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The Finanicially Organized Doctor

Here’s how to get a jump-start on creating a system to organize your bills, statements, policies, and other financial paperwork.

Financial Organization for Physicians

Financial organization for doctors is a cornerstone of a healthy financial life. At the most basic level, financial organization saves time and money because it aids in paying bills on time, being able to find needed documents during tax season, providing proof of payment, disputing credit cards or billing errors, and avoiding the stress of dealing with piles of unorganized bills and paperwork.

It also set the stage for better financial decisions surrounding investments, budgeting, debt, and financial planning. Financial organization helps your working relationship with your financial advisor, because there will be less time spent looking for paperwork and more clarity around the overall financial situation, leading to more informed decisions about investments and financial plans.

While having a system to organize financial paperwork is important, it is not so important which system is followed but that a system exists. In most cases, a combination of electronic and paper filing systems will do the trick.

Bills, statements, policies, and other documents that are delivered online can be stored and backed up on a computer hard drive or through online banking websites, third party bill pay, and website document storage platforms. Some websites offer budgeting and spending information and advice. Some of these sites — as well as online bank websites – allow you to set alerts for when bills are due and when bills are paid to help ensure timely payment.

For doctor couples, clearly establishing responsibilities for financial matters is an important priority. If one spouse manages the finances, the other spouse should be informed about what is going on financially, where important documents are stored, and the passwords for all online accounts.

What documents to keep and what to toss is another important part of becoming better organized. The IRS recommends retaining tax returns and any documents that support tax returns for seven years. Other documents such as paper bank statements, investment account statements, and credit card statements can be thrown away after a year, especially if they can be accessed online in the future if necessary.

Whatever documents are stored on your computer should be backed up in the event of a computer crash. Some of the online document storage platforms allow organization in a digital filing cabinet, making it easy to find documents on the go. These online systems are also very useful in the event of a natural disaster such as super storm Sandy — many people with flooded homes lost their paper documents.

Financial paperwork generally falls into the following categories: investments, taxes, credit cards and loans, college savings, retirement savings, insurance, and estate planning. Let’s take a look at what documents you need to keep on hand in these areas.

Document Checklist

Investment Planning

While you may not have all of these different kinds of accounts or investments, these are the kinds of accounts that many doctors do have. Having the policies, statements, and other important paperwork of these accounts organized and accessible helps you and your financial advisor plan an investment strategy and properly diversify those assets according to your risk tolerance, time horizon, financial goals, and other objectives. They are a good place to start when organizing your financial records and paperwork.

Stocks & Bonds

  • Checking accounts
  • Savings accounts
  • Money market accounts
  • Certificates of deposit
  • Brokerage accounts
  • Mutual Funds
  • Annuities
  • Life insurance cash value
  • IRAs
  • Retirement plans
  • Employee stock purchase plans
  • Stock options
  • Stocks
  • Bonds
  • Real estate
  • Precious metals and other collectibles
  • Business interests and other investments

Income tax planning

Income tax planning for doctors is a forward-looking process that identifies strategies designed to reduce future income taxes. These may include tax-loss harvesting, investing in tax-advantaged vehicles, identifying tax deductions that may have been overlooked, or creating tax deductions such as setting up a qualified retirement plan. Note that income tax planning is not the same as income tax preparation, which focuses on documents required by the IRS. For income tax preparation, you will need to consult with your tax advisor.

  • A variety of documents are required to prepare taxes and assess your tax situation. Keeping proper tax records is extremely important for IRS, accounting, and investment purposes. Tax documents that should be safely stored and easily accessed include:
  • Income tax returns for the last three years
  • Paycheck stubs or statements showing regular income as well as unusual taxable distributions that may change your tax picture this year
  • Statements or other documentation showing the cost basis and current value of assets owned outside retirement accounts
  • Retirement plan information showing the amount you are eligible to contribute
  • Statements showing major deductions, such as mortgage interest and property taxes
  • Information on charitable contributions

Credit and debt planning

Debt is often a significant part of a physician’s or dentist’s overall financial picture. Statements for loans will help get a handle on your level of debt, interest rate of that debt, and loan terms on these kinds of revolving and installment credit debt. The following documents should be filed and stored for periodic review:

  • Credit cards
  • Mortgages
  • Auto loans
  • Student loans
  • Business loans
  • Personal loans

It’s a good idea to obtain a copy of your credit report, which you can get for free once a year. While credit scores aren’t free, websites such as MyFico occasionally offer promotions that provide access to credit scores in exchange for a credit monitoring service, which can be cancelled before charges are incurred.

