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Author Archives: LarsonFinancial

Preserve Your Wealth and Legacy with a Trust

Creating an estate plan that charts a stable financial future for your family is a true act of love and generosity. However, many physicians procrastinate on documenting their final wishes with the reasoning there is ample time to take action down the road. At the very least, parents need to establish wills to protect their spouses and children and powers of attorney for healthcare and property to nominate someone to make decisions in the event they are no longer capable.

An effective estate plan typically goes beyond having just a will and powers of attorney in place. Establishing a trust for your loved ones gives you the flexibility to customize distributions, allowing you to pass on your values and legacy along with your assets. With a carefully planned trust, you can rest assured that the right assets are being transferred to the right hands at the right time. You can also establish benchmarks and financial incentives that encourages your beneficiaries to achieve goals and build character as they inherit your wealth.

There are several trusts that can be utilized for estate planning purposes, and choosing the best one for your situation often depends on your objectives, state of residence, assets and several other factors. Below is a brief overview of some trusts commonly used by doctors as they are developing an estate plan.

Testamentary Trust

This is a section of your will that lays out terms to guide a designated trustee in creating a trust with the oversight of the probate court. The trust, once created, determines how, when, and for what purposes your children should receive the proceeds from your estate and is essential for anyone with young children. If there is someone you trust wholly with the stewardship of your children’s finances, you can designate them as a trustee and give them full discretionary authority over the money.1

Larson Financial Lawsuit Protection

These trusts may also contain a “spendthrift provision,” which shields the assets within the trusts in the event of a child’s divorce, bankruptcy or other potential financial hardships. A testamentary trust is established after you die. The probate court oversees the trust throughout its existence, so legal fees can add up. There is nothing you need to do while living except sign a will stating that it should be established at death.2

Revocable Living Trust

A living trust is established during your lifetime and can actually own your assets during your life. You are the trustee and beneficiary of the trust during your life, and any income that the trust assets generate would pass through to your personal tax returns. No separate tax returns are required. You retain complete control of the trust assets during your life and have the ability to change the terms of the trust or revoke the trust in its entirety. A revocable living trust keeps wealth confidential at death, unlike a testamentary trust. Once you die, the trusts can have asset protection benefits for a surviving spouse as well as your children.3

Irrevocable Life Insurance Trust

This trust is often a good solution for young doctors whose estate-tax issues are caused primarily by the amount of life insurance death benefits. When in use, these trusts technically own your term life insurance policies. When you die, the proceeds from your term life insurance go into a trust for your spouse and/or children’s benefit, with the death benefit amount not included in your estate upon your death, thus lowering the size of the taxable estate.4

Asset Protection Trusts

Asset protection trusts are irrevocable trusts designed to protect and pass on your assets. These trusts are typically established in a state that allows the grantor of a trust to also be the beneficiary of the trust. These are called self-settled domestic asset protection trusts. Trusts set up for third parties such as children can also be referred to as an asset protection trust, but you do not have the benefit of potentially remaining a beneficiary. Typically, the asset protection features of these trusts exist by putting the control of the assets in the hands of a bank, trust company or law firm. By not controlling the assets yourself, you are allowed to retain access and a court cannot force you to make any distributions to yourself. If you set up a trust for a third-party beneficiary, you may be able to retain control of the assets yourself.5

Conclusion

There are many other types of trusts with potential benefits for an advanced estate plan. However, many of them require you to give up some degree of control over your wealth. On the other hand, these less-flexible trusts could be worth pursuing as you near retirement age. Like many things in life, timing is everything.

There are numerous estate planning strategies with the objective of minimizing taxes through any legal means possible. However, it is highly recommended that you consult with an experienced estate planning attorney with knowledge of your family’s individual circumstances when establishing a trust.

Have Questions?

