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D.I.Y. Asset Protection Strategies Every Physician and Business Owner Can Implement

February 6, 2012 By Leave a Comment

Many of the issues and case studies we have discussed on physician asset protection planning in the age of decreased earnings and unlimited liability may seem daunting and complex. Fortunately, not all the moves you can make require a great deal of time and expertise to address. Here are some small simple issues that every physician can act on by themselves today with little or no cost as a first step to being free from fear.

Do something today.
The number one most important rule of asset protection is that timing is king. Think of it like insurance, which is effective only when implemented in advance of the exposure.

Buy more insurance.
We talked about why insurance alone is not adequate protection in the past, but it is and always should be your first line of defense. Have both personal and professional policies at maximum reasonably affordable limits and then have general liability umbrellas on both. The cost of both umbrellas is typically less than the cost of retaining defense counsel on even a single small exposure.

Maximize your “incidental” asset protection.
Every state has limits on the baseline assets it protects for your family by law, often found in your state’s bankruptcy statues. Make sure you maximize the assets you have in each of these protected categories where practical. These protections are based in the law of your state and are typically supported by a great deal of precedent and case law.

Common protected assets include:

Life Insurance: Understand your state’s protection for the cash value of life insurance. It’s something you likely have, need or want, regardless of whether you enjoy paying for it or not. Given the high allocation to cash most physicians have right now because of instability in the stock and real estate markets this is an increasingly important issue. Make sure that your polices are owned and have named beneficiaries that are protected by statute. For instance, Arizona protects life insurance cash values to full cash value, but only if owned by an individual and when the owner’s dependents are beneficiaries. This small detail dictates whether the money is safe or not.

Homestead: Every state has a “homestead” provision of some type that dictates how much of your equity is protected from creditors including bankruptcy, an increasing concern for physicians. Make sure you know your state’s limits and how much of your home’s equity is exposed or how much “room” you have to bank money up in your home. Be aware of how you hold title and the specific requirements most states impose to get this legal protection. Doing it wrong could cost you your home.

Fund Retirement Plans: Plans with heavy protection include IRAs in their many forms, ERISA-qualified plans, and defined contribution and defined benefit plans. Analyze what portion of your investment assets are long term and allocate as much as possible to those plans. While the laws and their application regarding the safety of these assets vary from state to state most are protected to about $1 million. Ask your financial advisor to explain the limits of these plans in your state. I like them because, again it’s the law and the protection is well established and typically vests quickly. As just one example, IRA contributions in some states are bankruptcy remote after as little as 120 days but remember the timing issue; you can’t establish and heavily fund these plans at the eleventh hour after getting in trouble as defensive planning. That’s known as a fraudulent conveyance or transfer and is the one exception to these laws in most jurisdictions.

Watch Your Annuities: Many doctors purchased annuities due to high guaranteed returns over the last decade. In many states the cash value of the annuities and even the proceeds may be protected. Many of those high return annuities are maturing in a much lower return environment and physicians are looking for places to put money that was earning as much as a guaranteed 7 perent and re-allocating those funds away from annuities which now have much lower returns. Make sure you exhaust your examination of the other available legally protected alternatives (including rollovers) before allocating protected assets to something that may have higher returns but which will also be exposed to a lawsuit. Make your financial advisor do the work; it is part of what they are paid for.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: Asset Protection, business legal planning, business survival, chiropractors, dentists, doctor sued, Doctors, financial literacy, lawsuit awards, liability, medical practice mangement, physicians Tagged With: , , , , , , ,

Tax Planing Schemes Every Physician (and Business Owner) Should Avoid

February 6, 2012 By Leave a Comment

The next 60 days marks the final push to sell physicians and private business owners across the United States tax plans of both good and questionable value. Promoters of various plans are well aware of the pressures affecting your income and will make a variety of frivolous arguments that appeal to your desire to save. As always a great CPA is your first line of defense against both tax exposure itself and the risk of committing tax fraud through an overreaching plan, but there are a number of common markers that are easy to spot. 

The IRS creates an annual list of the “Dirty Dozen” tax schemes; here’s a breakdown of the top ones that affect or target doctors and business owners.