College planning

College planning is vital for parents. It is also something that many grandparents wish to assist with. There are many types of college savings vehicles, so be sure to keep track of all the account with funds saved by parents, grandparents, aunts, uncles, and other relatives. To stay on top of balances and track savings progress, these statements and records are useful:

  • Statements of accounts earmarked for college\ (529 plans, Coverdell accounts, UGMA/UTMA accounts, accounts in parents’ names earmarked for college)
  • Completed FAFSA (Free Application for Federal Student Aid) for students already enrolled or preparing to enroll in college
  • Other documentation relating to student loans

Retirement planning

Retirement is the largest financial goal for most doctors. As such, it’s very important to keep track of all retirement accounts, including 401(k)s from current and previous jobs, traditional and Roth IRAs, and other accounts such as 457 plans. These documents are vital for staying on top of savings and investment goals:

  • Account statements and summary plan descriptions for all employer-sponsored retirement plans
  • IRA account statements
  • Social Security Personal Earnings and Benefits Estimate Statement (PEBES)
  • Account statements for all assets (see list under Investment Planning)
  • A budget showing expected living expenses in retirement
  • Employee benefits information on health and retirement benefits
  • Veteran’s administration record

Insurance planning

Risk management is another vital aspect of your financial life. This includes life, auto, disability, health, and other coverage you may need as well as current or future Social Security benefits. To manage and periodically re-evaluate coverage levels, deductibles, and premiums, retain these documents:

  • Insurance policies and current policy statements for the following (including employer-sponsored insurance):
  • Life insurance
  • Disability insurance
  • Health insurance
  • Homeowner’s or renter’s insurance
  • Automobile insurance
  • General liability (umbrella policy)
  • Professional liability
  • Long-term care
  • Social Security Personal Earnings and Benefits Estimate Statement (PEBES) showing survivor and disability benefits

Estate planning

There are two key aspects to estate planning for doctors: wealth transfer (ensuring that assets are transferred to the right people) and estate tax savings. Planning for and monitoring your estate requires maintaining these records, including:

Trust documents

  • A copy of your latest will and letter of instructions
  • Index of all assets (see list under Investment Planning, but also includes real estate,
  • collectibles, business interests, etc.)
  • Trust documents
  • Advance directives
  • Power of attorney for health care
  • Power of attorney for financial matters
  • Beneficiary designations for IRAs, life insurance, annuities, employer-sponsored retirement plans
  • Prenuptial agreements
  • Statements or deeds of trust showing how assets are titled
  • Pet care

Miscellaneous documents

There are also many other important documents that fall into a catch-all miscellaneous documents category. These include everything from a Social Security card to military service records to adoption and divorce paperwork. Keep the list current by adding new documents as appropriate.

Divorce papers

  • Birth, death, and marriage certificates
  • Social Security card
  • Passport
  • Vaccination records
  • Military service records
  • Deeds and titles to all real estate, autos, and other hard assets
  • Adoption papers
  • Divorce papers
  • Prenuptial agreement
  • Religious ceremonies such as baptism, confirmation, ordination, marriage, annulment paperwork
  • Jewelry appraisal list for all items valued at more than $500

Make an “Account List”

From employers to banks to insurance, most doctors have a large and constantly changing list of financial accounts. It’s important to update this at least once a year as this information usually changes frequently. In the event of an emergency or bereavement, family members need to know who to contact for important information about insurance policies, account balances, etc.

Key Passwords/PINs

Online accounts are becoming a perplexing legacy issue for family members and financial advisors. Many bereaved family members are struggling with gaining access to online accounts, especially as many brokerage, checking accounts and retirement accounts have converted to online access. Without passwords, family members can’t access statements and account numbers and may have trouble obtaining this information. Make a list of all the password and personal identification numbers (PINs) that are important to your financial affairs. Keep it with your important financial documents and update it once a year.

A final word

Financial organization is an important part of the financial planning process. A solid filing and organizational system will save hours of time that would be otherwise spent hunting for statements, bills, or policies. By setting aside time on a regular basis to maintain an online and paper-based organizational system, you’ll be better informed about your finances and be in a better position to act as a partner with your financial advisor.

Have Questions?

Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved.

Developing Sound Wealth Management Habits

Whether a saver or a spender, it is important to develop sound financial habits in order to better manage your monthly cash flow. Larson Financial Group believes that no matter the financial phase, every physician should practice these four financial habits.

Financial Habits for Cash Flow Management:

  • Habit #1: Maintain Emergency/Opportunity Reserves
  • Habit #2: Categorize Your Life—Build a Budget
  • Habit #3: Give to Causes Greater than Yourself
  • Habit #4: Begin on the Final Page

Habit #1: Maintain Emergency/Opportunity Reserves

Life changes quickly, and the unexpected frequently occurs. Financial planning textbooks often suggest that you should set aside cash equal to six months worth of your income.(1) The reality is that many doctors and dentists do not keep that much in reserves. Rather, most of our physicians maintain about two to three months worth of monthly living expenses in a checking account or money market fund. For additional emergency reserves, they rely on a home equity line of credit, four-day access to their investment funds, and/or an unsecured line of credit.

