make financial sense if the total fees will exceed 2%.
4. If a trust still seems like a good strategy after the above caveats, the next question is how much to limit heirs’ ability to withdraw money. From an actuarial standpoint it’s fairly simple. If you limit annual withdrawals to 3% of the principal, there’s a strong probability of the money lasting several generations with its buying power intact. Provided, that is, the trustees pay close attention to the next point.
5. To generate sufficient returns to pay out up to 3% annually to heirs and also keep up with inflation, the majority of the portfolio must be invested in assets that will grow over time, such as stocks, real estate, and commodities. It needs to be broadly diversified among many asset classes and countries. The trustees must also limit the fees paid to manage the investments. Many corporate trustees have an inherent incentive to use their own bank’s mutual funds, which can have annual fees as high as 1.5%. One way to avoid this conflict of interest is to instruct the trustee to place the funds with a fee-only investment advisor who has a largely passive approach to managing money. This could cut the portfolio fees by 50% or more.
6. Finally, before setting up any trust, pay close attention to taxes. Congress recently increased the top income tax bracket to 39.6% on wealthy taxpayers. Any trust which keeps more than $11,950 of annual income is considered “wealthy.” So here is the problem. If the trust retains enough earnings to increase the principal to offset inflation, it will have to pay substantial income tax and will probably need to restrict withdrawals to 1 or 2%. All of a sudden a multi-million dollar inheritance becomes simply a source of secondary income similar to Social Security.
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Assessment
Trusts are valuable estate planning tools. But like any other powerful tools, they are best employed by someone with the skills to use them well.
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A decade ago, Editor Gregory J. Kelley of Physician’s MONEY DIGEST and I reported that a 47 year old-doctor with $184,000 annual income would need about $5.5 million dollars for retirement at age 65. Then came the “flash-crash’ of 2007-08, the home mortgage fiasco and the Patient Protection and Accountable Care Act [PP-ACA] of 2010; etc.
No wonder that medical provider career panic is palpable. Much like the new medical home concept, the idea of holistic life planning was born.
Life Planning
Life planning has many detractors and defenders. Formally, life planning has been defined in the following way.
Financial Life Planning is an approach to financial planning that places the history, transitions, goals, and principles of the client at the center of the planning process. For the client, their life becomes the axis around which financial planning develops and evolves.
But, for physicians, life planning’s quasi-professional and informal approach to the largely isolated disciplines of medically focused financial planning, was still largely inadequate.
Why?
Today’s personal financial and practice environment is incredibly more complex than it was in 2007-08, as economic stress from HMOs, Wall Street, liability fears, criminal scrutiny from government agencies, IT mischief from hackers, economic benchmarking from hospitals and the lost confidence of patients all converged to inspire a robust new financial planning 2.0 approach for medical professionals.
Example of a financial planning mistake
Recall the tale of Dr. Debasis Kanjilal, a pediatrician from New York who put more than $500,000 into the dot.com company, InfoSpace, upon the advice of Merrill Lynch’s star but non fiduciary analyst Henry Bloget.
Is it any wonder that when the company crashed, the analyst was sued, and Merrill settled out of court? Other analysts, such as Mary Meeker of Morgan Stanley, Dean Witter and Jack Grubman from Salomon Smith Barney, were involved in similar fiascos.
Although sad, this story is a matter of public record. Hopefully, doctors now understand that the big brokerage houses that underwrite and recommend stocks may have credibility problems, and that physicians got burned with the adrenalin rush of “self-directed” investment portfolios.
Example of a medical practice management mistake
Just reflect a moment on colleagues willing to securitize their medical practices a few years ago, and cash out to Wall Street for perceived riches that were not rightly deserved
Where are firms such as MedPartners, Phycor, FPA and Coastal now? A recent survey of the Cain Brothers Physician Practice Management Corporation Index of publicly traded PPMCs revealed a market capital loss of more than 95%, since inception.
Another Approach?
This disruptive narrative shift was formally noted by the Institute of Medical Business Advisors Inc [iMBA, Inc] and introduced to the medical and financial services industry. This research and corpus of work resulted in hundreds of publications in the Library of Medicine, National Institute of Health (NIH) and the Library of Congress, along with related publications, a dozen textbooks and white papers
The iMBA approach to financial planning, as championed by the www.CertifiedMedicalPlanner.org professional charter designation, integrates the traditional concepts of fiduciary focused financial planning, with the increasing complex business concepts of medical practice management.