 

Remember that the higher your income, the more likely you are to face an audit and substantial civil and criminal penalties that I guarantee will exceed any short-term savings gleaned from any bad planning. This simply means that you and your team must be committed to strictly adhering to the tax code, full and accurate reporting, and being realistic about how you pay yourself and the amount of income you declare. In most cases, it is not “commercially reasonable” to pay yourself less than six figures when the average salary for specialists like you in your state is much higher but we see doctors and CPAs abuse this discretion on a regular basis.

Hiding income offshore
I use offshore tools for a variety of my clients business and asset protection purposes regularly; tax planning is not one of them.

Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts, or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities, or insurance plans. (via the IRS)

You have a well-defined legal right to have an offshore account and in our global economy even manage certain business and investment activities offshore but that income is taxable and even the mere existence of an account has a reporting requirement. Simple rule, full disclosure, and compliance mean never having to say, “I’m sorry.”

Frivolous arguments
These schemes are increasingly sophisticated in their arguments and packaging and often even include either false or off-point private letter rulings on the legality of a specific plan or letters of opinion from a “top tax law firm.” The IRS has a very specific guide to understanding those arguments.

Abusive retirement plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited, a common exposure in self-directed IRAs without professional guidance.

Disguised corporate ownership
Corporations and other legal entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number. Such entities can also be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.

While the actual list is much longer, some of the issues like identity theft exposure are applicable to the public at large. Others, including filing false or incomplete W-2s, claiming excessive fuel tax credits, and over-reporting withholding to reduce income are simply intentional tax fraud that we will assume you are not ever going to consider. Make sure you understand the nature of the methods used on your return, you are responsible for what’s on it regardless of who prepared it, and keep tight records on deductions for travel and dining.

Finally, carefully discuss the value of claiming excessive business usage for vehicles and a home office deduction with your CPA; they are common over-reaching red flags and typically of limited value.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: abusive tax schemes, business survival, closely held business, cpa, dentists, Doctors, financial literacy, foreign bank accounts, Ike Devji, medical practice mangement, tax deductions, taxation, taxes Tagged With: , , , , , , ,

Business Structure Provides Protection From Investor Lawsuits – Asset Protection

January 27, 2012 By Leave a Comment

A brownie supplier to Ben & Jerry’s ice cream, a skateboard maker and a payday lender are among the hundreds of existing businesses that plan to incorporate as “benefit corporations” in coming months.

They will be taking advantage of a new and untested corporate charter, available in only a half dozen states, allowing a company’s governing board to consider social or environment objectives ahead of profits. The legal structure is intended to shield the board from investor lawsuits.

See the whole story in the Wall Street Journal here: http://online.wsj.com/article/SB10001424052970203735304577168591470161630.html

Filed Under: business legal planning, CEO, closely held business, Ike Devji, liability, startup, Uncategorized Tagged With: , , , , , , , ,

Real Estate Liabilities and Physicians’ Financial Solvency

January 26, 2012 By Leave a Comment

As an asset protection attorney, my primary responsibility has always been helping clients identify and proactively plan against as many litigation-related exposures as possible. That planning now includes a more complete evaluation of financial and economic risks than ever before. Below is one common example that illustrates the challenges many are facing and the importance of proactively addressing and eliminating these threats.

We are seeing more and more physicians’ financial solvency threatened by the level of personal real estate related debt they are holding. Many are overleveraged into their homes and have payments that are now difficult or impossible to sustain due to combinations of financing challenges and income reductions. Many of those in this predicament purchased homes four to six years ago on interest-only loans that now cannot be easily refinanced due to unprecedented declines in the values of their homes.

 

We discussed the issue of strategic mortgage default in a previous blog post, but for those who do not qualify or who would face substantial personal liability on the loan under their state’s law, the key is to act fast and minimize your exposure by getting out of the house on a short sale or by buying down the loan enough to get the financing required. Due to the great deal of time involved in the average short sale and the issues involved in refinancing, it’s important to be aware of your cash flow and solvency requirements and be a minimum of 120 days ahead of your “crisis” moment, ideally much longer. Remember, just because you decide you are ready to try a short sale does not mean your lender will agree.