Habit #2: Categorize Your Life – Build a Budget

Budgeting for DoctorsIn addition to building adequate emergency reserves, we also recommend doctors separate their financial responsibilities into five main categories in order to help build a basic budget for their financial lives:

  1. Giving
  2. Saving
  3. Living
  4. Debt Reduction
  5. Taxes

Each category should be assigned a percentage of the total income. Provided that the percentages are properly balanced, this can make life much easier.

Doctors and dentists often wonder how they should go about establishing the above percentages. Every situation is different, but we offer the reader some basic guidelines in Habit #3 and Habit #4.

Habit #3: Give to Causes Greater than Yourself

As first we were surprised when our clients asked us about how much money they should be giving away. We had not expected to be involved in such a personal decision. It turns out that many physicians have questions about giving money to charity or tithing to their place of worship. This is exciting. It tells us that we are involved with a generous portion of society that believes financial success is not something to be taken for granted.

On the surface this issue is personal, but we believe the question arises as many people share a worldview that this life is about more than just ourselves.

Many of us approach life from different religious beliefs, and this influences the way we manage the financial resources that have been entrusted to each of us. The world’s major religious faiths share three fundamental financial principles as it relates to giving, that are paramount to this discussion:

  1.  Those of us who have resources also have a responsibility to help provide for those who do not.
  2. Giving to those less fortunate should involve a measure of personal sacrifice or we are not doing our part.
  3. Giving should be done at all phases of life. (We are fooling ourselves by thinking that we will give later when we have more resources.)

Money is a temporary tool for a temporary life. At the end of the day, we know of no man or woman who hopes his or her gravestone says, “Here lies a really rich doctor.” Instead, our hope is that we can help our clients achieve enough peace of mind regarding their own financial lives that it frees them to devote more of their time, effort, and energy to building a meaningful legacy.

If your primary question is, “How much should we give?” perhaps a paradigm shift in your thinking is appropriate. A better question might be, “How much can we give?” In their book Why Good Things Happen to Good People, Stephen Post, Ph.D. and Jill Neimark, document consistent studies that show those who are generous with their time and wealth are happier, healthier, less stressed, live longer, and feel more spiritually fulfilled.(2) Therefore, when it comes to cash flow management, we believe one of the most important habits to establish early on is a consistent method of giving away a portion of your resources to passions greater than yourself.

Dr. Ryan Vickery, a successful anesthesiologist, summed up these principles well for us in a personal interview. He found that perspective is vital in understanding why it makes so much sense to give away time or resources

“For years,” he said, “I focused the actions of each day on the short term. It was as if the only important part of life was the next 3-5 days.” He then added, “When we actually sat down on different occasions to give it some real thought, it connected for my wife, Becky, and me that life is really about something much bigger than what we were previously focused on.” (3)

When we look at life in terms of the “big picture,” as shown above, everything else will change. If we focus on the long-term, the way we interact with our spouses will change, the way we parent our children will change, and most important, as it relates to this article, the way we manage our financial lives must change.

Dr. Ben Carson, director of the pediatric neurosurgery division at Johns Hopkins says the following in his book, The Big Picture: Getting Perspective on What’s Really Important in Life: (4)

The reason we need to consider our priorities carefully–and the principles on which we base them–is that they impact every important choice we make in life. Those choices further determine both the ultimate direction of our lives and the unique set of opportunities that will come our way.

Giving BackHow is a doctor to make this long-term perspective on priorities practical in his or her own financial life? For those physicians who have not yet established their own philosophy for their family’s charitable giving, we offer a suggestion. Our approach is simple. Begin giving away a set percentage of the after-tax paycheck you bring home. To begin, the percentage is irrelevant, just do something to get started. Make it a goal as a family to increase this percentage whenever possible, but at least every year. Even if you only increase by 0.5% per year, you will still be giving more and more, and likely finding your efforts increasingly more fulfilling.

