If a disastrous event happens, will your family be prepared?
Hugh F. Doherty, DDS, CFP, and
Ginger Doherty
Life`s little practical joke: You start out in your 20s, scrambling to make ends meet, paying off those tuition bills, getting your feet on the ground. By your 30s and 40s, your career is on its way. You marry, soon you buy a house ... perhaps sink some money into the stock market and a few mutual funds ... and start to attain the kind of financial security you dreamed about. By the time you`re in your 50s and 60s, you have hit high gear. The house is paid off, the kids are out of college, your working days will soon be a distant memory, and much of your free time seems to be spent pouring over retirement statements and stock-market reports - all attesting to the fact that you`ve done a pretty good job at managing your money over the years ... or so you thought.
Then one day a disastrous event happens, and that`s when the joke kicks in. You thought you were prepared for total future financial security, but discover to your chagrin that you haven`t done your homework. You didn`t get high grades for protecting your family and assets. It is glaringly evident that you failed miserably.
What happens if you, the breadwinner, become a victim of a heart attack, a long-term illness, disability from a serious accident, or - the ultimate - death? The result is that your "loved ones" are left unprotected. How unfortunate that the people you care most about - your family - will not have the resources or the correct advice to continue their accustomed lifestyles.
Nothing is easy
Disasters of this magnitude can potentially ruin the spouse and family. The many financial decisions they face will have high impact on their future. Some of those decisions might be how to manage personal and practice finances, keep the practice running (if the doctor becomes disabled) or sell the practice, maintain the proper allocation of moneys received from wills or trusts, and protect assets from creditors. Many times the survivors rely on "wisdom" passed along by self-serving advisors and/or well-meaning colleagues and friends. Unfortunately, much of that imparted "wisdom" is simply not the best.
The message is clear
Regardless of age, doctors and their spouses must plan for the unexpected. The learning objective of this article is to show how to prepare the spouse and other family members for the unexpected, as well as provide strategies to protect assets.
The dentist works too hard building up these assets to leave them unprotected. The ideas, views, and solutions we present will be from the real-life experiences of our clients, not those of self-serving financial salespersons - life insurance, stockbrokers, accountants, or attorneys.
To determine how prepared you are to survive should an unexpected catastrophe impact you and your family today, stop now and take the quiz in figure 1.
Score your responses to determine which zone you are in. If you are in the red zone or the yellow zone, you have major work ahead to avoid the risk of disaster that may loom down your path.
Women and money
Today`s women have become knowledgeable in a variety of areas. Yet, as mentioned previously, one of the single most important strategies to survival is preparing your spouse for the unexpected. Spouses remain woefully uninformed and uncertain when they become widowed, divorced, or face caring for a disabled doctor. The latest statistics from insurance companies reveal that, on the average, women outlive men by seven years. That data means they most likely will be on their own at some time in their adult lives. Decisions relating to money management will rest in their hands. Are they prepared for that day, a day that could evolve into many years? The learning curve comes from the management of one`s own money, not from delegating those tasks to someone else.
To be ignorant of money matters is to remain a powerless outsider to an enormously significant aspect of daily life. By failing to participate in long-term money management, a spouse can end up giving up her power and right to be financially aware and independent. Unfortunately, most women wait for a life-altering event as their wake-up call. Why wait for a crisis to propel you into taking charge of your finances? It is our objective to assist doctor and spouse in gaining the confidence they need to use, handle, and invest their money.
Why this lack of preparation to handle money matters? Here are three of the main reasons ...
Procrastination - Yes, we know there`s a good reason why a lot of people fail to spend enough time on their financial planning. Unless you possess the soul of a certified public accountant, it`s hardly the most riveting of topics. The thought of spending hours going over the minutiae of your personal finances, slogging through the laborious process of drafting a will - not to mention the less-than-pleasant experience of having to concede your own mortality - is reason enough to keep many people from tackling the task. But ignoring the problem - or waiting too long to do something about it - can easily backfire.