One physician client recently walked through her options with me. She wanted to refinance a short-term, interest-only mortgage but needed to make an additional capital contribution of about $100,000 to get the financing she needed. This was unthinkable to the client based on the decrease in value the home had undergone, but turned out to be a good option; here’s why.

She had personal liability exposure under their state’s law of $800,000 if she defaulted. As the family had no current protective planning in place and a clear liability under their state’s law, they would have been both homeless and looking at a solid $800,000 liability plus the costs of legal fees and interest (and the loss of the large down payment and the improvements they had made to the home over the last four years) if they defaulted. Bankruptcy would have cost them nearly an equal amount due to the value of the non-exempt assets they held.

By buying the mortgage down and obtaining manageable financing she and her husband were able to keep the house the family loved, pay the mortgage, and even get a rate several points below what they were currently paying. They were also able to transfer exposed assets (cash) into protected status by moving or converting it into home equity protected by her state’s homestead limits, important given their delicate financial position and a hedge against a future bankruptcy if ever required. Ideal? No, but certainly the lesser of a number of evils for this family.

The same kind of risk-reward analysis easily applies to commercial real estate exposure. Another physician was in a position where the $500,000 loan on their medical building was no longer sustainable. His income had dropped from nearly $500,000 in a peak year to about $150,000. After examining the personal guarantees and potential exposures, selling at $50,000 below what he owed became the clear best option. It reduced his exposure on a personal guarantee by 90+ percent, freed up cash desperately needed in the practice and at home, created a manageable $50,000 short fall he was able to negotiate payments on, and freed him to rent a more affordable space and stay in business.

Again, early treatment and diagnosis are the most vital keys to surviving and minimizing your loss and exposures. Part of the crisis faced by many we have talked to is that they simply waited too long to act. They were used to being successful and having high incomes and had not adequately adjusted their spending and budgets to a sustainable level in time, burning through cash reserves and even savings and protected retirement assets before they acted and when the timing left them the fewest options.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: arizona forclosure, arizona real esate, Asset Protection, Bankruptcy, chiropractors, dentists, Doctors, physicians, real estate investing, recession survival, Strategic Default Tagged With: , , , , , , , , , , , , ,

Doctors Going Broke in the News (and Those Who Aren’t )

January 13, 2012 By Leave a Comment

There has been a great deal of discussion about the current financial state of American doctors in the news and in many online forums frequented by physicians. All problems identified in the article and the subsequent discussions it has spawned are related directly to the general poor state of the economy.

Primarily, decreases in compensation; changes in drug reimbursement policy and regulations and unrealized earnings or “leakage” of as much as 15 percent are cited as key factors for the seemingly all time high number of doctors in tough financial straits. While my experience with doctors across the country leads me to agree with these issues we have seen remarkably different outcomes based on how these financial ailments have been treated. This is the treatment plan the most successful follow:

Get a Diagnosis – What You Don’t Know Will Hurt You
Just being a good doctor is no longer enough. You must understand key issues like expenses, cash flow, and projected earnings and the options available to manage them. If you need help, consider investing in relationships with advisors like a top CPA or practice management consultant that has experience in these areas. The deadliest outcome is being surprised.

Take Decisive Action
Act on that information immediately, before a crisis occurs that requires drastic measures. Waiting to reduce expenses or increase collections can be disastrous. It is better to err on the side of caution.

Go On a Diet
If it doesn’t make you more money or create a significant long-term savings at least temporarily hold or reconsider any significant purchase or capital outlay.

Cash Is King in Lean Times
Building reserves that will sustain your expenses in the event of further income changes is key. If your cash flow was suddenly stopped or significantly decreased tomorrow, how long would you be able to meet your current business and personal overhead? What would you cut or change first, both personally and in your practice, to reduce overhead so it could be reallocated and what are your essential overhead items? Be sure you know your “survival number” and plan to be able to sustain it.

Implement Risk Management Strategies
This is a bad time to self-insure against, take, or continue risks that can be transferred away. Make sure you understand the coverage limits of your personal and professional liability insurance, implement asset protection strategies that will protect the assets you currently have and address any loose ends that could cause an uncovered expense.