References:

  1. Investopedia, LLC, “Testamentary Trust” http://www.investopedia.com/terms/t/testamentarytrust.asp
  2. Law Offices of John W. Callinan, “Testamentary Trusts” (November 2016). http://www.eldercarelawyer.com/blog/2016/11/testamentary-trusts/
  3. Steven Merkel, CFP, ChFC “Establishing a Revocable Living Trust” http://www.investopedia.com/articles/pf/06/revocablelivingtrust.asp
  4. Investopedia, LLC, “Irrevocable Life Insurance Trust” http://www.investopedia.com/exam-guide/cfp/life-insurance-estate-planning/cfp4.asp
  5. Investopedia, LLC, “Asset Protection Trust” http://www.investopedia.com/terms/a/asset-protection-trust.asp

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 legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

Launching a Successful Practice

For physicians seeking the autonomy and flexibility that comes with being your own boss, the appeal of private practice is understandable. Branching out from the hospital community to take a step into private practice can be one of the most rewarding, yet challenging experiences of your career. Despite all of the changes happening in healthcare, studies from Physicians Foundation and the AMA have shown that doctors in physician-owned practices are more satisfied than those working for hospitals or larger delivery systems.

There are several locations throughout the U.S. where a private practice could be successful and profitable. Many doctors don’t comprehend the amount of work and effort that goes into starting your own practice. Consider these guidelines as a starting point to launching your own practice.

Covering the Basics

For starters, find a location that is suitable for your personal preference, but is also highly visible and in a heavily-marketed area. In addition to your budget, whether you are looking for a small or large practice could also make certain locations less viable. Take the time to calculate your budget and figure out if you want to slowly build up your practice or purchase everything all at once. If you choose to get the support of a lender, many banks have specialty departments that lend exclusively to doctors and offer attractive rates and terms.

Disability Insurance for Doctors

As a physician, you are probably cognizant of lawsuit risks and property damage that come with running your own practice. Take action well in advance and invest in a business insurance plan that will protect your personal and commercial assets. This plan could include, but is not limited to: general liability insurance, property insurance, malpractice insurance, workers’ compensation insurance, business liability insurance, and personal disability income insurance.

Building a Lively Culture for Your Practice

An essential part of your practice is your medical staff. When the hiring process begins, look for highly-motivated candidates that are as invested as you are. It is common for a private practice to have a receptionist, medical assistants, nurses and legal/financial management. Surround yourself with the right people that will make you and your patients’ experience a positive one.

Having a good accountant is especially important, preferably somebody who has past experience handling business taxes, record keeping and payroll for a medical practice. As a business owner, you’ll likely be entering into multiple contractual agreements at some point. Having a competent attorney at your disposal to review all of your contracts and accommodate any legal issues that may come along is also a wise decision for any business owner.

Standing Out from the Crowd

If you want to establish and develop a successful business, you must sell yourself and your practice. Create a marketing strategy that will pinpoint ways for you to stand out among the rest of private practitioners. Get your name out there by meeting people face to face. Introduce your company to members of the community such as pharmacists, the township and the police department.

Not only is it important to get your business to stand out, you also want to make sure your office has updated décor, supplies and equipment. Furniture and room décor may not seem like a huge factor, but a welcoming environment is actually quite significant for a patient’s overall experience and satisfaction. Up-to-date medical equipment is also just as important.

Through all the work, stress and time you will put into starting up your private practice, be sure to take some time for yourself. Practice management can be exhausting and cause burnout, so it is important you set aside time to do the activities you enjoy. Keep in mind that private practice is not for everyone, that’s why it is best to understand the process of launching your own practice before moving forward with it.

Have Questions?

References:

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

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.

Physicians Still Feeling the Impact of the Affordable Care Act

In early 2010 the Affordable Care Act, also known as Obamacare, was signed into law by President Obama. Since then, 30 million previously uninsured Americans now have access to healthcare services. There is a variety of different people and organizations that Obamacare has affected, including patients, nurses, hospitals, insurers and physicians in particular. The workload and productivity of physicians has shifted as they adapt to the new regulatory environment since the law went into effect.

Balancing the Benefits with the Flaws

The healthcare industry is still in the process of sorting through the short and long-term implications of Obamacare. This legislation has allowed more Americans to have access to an affordable option for health insurance, with a large percentage of these newly insured people being young adults.

Healthcare Practice Management

From a physician standpoint, it is exciting to see more patients getting the medical care and attention they need. Now that more Americans are regularly attending their appointments, physicians have the opportunity to catch any medical conditions or health problems early on. In the long run, this could save the patient and physician time by reducing the need for extensive medical treatments, since more conditions can be diagnosed before reaching a crisis.

Now that more Americans have access to affordable healthcare than ever before, it’s no surprise that physicians are seeing a substantial increase in their daily workload. In 2015, the Commonwealth Fund projected an average national increase of 3.8% or about 70 additional patient visits to physicians per year. This increase in amount of visits has generated more daily paperwork and unfortunately, does not always correlate with a higher compensation.

