An estate plan is an essential part of your financial plan, as well as an important path to ensuring your family is cared for if something happens to you. If you own your dental or medical practice, your estate plan may also play a key role in planning for the future of your practice. Here are a few key things to consider when you think about your estate plan.
1. Start with the Basics
The nuts and bolts of any estate plan are deceptively simple – a will, a financial power of attorney, and a health care directive.
Your will is the document that the court will look to in order to determine who will be in charge of gathering your assets, paying your debts, and carrying out your wishes after your death (your personal representative, sometimes called your executor) and who your beneficiaries and heirs will be. Without a will, these things are decided by state law, and the results may not be in line with your wishes. A will can also make important provisions to put your estate (and your family) in a better tax position than you would be in without one.
A financial power of attorney appoints an attorney-in-fact to handle certain financial and property matters on your behalf. A power of attorney may be “durable”, which means it remains effective even if you become disabled or incapacitated. A health care directive appoints a person or persons to make health care decisions on your behalf if you are incapacitated or disabled.
2. Check your beneficiary designations.
The beneficiary designations on your retirement accounts, investment accounts, and life insurance will take precedence over anything you’ve stated in your will, so it is very important to periodically check those designations and make sure they are up to date. If there is no beneficiary designation, or if your beneficiary designation fails because your beneficiary has pre-deceased you, that asset will default to whatever the plan documents provide. Oftentimes, that means a high dollar value asset will go directly to your estate, resulting in a high income tax bill that could have been avoided.
3. What about trusts?
It may make sense for you to include trusts in your estate plan. Trusts are useful in helping to avoid probate proceedings, and in planning tax efficiencies. The Minnesota estate tax exemption is currently $3 million per person. If your assets exceed the individual estate tax exemption, some trust planning may benefit your family and help lower future tax bills.
4. Plan for your practice.
Your practice is a key asset and requires special planning. Under the Minnesota Professional Firms Act, ownership of a dental or medical practice firm is restricted. If you are the sole owner, your spouse may have up to one year after your death to sell your interest in your practice, but if your spouse does not inherit your practice, or if you have partners, that period is shortened. If you own your practice with partners, do you have a buy-sell agreement which governs what will happen to your ownership interest if you die? Does your agreement contain terms specifying how your interest will be valued? If your partners will buy your interest on your death, or if it will be redeemed by the firm, how will that purchase be funded?
If you don’t have an estate plan yet, or if it’s been some time since you last reviewed your estate plan, make your plan a priority for 2021.