Keep More
When earnings are restricted by market conditions it’s more important than ever to keep more of every dollar you earn. Identify areas of loss or leakage in your practice due to billing, coding collections, and expenses and act on them. Examine your accounting and tax planning and ask your advisors to identify any opportunities you are not taking advantage of.

Innovate and Market Aggressively
All consumers, including those of even essential medical services, are feeling the pinch and spending accordingly. Give them a reason to work with you now and to help channel others to your practice where possible. This means better service, more touch, and more reminders that you and your staff are there to provide them the best service, value, and care. Carefully examine the balance of high and low profit services your practice provides and look at new revenue opportunities and potential practice areas. Those who refuse to change their failing business model are surrendering in advance.

This plan is deceptively simple; get the right help and educational resources for your family. While the economic crisis is not over it can be managed and survived. Be willing to take action and responsibility as the CEO of your medical business including delegating the management of these issues to experts.

 

This article was originally written for and published by www.PhysiciansPractice.Com, The Nation’s Leading Practice Mgmt. Resource, where Mr. Devji is also a regular contributor.

Filed Under: business survival, dentists, Doctors, economy, Leadership & Management, medical practice mangement, recession survival Tagged With: , , , , , , , ,

Computer Disposal at Your Business or Medical Practice: The Other Hazardous Material – Asset Protection

January 9, 2012 By Leave a Comment

We start 2012 by addressing something you may have already done — replaced or updated computers and other electronic equipment in your practices – and the liability it creates.

Like many other businesses, medical practices often replace or order new computer and electronic equipment at year end to generate additional expenses and deductions and to maximize efficiency going into the new year. You doubtless put a lot of thought and research into what you bought, or at least picked an expert to make those choices for you but how you dispose of the old equipment is just as vital a choice for your practice.

 

Unless you are part of a hospital or very large practice with dedicated IT officers you likely now need to safely and securely dispose of a variety of computers and related electronic devices including:
• Networked printers, faxes, scanners, etc.
• Computer servers and arrays
• Devices that combines hardware and software for a specific function, medical or administrative
• Networking equipment
• Electronic data storage devices and backups
• Desktop and laptop computers and smartphones that have been used to access or relay protected data

You’ve likely noticed that “computers” themselves were listed last, primarily because they pose the most obvious threat to the sensitive and legally onerous financial and HIPAA-protected information that virtually every medical office in the United States stores and is legally responsible for. However, the admittedly partial list of other devices that can store and transfer this data shows how much wider the exposure is and why all practices must deal with this exposure of patient data in a systematic way. As an example of just how serious the exposure can be, a simple printer can have tens of thousands of patient social security numbers and intake forms stored in its memory.

You may be asking, “Can’t we just give them or throw them away?”

No, not in most cases. You can certainly donate (and in some cases take a tax deduction for) certain peripherals after determining if they pose a storage risk or not, (things like mice, keyboards, and monitors are the most basic examples), but the computers themselves and most other devices that transfer, copy, or store data present a serious exposure to your business. Whether your computers are going to be destroyed, donated, or recycled, it’s vital that all data on the computer is wiped out as a minimal first step.

Downloadable software programs or those available at most office stores can be a first step and may already be present in your operating system or anti-virus programs. Remember that data on personal computers is not actually “erased” unless the hard drive itself is destroyed. In many cases a professional ID thief (or an average 12-year-old) will be able to retrieve the info from a wiped computer.

Here’s a simple five step outline to get you started. These steps will help mitigate your practice’s legal and financial exposures for the data, potentially facilitate the use of the equipment by a worthy charity or individual and help your practice be more green.

1. Take action now. It’s too easy to put the old equipment into a storage area that no one pays attention to or takes inventory on until something goes missing.

2. Have a plan and make someone specific responsible. Create a written chain of custody and educate the person in charge about the risks and gravity of the task at hand.

3. Keep records of how many devices you have and are destroying or donating (make a copy for the CPA including depreciated value and replacement cost) and where they went or how they were disposed of.

4. Disconnect old machines, sign all users out of them and disconnect them from your network where they are often not maintained or updated and where they may actually create a security risk.

5. Keep the equipment secured until it’s ready to be recycled or destroyed. Keep records of where it goes.

Happy New Year! Thank you for your continued readership, feedback and support.

