A well-drafted estate plan is vitally important if you’re a doctor. As a physician, not only do you need to protect your assets, but you also must ensure that your medical practice is protected.
Here are three estate planning myths that every doctor should know and understand.
Myth #1 - I Really Don't Need A Will
If you fail to create a will (also called dying "intestate") or if a family member or friend decides to contest your will, your estate will enter probate court. This means that a court will make decisions about how your assets are distributed, and the court will name an executor (also known as a "personal representative").
Court fees will likely be taken out of your estate when all is said and done. Your family will have to deal with this long process and conflict can run high.
As you can see, the "I Really Don't Need A Will" myth is a dangerous one!
Myth #2 - A Will Is Always Good Enough
Unfortunately, a will on its own usually isn't enough for your estate to avoid the probate process. The probate process also makes your will a public record under South Dakota law.
Myth #3 - A Trust Is Confusing And Should Be Avoided
Setting up your estate plan properly will help your estate avoid probate. Consider setting up a living trust, even if you have already created a detailed will. A trust further protects your estate from entering probate because trusts are harder to contest. Anyone wanting to contest a trust would generally have to show that either a) you were incapacitated when you set forth your wishes or that b) the documents are inconsistent or flawed in some way.
Living trusts are managed by an appointed trustee and, for doctors, this should be a trustee that can also manage your medical practice temporarily upon your death until it’s sold.
Broadly speaking, there are two types of living trusts:
- Revocable Trusts. A revocable trust is one that you can continue to alter or revoke while you’re still alive. Upon your death, the trust becomes irrevocable, meaning your beneficiaries cannot make any changes to your wishes.
- Irrevocable Trusts. If you establish an irrevocable trust, you will give up control of your assets while you’re alive by setting a plan in stone. You essentially give up your rights of ownership to the trustee.
While there are benefits of each trust, there are a few important downsides as well. For instance, if you place your assets in a revocable trust, creditors could still go after those assets if you were to be sued for malpractice.
With an irrevocable trust, perhaps more importantly, because you don’t own the rights to the funds in irrevocable trusts anymore (as they’re managed by a trustee), creditors can’t go after those assets in a lawsuit.
For more information about estate planning for doctors - read our second edition of Prairie Planning magazine which focuses exclusively on estate planning for doctors and health care professionals.