Orthopedists should engage in basic estate planning as soon as they begin practice. The three main parts of comprehensive estate planning may overlap. This article discusses incapacitation planning and estate distribution planning. Transfer tax planning, which concerns gift, estate and other taxes that may be triggered when transferring wealth during life or at death, will be discussed in a future article.
Incapacitation planning deals with decision-making regarding legal, financial and medical issues if you are unable to make decisions for yourself, such as if you are hospitalized. It is unrealistic to assume family members will be able to make decisions in such a situation. Rules for such decisions also vary by state. The decisions are sometimes left up to the health care providers and institutions in charge of an individual’s care.
David B. Mandell
Orthopedic surgeons should have several key documents in place that are typically prepared by an estate planning attorney, the exact names and requirements of which are controlled by state law. These might include a living will, which is a written record of the medical care you desire in specific circumstances; a health care proxy, which names a trusted person as your proxy or agent to express your wishes and make health care decisions if you are unable to make them; an advance directive, which typically combines the living will and health care proxy documents; and a power of attorney document, which names someone you trust as your agent to make property, financial and other legal decisions on your behalf.
Estate distribution planning
Estate distribution planning concerns what happens to assets upon death. If you die without a will, your property passes under the scheme your state legislature has written for its citizens, known as dying intestate. The laws dictate that the nearest relatives of someone who dies intestate get a portion up to the state-allotted share of the decedent’s property, but friends, charities and others do not. The decedent’s grown children may get some of the money meant for the surviving spouse, for example. The impractical effect on larger estates could be creation of an estate tax payable when the first spouse dies, if the children’s intestate share of the estate exceeds federal or state exemption amounts.
A possibly upsetting aspect of intestacy concerns minor children because the courts decide who becomes their guardian, if both parents die intestate. Furthermore, minor children receive their share of the estate when they turn 18 years old, rather than at a more appropriate later age that can be specified with proper planning.
Although estate planning documentation is state-dependent, in every state, it is better to have a will than to not have a will. However, in many states, with a will alone, your entire estate may be stuck in probate, the court-controlled process by which the state administers your will. Estate planning advisors in most states recommend combining a living trust with a short will called a “pour-over will.” This ensures much of an estate avoids time-consuming, public and costly probate.
A foundational document
A living trust, sometimes called a family trust or revocable family trust, is a common name for a revocable trust that provides direction for the use of your assets while you are alive and at the time of your death. It is revocable, meaning you can revoke or amend it anytime during your life. During your life, you, the trustee, manage and control the assets transferred to the trust, just as if you owned them in your own name. When you die, the trust assets pass automatically to whomever is designated in the trust, outside of the probate process. Other benefits of the living trust include avoidance of unintentional disinheritance caused by joint tenancy and prevention of court control of assets if you become incapacitated. Therefore, orthopedists may want to use a living trust as their foundation estate planning document.
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Sanjeev Bhatia, MD, is an orthopedic sports medicine surgeon at Northwestern Medicine in Warrenville, Illinois. He can be reached at email: email@example.com.
David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group www.ojmgroup.com. You should seek professional tax and legal advice before implementing any strategy discussed herein. He can be reached at firstname.lastname@example.org or 877-656-4362.
Disclosures: Bhatia and Mandell report no relevant financial disclosures.