(1) Lack of planning - Having an effective strategic financial plan is an important first step. You may want to take time now to review your present plan. The answers to these questions will help you in your overall planning. How well would your plan do in overcoming any of the potential catastrophes mentioned? Would it continue to meet your future needs? Can you improve it? Protecting your accumulated assets is such an important part of planning. Taxes, inflation, and unanticipated expenses can diminish the value of your assets. To protect them, you have to plan for unexpected expenses - a prolonged illness; anticipated, but out-of-the-ordinary expenses, such as retirement or a child`s education - as well as ordinary living expenses, taxes, and inflation. Otherwise your plan may not accomplish or meet your objectives.
(2) Overprotection - A large percentage of our female clients wish they had learned more about "money management while growing up." Most feel that they don`t have the "know how." Their primary reasoning was that they had never had any direction on "how to handle money," or "their father did it for them," or they were clueless as to "where to begin." When they got married, their doctor-husband further enhanced this picture because there was no sharing between spouses about the home or practice finances. The doctor usually wants to protect the spouse from worry over such matters. When this type of financial environment exists, the spouse - in later years - is left on "a hard rock" when she becomes the sole financial decision-maker for her survival and the family`s. Here are some solutions to the problem of protecting doctor, spouse, children, and assets against possible future calamities.
Planning makes the difference
To set goals and interact with advisors is definitely a good start, but there is so much more! You can`t stop at goal-setting. You must implement a strategy that matches the defined goals. Greater spousal involvement translates into a more successful result.
Look around at your friends, neighbors, relatives, and even parents of your children`s friends. Do they have perfect lives? Is everything running smoothly in their households, with no problems at home or work, no tragedies, separations, or divorces? Is this the real world? We don`t think so. Problems and bad news are everywhere ... maybe even right under your own roof.
Believe it or not, concerns about money are a big factor, but proper planning for the future by doctor and spouse together is an even bigger one. Planning together is a must.
Safety in numbers
This section is strictly devoted to helping spouses be prepared for future situations that could potentially overwhelm them. There is absolute truth to the term "safety in numbers." You learned it as a child, and it was part of your thought process as you entered adulthood. Now it can apply to an event that could change your life. You`ve taken the quiz and know whether you are in the red, yellow, or green zone; now it is time for you to take control of the elements that impact your life. Here is where "safety in numbers" comes into play. You need to reach out to all of the spouses in your local dental society. Contact the head of the dental society and get a list of all the members. Take the initiative in making the contacts. Send a copy of this quiz to all of the doctors` spouses and ask them to take the quiz carefully. Invite them to join your newly created club - not a cooking club or coffee clutch, but a "TLC Club" (Taking Life Controls Club). The mission of your club is to get the dental spouses to understand the overall financial picture in their homes and in their practices. The second part is to familiarize yourself with the preparation needed for the unexpected if and when you are asked to take charge. Once you have your TLC group formed, your next step is to develop an action list of what needs to be done. Here are some ideas that should be shared with the group ...
- Learn how to use Quickbooks Pro 2000. Making your way through the financial makeup of the practice and your personal life may seem like a monumental task. The benefit is that you will have complete knowledge of both your personal and practice finances. A woman who is naive in matters of business is a conspicuous target. Mastering Quickbooks Pro 2000 is easy. Call (800) 544-9653 for more information to help organize the monitors necessary for a dental practice. You can go from being slightly naive to a financial wizard.
- Learn as much as you can about how the practice is run without working in the practice. A practice doesn`t stop just because of a heart attack ... or if your spouse has passed away ... or if the two of you are splitting up. It is very possible that you will be called upon in the early days of a crisis to make major decisions about the future of the practice. Any woman who isn`t informed about the inner workings of the practice is setting herself up for potential problems.
- Determine your net worth annually. That includes all of your assets and your liabilities. This helps create a starting point to understand just where you are currently.