The ACA also mandates the use of Electronic Health Records (EHR) as the new form of patient files and requires existing handwritten records to be converted to electronic. While this system overall keeps patient files in the hospital or practice up-to-date, the initial investment of making the switch has been a financial strain for many physicians, especially older doctors with extensive medical records. With this system, doctors have to enter data into a computer while talking to patients and families, which could lead some patients to feel the physician’s attention is more focused on the computer screen.

Patients want to feel important and build a relationship with their doctor. These relationships could be jeopardized because of the reduced time physicians have available during the course of the day to spend with each patient. The excessive workload has had many negative effects, such as doctors not fully discussing treatment options, delaying patient admissions or discharges, unnecessary tests or procedures and poor patient satisfaction. Compounding the frustration for patients is the fact that it is now harder than ever for Americans to find a local doctor who are available to them, because several doctors are not accepting new patients while they cope with increasing demands.

Legislation Faces an Uncertain Future

The workload of physicians has changed significantly since the Affordable Care Act went into effect, which has made it highly controversial despite the positive outcomes. This act is likely to change every year, especially with changes in the healthcare and political field in years to come. Despite being signed into law several years ago, 54% of Americans opposed the act and many groups are still working to repeal Obamacare. Regardless of what the future holds, physicians still face the challenge of balancing their already busy and stressful lives with the demands of increased regulation.

Have Questions?

References:

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

Protect Future Earnings with Disability Insurance

Physicians face a dilemma. Their earning potential is high, but time is not on their side to fund a comfortable retirement due to the length of their education and training. Many of their peers in other professions have been paying down debts and accruing savings for several years before the physician even enters practice. For many doctors, their future income and the ability to earn it is their biggest asset. If you become too sick or too hurt to work early in your career, all the sweat equity you invested in becoming a specialist may go to waste. Disability insurance can be an effective means of protecting that earning capacity.

Before you can decide whether you have adequate disability coverage, you need to determine the net monthly income you need to support yourself and your dependents in the event of a disability. It’s preferable to consider the net income instead of gross income because some disability benefits can be taxable. Typically, this happens when the practice takes a tax deduction on the premiums paid. It might be tempting to take that small deduction every year, but it can cause a future tax liability if it is used. Ideally, you pay these premiums on an after-tax basis, and some employers will even allow you to impute the premium as income each year to help ensure your disability benefits remain tax free. It is highly recommended that you or your practice seek the advice of a tax professional familiar with your specific situation before taking action.

It’s also important to note that many mid-to-high earning physician specialists need more than one disability policy to cover 60% of their income. This is due to the coverage limits offered by disability insurance companies. Policy definition, structure and costs are all important items to consider when evaluating your protection needs.

Not All Disability Policies Are Created Equal

The nuances between disability insurance policies is beyond the scope of a single article, but there are some critical items to consider. First, many physicians combine employer and individual coverage. When combining disability policies, it’s essential to exhaust all possibilities for individual coverage before you take on any group coverage. That is because group coverage counts against you when determining the amount of coverage for which you are eligible on an individual policy.

Disability Insurance for Doctors

Secondly, while obtaining the proper amount of coverage is a priority, the strength of that coverage is just as important. In many cases, hospitals and universities offer “any occupation” disability coverage to their employees. These policies state that as long as you are capable of performing even the most menial tasks of employment, you are no longer considered disabled. In order to fully protect your future income, you should seek a rider for “own-occupation, specialty-specific” coverage. By definition, your policy would pay out full disability benefits in the event you can no longer perform your specialty.

Another desirable rider for your policy is known as a “future increase pool” which could also save you a substantial amount of money. Policies with this rider have locked in a set amount of future income protection with no further medical requirements. It usually just requires a short application and proof of earning to execute. An additional important piece in these policies are non-revocable, and guaranteed renewals as long as you pay your premium on time. This means your policy is essentially locked-in so that your premiums remain flat.

Research indicates that nearly a quarter of physicians plan to change jobs in the near future. It’s imperative to make sure that your disability coverage will not be affected by any change of employment. It is a good idea to review your current employment contract to verify whether your disability policy is portable should you move to a new employer. It may help your decision making process.

Preparing for the Future

When using insurance to protect against potential catastrophe, it is best to map out a risk management strategy before any unfortunate circumstances come to light. A proactive approach will put yourself and your family in a better position to prosper financially by limiting your risk exposure.

