Everyone has an estate, regardless of their profession or career stage. For doctors and other healthcare professionals, this includes:
- New to practice.
- Seasoned professionals.
Let's take a closer look at what you as a physician need to know about estate planning and why it all matters.
What is estate planning?
Estate planning is the process of creating written instructions for both end-of-life care and the transfer of your assets and liabilities following death.
This includes everything you own, such as your:
- Real estate.
- Retirement accounts.
- Other assets, including business and life insurance policies.
As well as all that you owe, such as your:
- Credit card balances.
- Student loans.
- Any other liabilities.
Naturally, each estate varies by size and complexity.
Why people avoid estate planning
Many people associate estate planning with the one percent. Those who own complex estates, and are nearing retirement age. However, everyone needs to a plan to distribute their assets upon death.
This misconception is just one reason why many people put it off. Some simply don’t want to deal with the process. Others feel like it doesn't apply to them. Maybe they don’t know where to start or who to ask for help. Because of this, some never get around to communicating their wishes before they pass away.
One high-profile example is music legend Prince, who died in April 2016. Prince passed away unexpectedly. He did not have any plan in place to disburse his multi-million estate, including a vast music library. The judge overseeing his estate called it a state of “personal and corporate mayhem.”
Of course, most will never experience the wealth of a celebrity. But that doesn't mean you should procrastinate from planning your estate. And once you do, it's crucial to review and revise your plan as your life and circumstances change. This is not a static plan.
While it’s not an easy process, estate planning is important for the following four reasons.
1. It communicates your care wishes
As a physician, you may have witnessed family disputes regarding the treatment of a person suffering from terminal illness or injury.
Although most of estate planning deals with assets, a key component is a list of instructions for your care if you become disabled before passing away.
Your estate plan should also name who will make health and financial decisions on your behalf if you become incapacitated.
2. It explains how to transfer your assets
A proper estate plan provides detailed instructions on what assets you will transfer to which beneficiaries. It also determines when they will receive their inheritance.
If you’re married at the time of death, your assets will automatically transfer to your spouse in most cases. However, in some states, it may also be split between your spouse and children. If you have minor children, the court can dictate the terms of their inheritance.
An estate plan should prevent your assets from being distributed against your wishes. In order to do so though, you need to consult an attorney. That way you will know it contains all the proper documentation.
3. It protects your loved ones
If you have minor children, it’s critical to have a plan that communicates your wishes for their care in the event that both parents pass away. Otherwise, a judge will appoint a guardian.
An estate plan is also helpful in cases where one or more of your beneficiaries could be susceptible to bad decisions or influences. This works by either placing assets:
- In a trust.
- In the care of a responsible party who will respect your wishes.
If you have a child or other family member with special needs, your estate plan should provide for their care when you’re not there.
A proper estate plan should also minimize the taxes, legal fees and court costs of estate transfer. These expenses are usually deducted from the value of the estate. That means less inheritance for those you intend to pass your wealth to.
4. It keeps the courts out of your estate
What happens if you pass away without preparing a plan? It depends on the probate laws of your state of residence. Probate refers to the legal process of transferring property upon a person’s death.
Without a proper estate plan, the courts will likely determine who gets your assets instead of your family. This process can take months, sometimes years. Unfortunately, these proceedings tend to divide families as they fight over who has the right to certain parts of the decedent’s estate.
A common misconception is that having a will is enough to avoid probate; often times it is not. There are other components of a comprehensive estate plan, such as trusts. In sum, they work together to ensure that your wishes, not a court's judgement, are carried out.
Planning your estate is full of difficult conversations you simply cannot afford to avoid. A strong estate plan should:
- Communicate your care wishes.
- Explains how to transfer your assets.
- Protects your loved ones.
- Keeps the courts out of your estate.
Although your estate may never reach the status of the late, great Prince, you can certainly plan yours better than his.