Year-end Financial and Legal Planning Issues for Physicians

At the end of every year, we see a recurring pattern and rush to implement or complete certain types of legal and financial planning by doctors, often during the very last weeks of the year. This is not only stressful for both the physician and his advisors, but also often leads to mistakes due to the “rush” nature of the transactions or to doctors being misled into bad plans that promoters are counting on you wanting “now,” often at the cost of due diligence and the involvement of your other advisors.

Add to this the busy and stressful nature of the holiday season and that fact that your advisors also have families and travel at this time of year just like you do and the problem gets bigger; they are likely not going to be available on short notice or at least not as accessible as they usually are. Every year most advisors are slammed with panicked calls the week of both April 15 and at year's end with doctors looking for information, wanting changes, and asking for appointments, “the week between Christmas and New Year's.” We’ve covered common year-end scams targeting doctors in a previous discussion, this week we focus on a few key issues to start thinking about and talking to your advisors about today.

Max Fund Your Retirement Plans – Know what you can contribute and when and how those contributions need to be made. Think about making those transfers now, there are plenty of other things to worry about in December and often other issues competing for that month’s cash flow.

Kick Up Your Collections Efforts on Past Due Accounts – You’ll have great options for that cash including paying your own expenses at year end including those reasonably billed and payable for the first quarter of 2013, as well funding your plans as mentioned above, bonuses, capital improvements, ordering new equipment, etc. Those who owe you money, consciously or not, are thinking the same way and it is well known fact that the further past due a bill gets the harder it is to collect.

Examine Your Estate Planning – Determine if you need to make changes in trustees, beneficiaries, and distribution plans. Common issues include children legally becoming adults due to their age, marriages, death, divorce, and health conditions. Do you have, for instance a trustee that is now old or ill as part of your estate plan?

Also pay attention to how your assets are titled. Remember that a conflict between what your estate plan says and how the asset is actually titled can create significant loss, delay, and expense for your family, such as wanting an investment account (bank account, home, or even car) distributed to all of your heirs but having it titled in a way that names a single individual beneficiary.

Think About Gifting – The tax laws currently in effect allow you and your spouse to make gifts of $13,000 each to multiple people. Not an exciting number? Consider the wealth transfer available to a married couple with four children; $13,000 x 4 children = $52,000 then multiply that by two (one each for you and your spouse) and we end with a $100,000 gift opportunity. Repeat annually and it becomes a powerful way to transfer both present value assets and those that are long term, like undeveloped real estate, stock in a new company or venture that you expect to grow, etc.

Finally, consider if you have an estate tax exposure that needs to be addressed this year. We’ve covered this in many previous discussions but here is a reminder and simple summary in plain English: You and your spouse each have a $5 million lifetime exemption this year, that’s the amount of property you can pass free of estate tax. That’s admittedly a huge number, and frankly well beyond the asset value of over 99 percent of American families.

Here’s where that changes and becomes more generally applicable; if Congress does not act before the end of the year that amount could drop to as low as $1 million each and a 55 percent tax rate on everything over that amount. When you add up the value of the homes and investments of many older and established physicians (and even a few fortunate young doctors in the right type of practice), the scope of the problem becomes clear. Fixing this exposure requires a well thought-out plan that is implemented by a professional estate planner and or CPA. Don’t try this on your own - you’ll usually only get one shot at doing it right and your money should be working as hard (and smart) for you as you do for it.

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