Giving becomes easier once it develops into a regular habit. We have yet to meet a physician who started giving and later regretted it. You need not take our word for this, instead consider the words of Dr. Will Mayo:

By 1894 my brother and I had paid for our homes. Our clinic was on its feet. Patients
kept coming. Our theories seemed to be working out. The mortality rate among our
cases was satisfyingly low. Money began to pile up. To us it seemed to be more money than any two men had any right to have. We talked it over a lot, that year of 1894 we came to a decision. That year we put aside half of our income. We couldn’t touch a cent of that half for ourselves…

From 1894 onward we have never used more than half of our incomes on ourselves and our families… My brother and I have both put ourselves on salaries now. The salaries are far less than half our incomes. We live within them…

My interest and my brother’s interest is to train men for the service of humanity. What can I do with one pair of hands? But, if I can train 50 or 500 pairs of hands, I have helped hand on the torch.” (5)

Habit #4: Begin on the Final Page

Simply building emergency reserves, categorizing your life, and giving to great causes will not automatically lead to financial success. The remaining key is to spend the right amount less than you earn. In order to determine the right amount to properly set aside for the future, you must first “begin on the final page.” The point is simple: if you don’t know where you’re headed; there is no good way to get there. Instead, when you know what you want to achieve, you can work backward to determine the amount that you need to save
today in order to make it happen.

Beginning on Your Final PageDelayed gratification is a difficult concept for many Americans to grasp. We live in a society that thrives on getting whatever we want whenever we want it. Fortunately, doctors have a much better understanding of delayed gratification than the general public, or they never would have spent so much time in training. No different than setting your sights on becoming a physician, it is crucial to set some reasonable objectives about what you want to achieve in the future as it relates to your financial life.

Doctors and dentists are often pleasantly surprised when they find out that they can still enjoy a great lifestyle today, while at the same time providing for the future. In fact, families tell us it is comforting to know the appropriate amount they need to save, to set aside for the future. By knowing that, they also know how much they can spend and enjoy today.

It is always better to know sooner, rather than later, if your expectations are realistic. When it comes to money, almost everyone hates surprises.

Creating a Savings Target

We are often asked: “How much should we be saving for the future?” Because each family’s situation has so many different variables, there are no generic answers to this question. However, the following chart, from the Journal of Financial Planning, provides some general guidelines based on the most common situations we see for younger physicians.(6)

Notice that achieving a comfortable retirement requires a far larger portion of your income to provide for retirement than the typical 10% you may have previously heard. Of course, the earlier you begin saving, the lower the percentage of income required to meet your goals. Note that this issue is a gigantic aspect of what makes your financial life so unique as a physician. If you had 40 years to save for retirement, your required savings rate might drop to as low as 8% of your income. Because physicians typically desire a much shorter time frame to reach financial independence, this dictates their savings rate must be greatly increased.(7)

Do your wealth management habits need help? Let us support your strategy.

(1) Altfest, Lewis J. Personal Financial Planning. Boston, MA : MacGraw-Hill Irwin, 2007. (2) Post, Ph.D., Stephen and Neimark, Jill. Why Good Things Happen to Good People. New York, NY : Broadway Books, 2007. (3) Vickery, M.D., Ryan and Vickery, Rebecca. Personal Interview with Dr. Ryan and Mrs. Rebecca Vickery. 2010 30-September. (4) Carson, M.D., Ben and Lewis, Gregg. The Big Picture: Getting Perspective on What’s Really Important in Life. Grand Rapids, MI :Zondervan, 1999. (5) Logan, J.T. The Mayo Clinic. The Free Methodist. 1931 13-February. (6) “Comfortable retirement” seeks to replace 50% of pre-retirement income. This data is provided through a source we believe to be fully reliable but we cannot directly attest to the accuracy of the findings. Data is based on historical findings and does not guarantee future results. (7) Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle. Pfau, Wade D. Washington, DC : Financial Planning Association, May 2011, Journal of Financial Planning.

Get the monkey off your back!

Medical School Loan Repayment

The following article is provided by Brandon Barfield, Co-Founder and Regional Director of Doctors Without Quarters, LLC. Student loan related services are provided by Doctors Without Quarters, LLC, an affiliate of Larson Financial Group, LLC.

“Cash flow and debt management are intimately linked facets of a successful financial life for doctors. Debt is incredibly powerful. It can be leveraged to provide opportunities that cash flow would never provide, such as a dream home, and it can also devastate families through the stress it causes when payments cannot be met. As such, debt is a tool that should always be used cautiously.

Physician Mortgage Loans

If not, it can easily and quickly become a monkey that is impossible to get off of your back. It is important to note that while paying off debt quickly is often a positive decision, it should be balanced with achieving your other financial goals. We would be concerned if clients devoted the next ten years of their life to paying off debt at the direct expense of setting aside any savings for the future. Because cash flow is a limited resource, it is imperative that your family makes a strategic decision when determining how much of your income to allocate toward debt reduction versus savings.

Consumer Debt

When we refer to consumer debt, we are referring to loans outside of mortgages and student loans. Of these loans, the most problematic are certainly credit cards. This is the ultimate monkey. We have encountered physicians with as many as twenty-three credit cards. People often assume that they should pay off the cards in order of the highest to lowest interest rates. Instead, we often suggest a different approach. Rather than paying down the cards with the highest interest rates first, we often recommend that our clients focus on the cards that can be paid off the quickest.