Have Questions?

References:

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 needs.

Building Healthcare Costs into Retirement Planning

By Amy E. Buttell

Healthcare planning is a sensitive subject that often takes you and your advisor places you don’t want to go. But given rising expenses, no retirement plan is complete without some kind of provision for healthcare needs. Here are some guidelines and resources for estimating your needs and expenses.

Healthcare costs are rapidly emerging as a major expense item both before and during retirement. With lifetime employment a relic of the past and longevity on the rise, it’s more important than ever to estimate how much to save to cover costs in retirement and include those expenses in your financial plan.

Not only are health care costs a huge factor in retirement, but they are also becoming a larger concern for pre-retirees. So the conversation about health care costs should not be confined to the years immediately before and during retirement.

Health concerns and health care costs should be an agenda item at each year’s meeting with your financial advisor — no matter what your age is. There are a number of issues surrounding health care and health care costs to be aware of, including the impact of how you take care of health care costs, what issues you potentially face pre-retirement, what you need to do to prepare for health care costs in retirement, and continuing adjustments you might need to make in your spending and planning during retirement.

Healthcare Status

There is one aspect of health care and healthcare costs that is controllable amid many that are not: whether you are in good health or not. For many with poor health, discretionary spending on items such as vacations may have to be diverted into health care in retirement, an outcome that is preventable in most cases.

To determine the state of your current health, visit the MedicareNewsWatch.com website. It defines three states of health—good, fair, or poor—very concretely in terms of number of doctors’ visits per year, number of hospital admissions, and number of prescriptions.

Doctor Financial Advisor

Based on data from the site and your location, you can determine the impact your health status might have on your expenses in retirement. The table below provides an example for residents of several different cities of the average annual out-of-pocket costs for Medicare Advantage plans based on the lowest-cost health plan in the site’s database. These costs include Part D (drug benefit) costs.

Doctor Financial Advisor

For many people in their early 50s, this is enough to motivate them to go home and get on the treadmill. Of course, there are circumstances that you have little control over, such as a cancer diagnosis. But even when disease cannot be avoided, becoming aware of the potential health care costs in retirement can make a difference in how you save and execute your financial plan.

Preparing for Retirement

While it’s good to start thinking about retiree healthcare issues and Medicare in your 40s, 50s, and early 60s, discussions should begin in earnest by age 63. Prior to that, it’s difficult to get a handle on the specific costs you are likely to incur.

However, at 63, it’s time to sit down and project actual costs. For couples, those costs are doubled— there are no health care discounts for couples. Topics to be reviewed include costs directly related to Medicare, including premiums and co-pays, out-of-pocket costs for items Medicare doesn’t cover, and costs for unexpected events, like a major health crisis such as cancer.

Many experts recommend computing health care costs going forward with a higher average rate of inflation than other retirement costs – maybe as much as two to four times the Consumer Price Index. It’s high, but rising health care inflation has been the norm for many years.

Your 63rd birthday is also a good time to get serious about digging into which specific Medicare plans you will choose. You may even want to enroll in Medicare when you turn 64 and through that year before you turn 65 because it can be a stressful and emotional time. Consider creating a step-by-step calendar of the dates involved in signing up for the various parts of Medicare.

In Retirement

The numbers involved in paying for health care costs in retirement are so large that it’s easy to shy away from incorporating those numbers into your retirement plan.

Some experts believe that a 65-year-old couple will need about $220,000 for overall medical expenses in retirement. For instance, Medicare Part B, which covers outpatient care, preventive and ambulance services, and medical equipment, will cost each person about $1,260 annually. The Medicare Part D drug benefit will cost an additional $580 per person per year. Medical expenses are usually at least an annual $5,000 per person at the start of retirement.

The good news is that this amount is something you can save up front, as well as fund as you go. As you age, your health care costs typically continue to increase beyond even inflation, mostly because you are sicker and likely to require more hospital visits, more medications, and more care in the home or in a nursing home. A large portion of health care costs in retirement occurs in the last few months of life.

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Amy E. Buttell has written about retirement planning for 14 years. She’s been published in many recognized financial publications.

Amy E. Buttell is not affiliated with Larson Financial Group.

Copyright © 2016 by Horsesmouth, LLC. All Rights Reserved

IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

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