And, for the perplexed, all definitions are codified in the dictionary glossary Health Dictionary Series
Health 2.0 Paradigm Shift
And so, the ME-P community now realizes that a more integrated approach is needed. The traditional vision of medical practice management, personal physician financial planning and how they may look in the future are rapidly changing as the retail mentality of medicine is replaced with a wholesale philosophy.
Or, how views on maximizing current practice income might be more profitably sacrificed for the potential of greater wealth upon eventual practice sale and disposition.
Or, how Yale University economist Robert J Shiller warns in “The New Financial Order” [Risk in the 21st Century] that the risk for choosing the wrong healthcare profession or specialty might render physicians obsolete by technological changes, managed care systems or fiscally unsound demographics.
My Assessment
Yet, the opportunity to re-vise the future at any age through personal re-engineering, exists for all of us, and allows a joint exploration of the medicine, business and the meaning and purpose of life.
To allow this deeper and more realistic approach, the advisor and the doctor must build relationships based on fiduciary trust, greater self-knowledge and true medical business and financial enhancement acumen.
Are you up to the task?
Conclusion
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Most financial advisors and attorneys who specialize in asset protection trusts have probably never visited South Dakota. Yet it’s one of their favorite places. A change made by the legislature this year has made them like it even more.
The reason asset protection experts are so fond of our state is that South Dakota is one of a few states (Nevada, Delaware, and Alaska are the others) to offer some of the strongest protections available for Domestic Asset Protection Trusts (About Domestic Asset Protection Trusts).
House Bill 1056
House Bill 1056, passed by the legislature and signed into law by Governor Dennis Daugaard, includes a small change in wording that makes DAPTs even stronger. The relevant section amends South Dakota Codified Law 55-16-15 by adding the five words shown here in all caps:
“Notwithstanding the provisions of §§ 55-16-9 to 55-16-14, inclusive, this chapter does not apply in any respect to any person to whom AT THE TIME OF TRANSFER the transferor is indebted on account of an agreement or order of court for the payment of support or alimony in favor of the transferor’s spouse, former spouse, or children, or for a division or distribution of property in favor of the transferor’s spouse or former spouse, to the extent of the debt.”
This change is not intended to allow divorcing spouses to hide assets from one another, cheat ex-spouses out of alimony, or avoid paying child support. Someone who owes alimony or child support to a former spouse cannot get out of that obligation by contributing assets to a DAPT. Any amounts owed at the time the trust is established must be paid. Attempting to avoid legitimate obligations through a DAPT would be fraud.
On Definitions and Meanings
What the new wording means is that, once a divorce settlement has been agreed upon, former spouses cannot come back later and make new claims against an ex-wife or ex-husband’s protected assets.
For many people, this change is irrelevant. Many divorcing couples, probably the majority, don’t have many financial assets and have never heard of a DAPT. They work out a financial settlement, go their separate ways, and that’s that.
Yet there are cases where this new law could make a huge difference.
Here are just two examples:
Suppose that at the time a couple divorce, the husband had just started a construction company. It had more debt than assets and wasn’t making any money yet. Several years later, business is booming and he is well on his way to becoming wealthy. Even though his ex-wife was not involved in building the company, she might try to benefit from his post-divorce success by suing for a share of his assets. He could protect those assets by contributing them to a DAPT.
Or suppose a divorce settlement required the wife to pay her husband a one-time cash amount in exchange for his share of their house and acreage. Several years after the divorce, he isn’t doing so well financially. She’s still living in the house, however, and the value of the property has increased significantly. He might sue to amend the original agreement in an effort to claim part of the real estate. His attempt to change the agreement after the fact couldn’t touch that property if she had contributed it to a DAPT.
Assessment
Until now, Nevada was the only state whose DAPT laws did not make an exception for former spouses. This change in the South Dakota law makes the two states very comparable in their DAPT provisions. It’s one more reason for asset protection professionals to find South Dakota a great place to do business.
Conclusion
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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
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