Physicians must have a solid plan in place to deal with taxes and retirement.
Since 2001, the tax code has undergone 4,680 changes-an average of more than one change per day. Even worse, physicians are paying more in taxes. Because of these trends, intelligent tax preparation has become essential, not optional.
“Be careful to leave your sons well instructed rather than rich, for the hopes of the instructed are better than the wealth of the ignorant.” – Epictetus.
Research cited in a 2013 Wall Street Journal article found that 70% of an affluent family’s wealth is typically gone by the end of the second generation, and 90% is destroyed by the end of the third. Nearly every culture has some version of the axiom “from shirtsleeves to shirtsleeves in three generations,” dating back to China over 2000 years ago. The proverb describes how the first generation works hard to create a fortune; the second generation enjoys its spoils, substituting hard work with entertainment, and the third generation—with no role model to follow—squanders what remains of the fortune, relegating their children to starting the process over again.
Fans of the HBO series Boardwalk Empire, will remember when Nucky, the boss, and Jimmy, the ambitious protégé, speak the night before Prohibition is enacted. Despite Jimmy’s Princeton education, he discovers he won’t have a major role within the business, which happens to be organized crime. Robust bootlegging operations in America between 1920 and 1933 provided easy cash for those willing to operate outside of the law. And many were.
Estate planning is an often-neglected aspect of wealth management, because it involves thinking about an inevitable reality few wish to confront. Thinking about the fine details and nuances of what will outlive us and be passed on to heirs can prove daunting even for the most pragmatic of physicians. Nevertheless, ignoring it is a mistake.
When a dentist has worked hard and invested well over the course of a lifetime, it is no surprise for a sizable nest egg to be the fruits of this labor. However, financial abuses can all too easily put large cracks in the egg. Often silent and unreported – or widely underreported with no easy or immediate solutions – elder financial abuse can affect even the savviest of dentists.
An ethical will communicates beliefs, ideas and life-defining experiences which, when unwritten, often go unknown.
Socrates said, “The unexamined life is not worth living.” A will and estate plan clearly specify the distribution of assets — but what about personal values, memories, ideas about mistakes to be avoided after decades of trial and error, as well as general wisdom? The ethical will provides families with the chance to know their loved ones better and for the writer to express what often goes unsaid. This valuable information could serve to unite a family during trying times or times of strong differences of opinion.
Today’s challenges in the practice and business of medicine include a national healthcare overhaul, EHR, and more patients to care for as the number of primary-care physicians decreases. At first, this seems to indicate that chiropractors will have to work more to receive less. And this may be especially true for those who neglect long-term planning.
Still, having a financial game plan is only one component of working smart — albeit a large one. Some families just seem to get it right; they make their money and they keep it. But given the demands of running a practice, business expenses, and life’s surprises, how is this even possible?
In the late-18th and 19th centuries, Mayer Amschel Rothschild established five family banks, in Frankfurt, London, Paris, Vienna, and Naples, and assigned one to each of his five sons. His action secured the assets of Europe’s wealthiest family and preserved his descendants’ control of their wealth and affairs for generations. It gave the sons the tools to do business on their own and to cooperate with one another.
50% or more of a family fortune could end up in the hands of the Internal Revenue Service if it is not properly protected. Many people plan ahead to avoid overpaying income tax, but what about estate and gift taxes? Family Limited Partnerships (FLP’s) are an excellent option to lessen their blow. FLPs offer multi-layered benefits by providing senior family members with several advantages—all without ceding control of the assets to junior family members.
While limited liability corporations often are the go-to method for incorporating a physician’s practice, there are further considerations every practice owner should make.
Physicians are innovative thinkers, but their formal education does not reveal the nuances between different corporate structures. These options, including limited liability corporations (LLCs), S corporations, and C corporations, provide physicians with a range of options when considering how to incorporate a medical practice.