Eliminating credit cards in this manner creates what we call the “snowball effect.” You gain more and more momentum along the way, until all of your credit cards have been eliminated. This approach actually decreases the amount of interest being paid in many circumstances, and psychologically it works better because the progress is visible. A final key to success is to begin saving the funds that are no longer required for debt payments once the target debts are fully eliminated.

Often, an even better approach to credit card elimination is a consolidation loan. By reducing the debts from many to one, the debt can often become more manageable. As long as new habits are established in conjunction with this strategy, this may be the most practical route to reducing the stress surrounding debts. The United States is still suffering through the economic after effects of the “great mortgage meltdown.” Banks have tightened up lending and lines of credit, but some great resources are still available for doctors. Just remember, it is more important than ever to maintain a clean credit report.

Student Loans

Most young physicians have substantial student loans. Our record loan to date belonged to one young couple that had over $680,000 in combined student loans. Although these loans can feel like a heavy burden, if your education has led to the opportunity for substantially higher-than average income in a career that you enjoy, it was a great decision.

Medical School Loan Repayment

When we asked one young physician how he felt about his student loans (with only a 1.6% interest rate), he responded, “They scare me to death!” Because the detailed intricacies of exactly how to structure your individual student loans are beyond the scope of this article, we thought it important to point out the basics that every indebted doctor and dentist should know about medical school loan repayment.”

Student Loan Fundamentals:

  • Review how your loan portfolio is structured. If you have FFEL, Perkins, HPSL or LDS loans, consider consolidating these over to the Direct Loan Program. The latest federal repayment and forgiveness programs are only available for direct loans.
  • If you have all direct loans, determine if consolidating is the best move. Consolidating can simplify your portfolio and complement an income-driven repayment or loan forgiveness strategy. On the other hand, not consolidating gives you the ability to target which loans you want to pay off first. Paying off higher rate loans first will cost you less money than paying on everything at once over a period of time.
  • Be sure you understand how the income driven repayment plans (IDR’s) work. These programs provide substantial payment reductions during training, carry various interest subsidies / reductions, have their own loan forgiveness benefits, and qualify as accepted payment towards PSLF.
  • Be sure you understand how the Public Service Loan Forgiveness program works. Many physicians work in the public service sector and do not realize it. Others think they are working their way toward loan forgiveness, but have not properly structured their portfolio.
  • Consider refinancing private loans during training, or all loans post-training. Today’s market rates are significantly lower than the rates most physicians have on their federal loans taken out after 2006. Refinancing can significantly reduce the long-term interest costs.
  • Residents with over $100k in student loans will usually benefit from strategic utilization of IDR plans and PSLF positioning. Residents transitioning to practice, along with other practicing physicians in the for-profit sector, can often save money by refinancing.

Note: This issue is usually no longer a factor upon graduation as your income should be too high to deduct the student loan interest anyway.

Physician Mortgage Loans

“Most physicians have four main questions regarding their mortgages:

  1. How much home can we afford?
  2. How much money should we put down?
  3. How should we structure our mortgage?
  4. Now that we have enough money, should we pay off our home, or keep our money invested instead?

An Affordable Home

To address the first issue, note that outside of divorce and lawsuits, little else can be as financially crippling to a physician as buying a home that is too expensive. Families in Phases I and II should avoid having a mortgage any larger than one to two times their annual income. However, this amount is considerably less than a lender will likely offer you for a mortgage. In other words, a bank’s pre-approval does not always equal a wise financial decision.

Down Payment

With the mortgage market in such flux over the past couple of years, physicians are asking more and more, “How much money should we have for a down payment?” Our short answer is that this is the wrong question. It goes back to the affordability issues described above. Provided your home meets the criteria suggested, it should not matter whether you put 5% or 50% down.

The only caveat is you might receive a lower interest rate by putting more money down. Going this route might make sense at times, but this issue has to be addressed on a case-by-case basis by evaluating these elements: cash flow, emergency reserves, asset protection issues, return on other investments, psychological attitude toward debt, other debts, propensity for risk, and other variables. In other words, an advisor’s advice is well warranted for this issue because it is more complex than simply acquiring a slightly lower mortgage rate.

Paying Off Your Home

At the other end of the spectrum, many of our doctors are in a position where they could liquidate their investments and pay off their homes, if they so desired. They often ask what their best course of action is in this respect. Our answer: It is a function of three elements working closely together:

  1. Client Economics
  2. Psychology
  3. Asset Protection

First, consider the economic component, as this is the easiest part. If you can earn a higher net return on your invested dollars than your mortgage is costing you (on a net-of-tax basis), why pay off the mortgage? This is especially true if you can accomplish this with the market risk involved.