ADDITIONAL READING:

Smartphones Partly to Blame for HIPAA Compliance Issues

http://www.mdnews.com/news/2012_01/smartphones-to-blame-for-hipaa

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: Asset Protection, business legal planning, chiropractors, dentists, doctor sued, Doctors, Ike Devji, liability, liability insurance, medical practice mangement Tagged With: , , , , , , , , , , ,

Teen who takes stolen drugs at party sues pharmacy, parents of party host and others, WINS $4.1MM

January 9, 2012 By 1 Comment

Teen who takes stolen drugs at party sues pharmacy, parents of party host and others, wins $4.1MM http://www.nj.com/news/index.ssf/2011/12/saddle_river_man_to_receive_41.html

The article  link above shows the scope and zeal of lawsuits that seek to assign blame in their quest for a deep pocket. In this case, a former employee of a pharmacy steals drugs (Xanax) and takes them to a party. At that party the Plaintiff in this case (Simon) willingly ingests the drugs that were stolen by a former employee of the pharmacy.

 The result? See the excerpt below:

Simon sued the pharmacy for not taking proper precautions to avoid the theft of drugs. He also sued several guests, the party’s host and the host’s parents, who were away for the weekend.

All of them will contribute toward the settlement except the host’s father, who wasn’t living at the home at the time.

Silvana Raso, another attorney representing Simon, said her client shares responsibility for taking the drugs. But she said the case should serve as a cautionary tale for parents whose children host parties at their homes.

Exposures can come from anywhere, inclduing your home, children and employees. No single insurance policy can provide complete Asset Protection against the entire world. See our previous articles on:

Parental liability for the action of children: http://www.proassetprotection.com/2011/09/asset-protection-are-your-children-a-lawsuit-exposure-2/ 

Homeowner’s Liability: http://www.proassetprotection.com/2011/09/man-found-dead-in-nfl-players-pool/

And the limits of insurance: http://www.proassetprotection.com/2009/08/liability-insurance-and-why-the-wealthy-are-under-insured/

Filed Under: Asset Protection, business legal planning, children, family liability, financial literacy, homeowner's liability, Ike Devji, kids, lawsuit awards, liability, liability insurance, parenting, property insurance Tagged With: , , , , , , , , , , ,

Beyond Pie Charts: Three Vital Year-End Financial Planning Questions for Doctors

December 29, 2011 By 1 Comment

The complexity of the current business environment and economy can easily feel overwhelming to many medical professionals. As we’ve discussed in previous articles, asset protection and wealth preservation planning for doctors is not just about litigation and must include a holistic balance of legal, financial, tax, and insurance planning.

My work with some of the best financial advisors in the country has provided me valuable insight into some basic issues that those who are surviving and even prospering in the current environment have examined. These simple questions, whether examined on your own or with your financial advisor, provide good insight into some issues beyond just asset-allocation choices.

1. What portions of your investments are protected by law and what portion is exposed?

You are likely aware that certain portions of your portfolio are protected by law as is generally held to be true in the case of “qualified” investments like 401K and IRA plans.

Given your current income and investment performance it’s important to understand exactly what you have at risk and if small changes in allocation, balanced with your liquidity needs, may provide an opportunity for some extra security. Include the value of your home equity that is protected in your state (commonly referred to as “homestead”) in this calculation if that value is part of your projected investment goal. We see that many physicians with luxury homes assume that the equity value of a luxury home will be there to draw on in the future but fail to take steps to protect it.

Many investment portfolios include an allocation to a high cash value life insurance policy, including through a structured “plan” of some sort that you’ll have access to in the future, typically through policy loans. Make sure you know your state’s creditor protection rules and limits on the cash value of life insurance policies.
If that number is adequate, determine whether or not your policy’s owners and beneficiaries meet the letter of what the law requires to provide that protection. There are states that provide unlimited protection on these assets if structured properly and others that provide virtually none.

2. Has your portfolio been crash tested or remodeled?

Many of the medical professionals we work with experienced huge losses on their securities portfolios. Some have partially recovered from those losses after a long and stressful ride that still fluctuates on a daily basis. What’s surprising is that many of them who have moved closer back to being even, which means they only lost years of growth, have not had their portfolios restructured against the same kind of exposure happening again. If you are in this category it’s time to see what other options are out there and perhaps examine the investments that did not lose up to five years of growth. It’s simple math, a 50 percent loss means you have to double your money to be even; how long did it take you to double your money last time?

