Comprehensive Financial Review for a Salaried Physician
I met with a physician a few years ago. At that point in time, he was not married but had assets, if he were to pass a judge would decide who would receive them. At the end of the meeting, I had two goals, first to make sure he understood the value of being financially proactive and to make sure he understood the value of a comprehensive approach toward his financial life. I gave him the name of the best estate planner in the area who dealt with affluent families including many physicians. I suggested to the physician that after he put an estate plan together he could give me a call.
A while later the physician approached me with multiple financial goals, including:
- purchasing a larger house,
- sending their children to a private college,
- retiring comfortably,
- planning for the passing of assets in a tax-efficient manner.
I was there to help them achieve these goals and create a roadmap for a more secure financial future.
Purchasing a Larger House
The first step in achieving the family's goal was to purchase a larger house that would fit their needs. I put together a budget to determine the cost of the property and the amount they should pay monthly. I then looked at the current interest rates and suggested mortgage brokers where the family could get a mortgage. With the right guidance, the family was able to buy a beautiful home within their budget.
Sending Children to a Private College
The next step was to plan for their children's education. I suggested ways to save money on Pennsylvania taxes by investing in tax-free savings options. The family was able to set aside money for their children's education on an ongoing basis and watch it grow over time.
The family also wanted to plan for a comfortable retirement. I suggested numerous options to save for retirement, including a separate 401k plan, a cash balance plan, and utilizing the hospital system's profit-sharing plan and retirement plan. With the help of these plans, the family was able to put away a significant amount of money and save 40% on their taxes.
Planning for the Passing of Assets
Finally, the family wanted to plan for the passing of assets in a tax-efficient manner. I referred them to an attorney who specializes in working with physicians, as physicians have many peculiarities with their estate plans. I also set up investment LLCs to protect both parties from owning the investment and maximized the hospital's ERISA plans to protect assets, ensuring that only the spouse and the IRS could claim these assets in litigation.
As with most families who engage in my services, I am brought in for several reasons but I uncover many more areas where I can help with our comprehensive approach.
Changing Employment Position
The physician mentioned that he was looking to move to another hospital system. I gave him some ideas to consider. I also suggested a lawyer he should call that specializes in helping physicians negotiate contracts with all the hospital systems within 100 miles. Having a lawyer that has done many employment agreements for physicians understands each health system and what is standard in a contract as well as what physician requests may be acceptable in the contract. With my input, the physician was able to set up a separate company for his outside consulting which allowed for ownership of any intellectual property as well as accruing the benefits of owning a small consulting business.
Protecting Assets from Unjust Seizure
One in three physicians will face a malpractice claim which could seize unprotected assets. I also made sure that the family's assets were protected by suggesting low-cost asset protection strategies in the event of a malpractice suit, as the family's primary source of income. I reviewed the family's life insurance needs (income replacement) and used a proprietary formula to reduce the cost of term life insurance by 30% to 40% versus normal life insurance policies. This life insurance policy was put inside an irrevocable trust to protect it from any claims against him or his wife.
Reduce Tax Bill
We reviewed their tax return and suggested many ways to reduce their tax bill. One suggestion was to put tax-inefficient investments inside their IRA or retirement plans. Most families do not realize that a good year in the stock market could cost them 40% of the gains in taxes since they may show up as income on their tax returns. Additionally, we set up a charitable fund in which he was able to donate highly appreciated stock saving him 40% of tax on capital gains AND getting him a 40% tax deduction for his contribution. In all, he saved over $100,000/yr. on taxes.
With help from Handwerk Consulting, the family was able to put a plan in place for each of their financial goals and create a more secure financial future. They purchased a beautiful home, planned for their children's education, and put an estate plan in place which was very tax efficient and will be able to retire comfortably.
The physician and our team spent a fair amount of time on the phone with us giving input as needed on a multitude of other ideas and strategies which benefited the physician.
So aside from helping him with his initial goals, we were able to help him negotiate a contract with the hospital system with the help of a legal specialist. We put in several barriers to malpractice and other lawsuits since physicians are viewed as targets of opportunistic litigation to help protect their assets. We reduced his yearly tax bill by a substantial amount. The family now feels more comfortable regarding their financial future and can focus on enjoying their lives without worrying about money.