However, in addition to economics, we realize that psychology is always involved with debt. No client has suggested that they love debt, and wish they had as much of it as possible. Even though the economic and protection factors may suggest that maintaining a mortgage makes the most sense, if it will cause you to lose sleep, we suggest you pay it off.

Finally, because people can become so emotionally attached to their homes, asset protection must be considered in the decision-making process. Some states, like Iowa and Florida, provide unlimited asset protection for home equity, which makes it very difficult to lose your home in a lawsuit or bankruptcy in these states.(3) Along similar lines, Texas provides unlimited asset protection, but only if the property is less than one hundred acres.(4) What a great law that only Texas would have. (5) However, other states like Missouri, Indiana, Michigan, Tennessee, Colorado, California, and Ohio provide very little protection of home equity. (5) (6) If you live in such a state, maintaining a mortgage can actually help reduce the risk of losing your property in the event of a lawsuit. Understanding how your state treats home equity, from an asset protection standpoint, is an important variable in choosing the best physician mortgage loans.”

Have Questions?


(1) Bureau, U.S. Census. U.S. Census Web Site. [Online] [Cited: 2011 8-June.] http://www.census.gov.
(2) Kirwan, J.D., LL.M. Adam O. The Asset Protection Guide for Florida Physicians: The Ultimate Guide to Protecting Your Wealth in Difficult Economic Times. Orlando, FL : The Kirwan Law Firm, Updated and Revised for 2010.
(3) 10 acres for urban areas, 100 acres for rural areas.
(4) Adkisson, Jay D. and Riser, Christopher M. Creditor-Debtor State Exemption Chart. Asset Protection Book. [Online] [Cited: 2011 8-June.] http://www.creditorexemption.com.
(5) Riser, Christopher M. and Adkisson, Jay D. Asset Protection: Concepts and Strategies for Protecting Your Wealth. New York, NY : McGraw-Hill, 2004.

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.

The information provided is for informational purposes only and should not be construed as a recommendation or advice. Further, this is not an offer to buy or sell securities or other products and services of Larson Financial Group or its affiliates Please consult an appropriate investment professional regarding your specific needs.

A Widow’s Worst Nightmare

Financial Planning for Physicians

What can be worse than losing a spouse—especially when there are still young children to raise? How about being forced to go through probate and losing needed assets to ex-spouses and estranged family members?

If only there had been a will.

Physician Financial Advisor

Advisors are used to beating the drum about proper estate planning and predictably, year after year, the same physician clients will give an awkward laugh and sheepishly admit that they still haven’t made a will. It just doesn’t seem that important. Dead is dead, right? And besides, all the assets will go to the physician’s spouse, so he or she can worry about passing it on to the kids.

If only that were true.

When a physician dies without a will, the law of the state they died in determines how assets will be dispersed. Distribution formulas vary according to state law, but they are usually some variation of the following:

  • The physician’s spouse gets everything if the deceased had no children, parents, siblings, nieces, nephews, or there are no children of a deceased child.
  • The physician’s spouse gets half if the deceased had one child or there are children of one deceased child.
  • The physician’s spouse gets one third if there are two or more children or one child and descendants of one or more deceased children.

Within weeks of each other, two young widows came through our doors seeking financial advice. Their physician husbands died suddenly without wills, and now they’re facing the grim reality that the assets in the husband’s name will not all pass to them.

The widow from Maryland discovered that she’s entitled to one half of the net probate estate, and her minor child will get the rest. The widow from Virginia will receive only one third of the probate estate, and her children and stepchildren are getting the rest. In both cases, the majority of the financial assets were in brokerage accounts in their husbands’ names.

A Widow’s Worst Nightmare

These widows have some serious problems, as their outright shares of the assets are insufficient to maintain their lifestyle and support their children. Additionally, both face ongoing and cumbersome reporting requirements to their county commissioners, not to mention legal and bonding expenses as they manage assets belonging to their children under court supervision. In the case of the widow with minor stepchildren, it remains to be seen whether the court will appoint her or the ex-wife as conservator of that child’s account.

We often counsel clients who are widowed to try to wait several months before making large financial decisions. But if money is tight and the courts are involved, time is of the essence. The first hurdle is probate. The court determines how to divide the assets—what goes to which beneficiary. The costs can add up quickly and may include court fees, attorney fees, accounting fees, appraisal fees, and business valuation fees.