- Be aware of all liabilities or debts that are personal or that the practice may have. You must have a handle on these figures at all times in order to keep yourself focused on the larger financial picture. You could also be responsible for paying those debts back one day.
- Have a list of all your important documents. Discuss where they are located - either at home, at the office, or in a safety-deposit box.
- Disability planning is a must. Who will manage the assets and make health-care decisions if the doctor becomes incapacitated and can no longer handle these responsibilities? Who will manage the practice if the doctor is a solo practitioner and becomes disabled? This is a serious concern that many doctors don`t address in time. Unless you plan ahead for disability, this could be a real crisis.
- Learn about the importance of estate-planning. Invite an estate-planning attorney to speak to your group. The powerful information shared will encourage you to move forward to understand the importance of proper planning in this most neglected area.
Estate-planning issues to address
Listed below are areas of concern that need to be addressed ...
- A will, which is a legal document that allows you to direct how your estate will be administered and distributed.
- Guardians for your minor children.
- Proper beneficiary designations for life insurance proceeds, qualified retirement plan benefit, annuities, and Individual Retirement Accounts.
- Living revocable trust, an agreement that provides for your trust to continue after your death. The assets in the trust at your death will escape probate and any ensuing publicity.
- Choosing an executor is one of the most important estate-planning decisions you will need to make. As your executor or personal representative, the executor will administer your estate and distribute your assets to your beneficiaries as you`ve directed in your will.
- Bypass trusts for both doctor and spouse. A bypass trust allows both you and your spouse to take advantage of the maximum unified credit the IRS allows to be passed on tax-free.
- The unified credit - Take full advantage of the unified credit, the most obvious estate-planning tool of all. Divide equally the assets owned between the doctor and spouse.
- Buy term life insurance only to protect the family and allow them to maintain their current lifestyle.
- Create an irrevocable life insurance trust to help beneficiaries receive the total proceeds from the policies.
- Have your practice evaluated professionally - The practice can represent an enormous amount of money to you. For many "suddenly single" women, a house, an investment portfolio, and maybe jewelry or collectibles come to mind when you think of assets you own, but practice interests must not to be overlooked as they can be quite substantial.
- Have a Qualified Terminable Interest Property (QTIP) trust - You can give your surviving spouse a life income and choose who will receive the property in the trust after your spouse`s death; i.e., your children or grandchildren.
- You should include disability and long-term-care insurance in your estate plan to help preserve assets for your family and other heirs in the event you become incapacitated.
- A living will or durable power of attorney for health care helps ensure your wishes are carried out if you are unable to make health-care decisions for yourself. A living will speaks for you when you are unable to do so. Usually, the purpose of a living will is to express your desire not to receive extraordinary medical treatment. A durable power of attorney for health care - sometimes called a health-care proxy - designates someone else to make decisions for you if you are unable to do so.
- Buy/sell agreement - If you have a partner or an associate, make sure you have a buy-sell agreement, which provides for an orderly transfer of the practice.
The unsung heroes
Spouses are the unsung heroes of the dental profession. Don`t let the reality of becoming "suddenly single" be a threat. When such an event takes place, the overwhelming factor of simply acknowledging the event itself can be staggering, without also having to deal with weighty personal-finance issues. This became a personal reality for us when Hugh survived a near-death experience seven years ago. Fortunately, we were able to practice what we preach.
If you are properly prepared to handle the realities of life - including estate planning, practice management, and finances of both home and practice - the transition from spouse to solo decision-maker will be within your reach.
Hugh F. Doherty, DDS, CFP, is a Certified Financial Planner, national lecturer, financial adviser to the health-care profession, and CEO of Doctor`s Financial Network. For further information on lectures, study club workshops, or consultations, you can fax to (732) 449-3229, send e-mail to [email protected], call (800) 544-9653, or visit www.dr.hughdoherty.com.
