You’ve been devoted to establishing your medical practice, providing for your family and saving for a comfortable retirement. As busy professionals, doctors may overlook the potential impact on their family and practice if they were to become critically ill, incapacitated or pass away unexpectedly. That’s why it’s important for physicians to prioritize estate planning within their wealth management planning.
An estate plan can provide the peace of mind that comes from knowing your family and financial affairs will be properly managed according to your instructions. Unfortunately, there is no one-size-fits-all estate plan. An effective estate plan is tailored to your specific circumstances and, as a physician, addresses considerations that are inherent to your profession.
Probate planning and the ownership structure of assets
Depending on your province of residence, probate taxes or fees may be significant, particularly in British Columbia. It is important to note, even in this ‘high’ probate province, the amount payable is less than 2% of the value of the estate that is subject to probate. Proper planning is important. Elaborate schemes to avoid probate taxes can create much larger income tax issues or other problems down the road. For example, although holding your family home jointly with your spouse or common-law partner (“spouse”) may save on probate fees if you were to die first, your home could be subject to seizure by creditors if there was a successful claim against you in excess of your medical liability insurance limits. Accordingly, many married business owners, including medical professionals, choose to register most, if not all, personal assets in the name of their spouse for liability purposes, at the risk of higher probate fees.
Importance of choice of attorney and executor
Whether you are operating your medical practice as a sole proprietor, or through a partnership or corporation, the administration of your affairs is likely complex. If you suddenly become incapacitated or pass away, your spouse and/or children may be required to attend to your personal and professional affairs. However, depending on the nature of your practice, you could put certain agreements in place to deal with these potential situations. Many partnership and shareholders agreements contain clauses that indicate what happens if one of the partners or shareholders becomes incapable or passes away. For example, your partnership agreement may impose obligations on the surviving partners to buy out your partnership interest, with the proceeds passing to your estate and distributed in accordance with your estate plan. Often times this is funded by life insurance to ensure that liquidity is not an issue. Your overall estate plan needs to be consistent with any such agreements.