When minor children inherit, the bureaucratic red tape begins and costs can be excessive in comparison to the value of the assets that are being protected. It can be a constant struggle to access the children’s inheritance for their own upbringing. Interaction with the courts occurs in the following ways:

  • The court appoints a conservator to administer the assets in accordance with its rules. This conservator will not necessarily be the surviving parent.
  • Court supervision involves formal accountings, which can be costly and complicated.
  • The conservator may also require legal representation in court.
  • The court controls how funds are to be used and when they can be withdrawn.
  • The court’s interpretation of reasonable costs for health, education, maintenance, and support is usually very conservative. A parent may be unsuccessful arguing that tutors, orthodontia, music lessons, sports camp, or help paying a mortgage is a necessity. It may be hard to justify using a larger share of the assets for a child with special needs.

What happens when the children are no longer minors?

Children gain full control of their assets at the age of majority, and this can have tragic consequences. Few 18-year-olds are emotionally and financially responsible enough to handle a large inheritance. This sets the stage for a lifetime of regrets if the children spend through all the assets. They may even become injured by an excessive life style due the toxic combination of immaturity and sudden wealth. This is not a great legacy for any parent to leave their child.

At a minimum, parents need to establish wills to protect their spouses and their children. Physical guardians should be designated for any minor child, and any assets that might pass to a minor should be titled to a named custodian under the Uniform Trust for Minors Act (UTMA) or as a trustee for a minor’s trust. The guardian and trustee do not need to be the same person, and separating the guardian of the children from the “conservator” of the financial resources is often a very good idea.

Provisions can be made so that the guardian will receive sufficient funds to raise the children without creating an unreasonable burden on their own family and resources. A thoughtful will can also be structured to allow gradual distribution of assets at ages older than 18 or 21.

Our two widows would have been spared all these problems if their husbands had even simple “I love you” wills naming them as the beneficiary of all the separate property. And don’t forget, they each need to draft a will now to prevent this from happening all over again if they should experience a loss of capacity or a premature death.

Physician Financial Advisors

Check with your financial advisor for the name of a good estate attorney. Financial advisors and estate planning attorneys often work together to ensure their clients’ estates are financially and legally protected.

And the next time you procrastinate on creating a will, remember the stories of the two young widows now struggling to support their children with far less in assets than they expected or their husbands intended. It can be a nightmare working through the courts for support and maintenance of the children. A proper will is a true act of love and generosity and is absolutely critical in situations where the spouses have separately titled property.

Above all, remember that if you don’t create a will of your own, the state will write one for you. Knowing how probate really works work might be all the incentive you need to visit that nice lawyer and create a will that can enforce your last wishes and protect your family’s assets.

Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved

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An Overview of Asset Transfer Strategies

A physician may need to transfer assets for all sorts of reasons. A working knowledge of various transfer techniques can help them determine when it’s appropriate to move money around, and how to manage the tax and legal implications of the process.

Asset transfers are an important part of financial planning. As a physician moves through life, they are constantly acquiring and disposing of assets until that final transfer takes place—the one they’re not around to see.

Tax Deductions for Doctors

Some asset transfers are initiated as a result of a life event or other major decision. Others are suggested by attorneys or financial advisors as a way to better arrange a physician’s financial affairs. Some asset transfers are as easy as handing a tangible item over to another individual. Others are fraught with legalities and should not be attempted without counsel.

Here is an overview of asset transfers—the tip of the iceberg, if you will. Many of the regulations governing asset transfers are state laws, so your best bet is to check with your financial advisor and a good attorney—several of them, actually, in different specialties—who can guide you through the transfer process.

Why assets move

There are lots of reasons why people transfer assets. Here are some of them.

  • Marriage or cohabitation. You want to put a new spouse or partner’s name on the title.
  • Divorce. A couple wants to divide joint property between the two spouses and re-title it in separate names.
  • Buyout (or sale to) co-owner. One of two co-owners wants to own full rights to the asset.
  • Anticipation of incapacity or death. An elderly person wants to put a son or daughter on the title for ease of transfer.
  • Establishment of a trust. There are many reasons for forming a trust; assets must be retitled in order to be transferred into the trust.
  • Establishment of a private annuity. You need income and want to keep assets in the family; assets are sold to family members in exchange for regular payments.
  • Reduction of estate taxes. You may want to remove assets from your estate in order to reduce the amount subject to estate tax.
  • Reduction of income taxes. You may want to transfer assets to a low-bracket family member so investment earnings will be taxed at a lower rate.
  • Medicaid eligibility. You may want to reduce the amount of “countable assets” so that Medicaid will pay for nursing home care.
  • Bankruptcy. You may need to meet the state’s asset requirement laws in order to discharge debts or other obligations.
  • Anticipation of lawsuits. You might need to protect assets from judgments (applicable to people in high-risk occupations, such as surgeons).
  • Gifting. You may want to gift securities or other property to an individual or to charity.
  • Cash or asset exchange. You may want to sell an asset for cash and/or buy a different asset.

