Statistically, seventy percent (70%) of all dentists will die without a Will, and that number could be higher for dentists who fail to implement tax saving strategies during their lifetime. A failure to plan could directly affect the amount of estate taxes your estate may be required to pay to the IRS, and the amount of taxes you may be required to personally pay on a yearly basis. In some cases, estate taxes may be substantial.
Outlined below is essential estate planning and tax information you need to know today, so you can plan for tomorrow.
- Make a Will. You should state precisely who will receive your property at the time of your death [i.e. spouse, children, etc.]. If you have minor children you should appoint a guardian for your children. By preparing a Will, you not only plan for the distribution of your property, but you also plan for your children’s future.
- Consider a trust. There are two kinds of trusts, an Irrevocable Trust and a Living Trust. An Irrevocable Trust may be used for a variety of reasons, such as to avoid potential estate taxes, as well as asset protection. If you have a life insurance policy, one of the easiest ways to avoid estate taxes on your life insurance proceeds is to establish an Irrevocable Life Insurance Trust [ILET]. A properly prepared life insurance trust may protect your life insurance proceeds from estate taxes. A living trust is used to control your property while you are living, and also to avoid probate.
- Make health care directives. By creating a healthcare directive, you will be able to set forth in writing your healthcare wishes and intentions. Unless you outline in writing your healthcare wishes and intentions [life support, coma, vegetative state], someone other than a loved one may be forced to make life and death decisions for you.
- Make financial power of attorney. A general power of attorney will allow you to appoint a trusted person to handle your finances if you are unable to do so yourself. If you become incapacitated or disabled, who has the authority to handle the day to day operations of your dental practice?
- Protect your children’s property. If you have minor children, you should appoint a trustee in your Will [or Trust] to handle the disposition of your children’s property in the event of your death. If you fail to plan, your children may receive a substantial amount of property [land, dental practice, etc.] when they turn 18 years old. How long would $500,000.00 last in the hands of an 18 or 20 year old? Your Will [or Trust] should state what age(s) you wish your children to receive their property (21, 25, 30, etc.)
- File beneficiary forms. If you have a bank account or investment account, you may be able to designate a beneficiary for those accounts. Many bank and investment accounts are “pay on death accounts”, which will allow the funds in such accounts to be paid directly to your designated beneficiary. In most cases, “pay on death accounts” are excluded from the probate process.
- Consider life insurance. If you have substantial assets (home, investments, dental practice), you must have life insurance. However, in order to avoid estate taxes (which may be as high as 51% of your estate), you should consider establishing an Irrevocable Life Insurance Trust.
- Understand estate taxes. If you have accumulated any type of assets whatsoever [house, bank account, investments, life insurance and especially a dental practice], you must take the necessary steps in order to reduce your estate taxes. You have worked hard all of your life, and if you fail to plan, your family may lose everything.
- Protect your business. If you are the sole owner of a dental practice or have a partner, you must have a business succession plan. A succession plan should specifically outline what happens to your dental practice or your ownership interest in the dental practice at the time of your death. If you have a partner, you must have a Shareholder’s Agreement.
- Store your documents. In order to ensure a smooth estate planning transition, the following records should be easily accessible: Will, Trusts, Insurance policies, Real estate deeds, Certificates for stocks, bonds, annuities, Information on bank accounts, mutual funds, and safe deposit boxes, Information on retirement plans, 401(k) accounts, or IRAs, Information on debts: credit cards, mortgages and loans, utilities, and unpaid taxes.
As the owner of a dental practice, you constantly deal with the day to day pressure [accounts receivable, employee problems, marketing, patients, etc.]. In the rough and tumble world of dental practice management, don’t forget to manage your own estate.