3. Are you allocating enough to your retirement planning to cover your extended life?

We are living longer thanks to advances in the care you yourself may provide. Unfortunately many of us are still working with the old math in a number of other areas. The old model of retiring at 65 and needing only 20 years of income is outdated. Top advisors are looking long term, looking at requiring 30 years plus of retirement income in an environment of reduced or non-existent social security income and reduced Medicare and Medicaid benefits. Projected increases in the cost of healthcare are almost universally under-planned for, and as we discussed last week we are seeing an increasing exposure for the expenses of children and even your own parents, whose planning may not have adequately accounted for the economy, loses in net worth through investments, and home equity reduction and longevity expenses.

These three questions are merely a start, but provide the basis for simple self-examination and questions to ask of your financial planner. As you go into your year-end or new year reviews, look beyond just the annual performance numbers and allocation recommendations into these foundational issues.

My thanks to Jeff Christenson, president of Christenson Wealth Management, for his ongoing guidance on financial issues and patient discussion of these subjects. It’s important to have a team involved in your planning, see this previous article in Physicians Practice for more detail.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: chiropractors, dentists, Doctors, Finance, financial advisors, recession survival Tagged With: , , , , , , , ,

Common Estate Planning Mistakes Made By Physicians

December 29, 2011 By 1 Comment

For most doctors, the second step taken in personal financial and legal planning after setting up retirement accounts is some basic estate planning, typically in the form of a will or a revocable living trust. Below are some of the common issues that negatively affect physicians and their families if not properly addressed. The good news? They are easy to fix with the help of your estate planner and financial advisor.

Not acting. The number one issue we see with physicians’ estate plans that they put it off and tend to issues that they feel are more time-sensitive like taxes, earnings, and investments. Estate planning is there to address unexpected events, events you can’t typically predict or plan for, so “just in time” solutions don’t exist for most people. This lack of predictability means today is always the right time and tomorrow is often too late.

Old documents. We often see physicians with sophisticated legal and tax planning relying on old documents that don’t accurately account for their present success, assets, family structure, etc. The number one omission I see is that the estate plan has not been updated after the birth of a child. A related issue is not creating special needs provisions that may be required for the ongoing care of a particular child or not differentiating between children and their natural skills and differing levels of financial acumen. They don’t all need to get their inheritance the same way, at the same time or under the same controls. Don’t plan for just the highest or lowest common dominator and personalize the instruction left for each child.

Anther common issues with “old” documents includes selection of trustees and guardians. Many young professionals name their own living parents as trustees and guardians for their children but have never updated to account for the death or advanced age of a parent or their mental capacity to act as the administrator of your estate or to raise your young child. Make sure you know who is serving what role and re-appraise those choices periodically.

Keeping it a secret. In some cases this is accidental, where one spouse is primarily responsible for the legal and financial planning and the other handles other family details. We routinely talk to physicians and their spouses where one party knows that these issues have been “taken care of” but don’t have knowledge of where the document is, who drafted it, or who to turn to for legal support in the event of a death. Make sure your spouse knows where the document is, at least what their general rights are, and who to call. Your children and other beneficiaries don’t need to see the fine print in advance and we understand that many parents don’t want children to know what they are inheriting to avoid interfamily conflicts or “trust-fund syndrome” that may make them unproductive in anticipation of a windfall. That being said, they too should at least know that a plan is place and who the trustees are when they are of an appropriate age to understand these basic issues. When is that age? It depends on your child, but we see many people at least tell their children a plan exists when they are of junior high-age.

Not updating beneficiaries of accounts. Think of all the bank, investment, retirement, and savings accounts you have in place. Each one required a beneficiary to be listed when opened. Have those been updated and do you fully understand the tax implications of, for instance, an inherited IRA, either one you leave or one that a parent may leave to you? If not, make your financial advisor earn some of their fee by asking them for a list of all accounts, who the listed beneficiaries are and for an explanation of the tax exposures your heirs face. You may be surprised by the big savings that small changes can produce. Finally, put that list with your estate plan.