Tax and legal considerations

It would seem that if an individual wants to get rid of an asset or if two individuals want to enter into a private transaction, they ought to be able to do it without tripping over a bunch of laws. For smaller transactions, they can. For instance, gift giving at birthdays and holidays would normally be exempt from asset-transfer laws.

In some transfer situations, however, there’s opportunity for tax evasion, taking advantage of people, or exploiting laws that are designed to help the needy. In those cases, certain procedures must be followed. And to make sure they are, the transfer process itself—the physical transfer of title to another person—may be extremely complex and not possible to complete without the help of an attorney, escrow officer, transfer agent, or other intermediary.

Even so, the intermediary arranging for the transfer may not be obligated to warn clients of the various tax and legal ramifications— in some cases he or she may simply be following instructions to transfer title—so it is up to you to know the law—or obtain legal counsel.

Here are a few of the common considerations involved in asset transfers:

Gift tax

If you are thinking about transferring assets to family members to save income or estate taxes or to facilitate transfer later on should be aware of gift tax rules. In 2013, any gift to an individual that exceeds $14,000 for the year ($28,000 for joint gifts by married couples) applies against the lifetime gift tax exclusion and requires the filing of Form 709  for the year in which the gift was made. The gift tax does not need to be paid at the time Form 709 is filed, however, unless the client has exceeded the lifetime gift tax exclusion of $5.25 million in 2013 (adjusted annually for inflation).

The annual gift tax exclusion—the amount that may be given away without eating into the lifetime exclusion—is adjusted for inflation in $1,000 increments. Transfers to spouses who are U.S. citizens and to charitable organizations are exempt from gift tax. Payments made directly to an educational or health care institution are also exempt from gift tax. Property exchanged for equivalent value (as in a sale to another party) is not subject to gift tax. However, low-interest loans to family members may be subject to gift tax. Complicated transactions like these require the advice of an attorney or tax advisor.

Kiddie tax

The practice of transferring assets to children to avoid income tax on investment earnings is less popular now, because for 2013 investment income exceeding $1,900 earned by qualified children is taxed at the parents’ rate. The first $950 is tax free, the next $950 is taxed at the child’s rate, and the remaining income is taxable to the parents. The kiddie tax is also subject to inflation adjustments in $50 increments. It’s certainly possible to get  around the kiddie tax by investing in assets that don’t pay current income—but then what’s the point of transferring assets to children, especially when parents must think about funding college.

Financial aid

The formula that determines need-based aid factors is a much higher percentage of assets when they belong to children (35%) as opposed to parents (5.6%). So the classic financial aid strategy is to keep assets away from children and stash parents’ assets in retirement plans, home equity, and other exempt assets.

What if a child already has significant assets—say, in an UGMA or UTMA account? Is there any way to get them out of the child’s name? Probably not (check with an attorney to be sure), at least not until the child turns 18 or 21 and has the legal authority to transfer property. But by then it may be too late for financial aid, since schools look at the family’s financial picture as early as the student’s junior year of high school. Any parent who wants to maintain maximum financial aid flexibility (and this includes need-based scholarships, not just loans) should think twice before transferring assets to children.


Medicaid is designed for people with few assets who can’t afford to pay for custodial care. In the past, people had to “spend down” to such small amounts that often the healthy spouse was left nearly destitute. This led to rampant asset transfers and big business in “Medicaid planning.” However, the laws have been liberalized in recent years to better protect the healthy spouse, so asset-transfer gimmicks have waned somewhat. In any case, clients contemplating asset transfers in anticipation of applying for Medicaid need to be aware of “look back” laws—60 months for transfers to individuals (with some exceptions if the transfer is to a child under 21 or a child of any age who is blind or disabled) and trusts.


Each state has its own laws relating to how much property a client can keep and still  discharge debts in bankruptcy. These laws also address property transfers in which it appears that the debtor is trying to pull a fast one.

Popular asset-transfer strategies

The main point to understand is that asset transfers may not be as straightforward as you think, and some transfers may have unintended consequences. At the same time, strategies you may not have considered could provide the perfect financial planning tools.

Popular alternatives include:

  • Annual gifting. Every year, give cash or property equal to that year’s gift tax exclusion to each child, grandchild, or any prospective heir to remove assets from the estate.
  • Transferring assets to parents. If you are supporting elderly parents you may want to transfer assets to low-bracket parents who would pay taxes on the income being used for their support.
  • Writing checks directly to educational institutions. Grandparents who are paying for their grandchildren’s education should pay the school directly; during the accumulation phase they should contribute to a 529 plan rather than an UGMA.
  • Trusts and other advanced strategies. There’s no substitute for consulting with an estate planning attorney and tax advisor for individual advice regarding asset transfers that can accomplish specific objectives.

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Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.