We are all going to die.
We somehow expect doctors and lawyers to be more keenly aware of this fact than average folks, but they are exceptionally likely to procrastinate about estate planning, for a variety of reasons. Even with advanced education, or perhaps because of it, doctors and lawyers die intestate at rates equal to the general public. More than 60% of Americans currently don't have wills.
Lawyers
Lawyers are the proverbial cobbler's children - no shoes. They graduated from law school. They know what needs to be done, and have even seen firsthand the problems intestacy creates. If Legal Zoom, RocketMatter, and Quicken Willmaker promise fast, easy, cheap Wills, certainly you can produce the documents your family needs - once the trial is finished, the transaction is closed, the books are caught up, the vacation is over. Perhaps you have an estate planner friend like me who patiently hounds you - but your financial questionnaire remains uncompleted. Some lawyers are embarrassed to admit they have not exercised their basic legal right to direct the disposition of their property at death. They shouldn't be, because they are in large company.
Doctors
It's not a great secret many doctors don't really like lawyers. Or, they can at least think of many ways they would rather spend their limited free time than sitting in a lawyer's office. As a constant target of lawsuits, doctors need estate planning and asset protection planning more than anyone else (except maybe lawyers, who are increasingly targeted in malpractice lawsuits). They have worked too hard, and sacrificed too much, to endanger their security by failing to plan. Doctors enter practice with high debt and high liability. They begin earning only after four years of college, four years of medical school, a demanding residency and fellowship, while their college peers have been busy accumulating assets, working much shorter hours. In fact, the Accreditation Council for Graduate Medical Education (ACGME), which oversees residency programs, has mandated residents decrease workloads to a “mere” 80-hour workweek. With hardly enough time to pay bills - and all the same "stoppers" as any other young family, important planning remains undone. When practice actually begins, doctors are playing catch up and are still struggling to find time for their families.
Choice of business entity
Their first major planning decision for many professionals may be the choice of business entity for their own practice. If they are partnering with others, these decisions are even more important, as partnership mirrors marriage in many respects - divorce is difficult. Working as a sole proprietor or a general partnership will almost never be the best choice, because it exposes professionals to the greatest personal liability. There are a number of limited liability and corporate entities for professionals, the expense and complexity of each to be weighed against its advantages. Decisions will often turn on the size of the practice, and the type of benefit programs desired.
Planning to be judgment proof
There is nothing illegal about arranging your personal assets in such a way as to be judgment proof, as long as a transfer does not amount to a fraudulent conveyance intended to defraud creditors under the Statute of Elizabeth. In fact, if a doctor or lawyer operates as a sole proprietor, it is almost a necessity. While transfers cannot be made to avoid an existing liability or judgment, placing assets in a spouse's name (a whole different set of risks - and ante-nuptial agreements are another topic), in a limited liability company, or in a family limited partnership can protect those assets from being liquidated later by a claimant or a creditor. Certain transfers, such as those to 529 plans, known in South Carolina as Future Scholar, are statutorily exempt from legal process (as long as they are not fraudulent transfers at the time they are made). All persons engaged in a business of any kind should also make themselves familiar with the S.C. exemption statute. While ownership may not be re-arranged to take advantage of the statute once a person is in financial distress, significant protection can be achieved by paying attention to the limits for each asset type under the exemption statute as assets are acquired.
(An example: ensuring you never have more than $5,000 equity in a vehicle, either because you love your vintage Volvo, or because you trade for a new car every 2 years, will protect that asset from a claimant who might otherwise execute against the vehicle to strip the excess equity.)
(An example: ensuring you never have more than $5,000 equity in a vehicle, either because you love your vintage Volvo, or because you trade for a new car every 2 years, will protect that asset from a claimant who might otherwise execute against the vehicle to strip the excess equity.)
Trusts for family members
While the S.C. Trust Code provides no asset protection for a self-settled trust (your assets, that you place in trust, for your own benefit), you may create trusts for others, removing the property from your personal estate, and wrapping it in an asset protection layer for them, that would not be available to you, personally. Property can be protected from children's creditors, from their divorcing spouses, from their own exuberance. The greatly increased exemption amount for lifetime transfers has removed a major obstacle to this type of planning, but it is still important to understand this only works when you have given the property away. If you can access the property, so can claimants. But for professionals with significant assets that are not needed to maintain their lifestyles, there are a number of planning options worth exploring.
Tax planning is alive and well
The combination of higher personal exemption amounts ($12,060,000 for 2022, per person), lower estate tax rates (currently, 40% top marginal rate), and "portability" (the ability of one spouse to use a deceased spouse's unused exemption amount) have led many to feel that estate planning is no longer necessary. It would be more appropriate to say that much planning has shifted to basis issues for capital gains assets, and that the larger exemption amounts, particularly for generation skipping transfers, have opened a host of new opportunities, in gifting, trust creation, and dynasty planning.
For couples whose assets exceed $24,120,000, together, or whose estates might appreciate to that level, tax planning remains extremely important. It is also important to point out the new larger exemption amounts under the 2017 tax law provisions sunset in 2025, so including provisions for estate tax planning flexibility remain important. Contingent disclaimer trusts can address some of these concerns.
However, for many professionals with Wills drawn under prior tax laws, it may be just as important to revise your Will to strip out formula language that is no longer needed, or accomplishes a result different from what you intended. Many older Wills contain bypass or credit shelter trust formulas that effectively disinherit a spouse under the new exemption amounts, by placing the entire estate into a bypass trust. This continues to have a positive result, in that the property will not be taxed at that spouse's death - but perhaps it wouldn't have been anyway, using the second spouse's new increased personal exemption, particularly when added to the first spouse's unused exemption amount - and it has a negative capital gains result, in that those assets will continue to carry a cost basis as of the first date of death, rather than being stepped up to fair market value at the survivor's death.
The new exemption amounts are game changers. If your Will is more than five years old you should review it with an attorney.
For couples whose assets exceed $24,120,000, together, or whose estates might appreciate to that level, tax planning remains extremely important. It is also important to point out the new larger exemption amounts under the 2017 tax law provisions sunset in 2025, so including provisions for estate tax planning flexibility remain important. Contingent disclaimer trusts can address some of these concerns.
However, for many professionals with Wills drawn under prior tax laws, it may be just as important to revise your Will to strip out formula language that is no longer needed, or accomplishes a result different from what you intended. Many older Wills contain bypass or credit shelter trust formulas that effectively disinherit a spouse under the new exemption amounts, by placing the entire estate into a bypass trust. This continues to have a positive result, in that the property will not be taxed at that spouse's death - but perhaps it wouldn't have been anyway, using the second spouse's new increased personal exemption, particularly when added to the first spouse's unused exemption amount - and it has a negative capital gains result, in that those assets will continue to carry a cost basis as of the first date of death, rather than being stepped up to fair market value at the survivor's death.
The new exemption amounts are game changers. If your Will is more than five years old you should review it with an attorney.
*Z.V. Morgan, Jr., M.D., my father.
Z.V. Morgan, Sr., my granddaddy, was a lawyer and a NC state senator. Their photos are scattered through this site. The photo top left is my maternal grandfather, J. Churchill Robertson, M.D., a physician from Virginia.