Forgetting the digital assets. Many professionals have increased their personal efficiency and reduced paperwork by moving to online-only statements and account management. Make sure that someone knows the passwords and which e-mail account alerts are going to and that they can get into it. If you have information or correspondence in that account you don’t want everyone having access to when you are gone, consider setting up “clean” e-mail accounts for family business use only. 

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. This article originally appeared at www.PhysiciansPractice.Com where Ike Devji is a regular contributor, and is reprinted here with permission.

Filed Under: chiropractors, dentists, Doctors, estate tax, financial literacy, Ike Devji Tagged With: , , , , , ,

Why Failing to Plan for Extended Family’s Finances Creates Liability for YOU

December 2, 2011 By 3 Comments

As an asset protection attorney I’m concerned with everything that threatens my client’s wealth, not just lawsuits. One of the issues we are seeing more often is the exposure that is generated by parents, siblings, and even children that fail to plan for their own financial future adequately. 

Some elderly people assumed they would never outlive their money which is increasingly not the case due to advances in medical technology and health education. In other cases, especially among first generation immigrants, there is a simple lack of education on options and awareness of expenses.

I increasingly ask my successful clients to address these important financial issues with their families as carefully as they do for themselves. This is especially true in current economic conditions, when many retirees have lost a large portion of their net worth and assets due to market fluctuations and loss of home equity they may have been relying on as part of their income.

For those who already know that they will be responsible for supporting their parents and other family members, I provide some specific instructions:

Make everyone get at least a simple estate plan — the cost of you paying for theirs will be less than the costs of probate, litigation, and disputes. For those with possible dependents who have a net worth above $1 million we also examine possible estate tax exposures based on estimated pending decreases in the current estate tax exemption.

Examine Medicare/Medicaid asset protection planning. In many cases your family member who needs extensive Medicare/Medicaid coverage will lose what assets they do have, potentially including their home itself, to the state before their coverage kicks in. You can help them legally avoid that if you are five years ahead of the exposure.

Consider buying some life insurance for others, including your parents, children, and their spouses, at least during critical earning/child-rearing years. If you have a child or in-law that is left alone as a homemaker how long will they be able to support their current lifestyle and personal overhead? Consider the same for your parents and in-laws for whom your family may need to provide.

Think about buying long-term care coverage on older folks who are likely to need care due to an illness or increasingly, simple advanced age. The costs of high quality long-term care can easily be six figures a year and home care for parents in many modern two-income families is not a realistic option. What would the effect on your family be if you or your spouse had to stop working to provide home care? If they never need it you may even be able to get your money back using a “return of premium” rider option.

Review the health care coverage your potential dependents have in place and if it is realistic in what it provides given current healthcare costs. A variety of supplemental plans are available that can help protect them and your savings from unexpected costs. Consider increasing their coverage out of your own pocket as a hedge, it will almost always be cheaper than paying those costs in cash. Many bankruptcies in this country are classified as “medical bankruptcy” based on exposure to costs.

As mentioned, not all costs are incurred by the elderly. Many young people in mid-level jobs and heavily affected business sectors are facing the prospect of moving back in with their parents or relying on them for help with key expenses. These dependents will have the obvious food and shelter requirements, but more importantly those that did have health and life insurance will either no longer be covered or have COBRA insurance payments that are so high they are unmanageable.

If you have children or other family in this position start thinking about this now and at least have the outline of a plan an understanding of the costs. It’s also beneficial to outline your concerns about these specifics for young people who have thought no further than the availability of their old room. A good understanding of the economic effect of these changes on even affluent families can be dramatic and if fully understood may lead to the young person changing their expenses or taking another job that is less than their “dream job” instead of falling back on you and your savings until they can get on more stable ground.

This article originally appeared at www.physicianspractice.com, the nations’ leading practice mgmt. resource. See more of Ike’s work at: http://www.proassetprotection.com/blog/

Additional Reading on This Issue:

When the Budget Calls for a Move Back Homehttp://online.wsj.com/article/SB10001424052970204443404577052111643163408.html

When Cousins Cost Youhttp://online.wsj.com/article/SB10001424052970203710704577054122507578512.html

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