Estate planning for physicians

By Ronald I. Nagel, Esq. & Robert A. Wade, Esq.

Aside from plain old procrastination, one of the main excuses that people use to avoid executing a will is the belief that their estate is “not large enough” for estate tax concerns. While it is true that Federal estate taxes are not a concern for estates under $600,000, estate planning is more than just tax planning. With recent headlines about the rise to one million dollars of the estate tax exemption, even more people believe that a will is not necessary for their modest estate.

For example, no one would think of entrusting their family savings to their eighteen year-old “pony-tailed” rebel son while alive, so why don’t they take steps to avoid this result after their death? Responsibility and adolescence are often mutually exclusive concepts. However, many individuals ignore this by failing to have a will. If you die, absent a will, half of your estate may pass under the intestacy laws to your children, and not to your spouse. And if your children are minors, your spouse won’t necessarily be able to use “their” money to support them. You may think this would never happen to you. Too often however, it does.

Consider Dr. John and Jane Procrastinator, who live on the Main Line outside Philadelphia. They have an eighteen year old son, John, Jr. who is a Freshman at Penn State. John, Sr. is a new partner in an internal medicine practice, and Jane is thinking about going back into the job market when she gets her masters in a year or so. They own a $250,000 (with no debt) home in joint names, a couple of relatively inexpensive automobiles, a $3,000 joint checking account and $125,000 in mutual funds and other investments that are just in John’s name because Jane never got around to signing the applications. John also has $50,000 of group term life insurance through his “employer” that names his estate as the beneficiary because that is what the office manager told him the other doctors do.

John and Jane have never gotten around to signing a will, but on John’s death, Jane will be secure in their paid-off home with $178,000 to “tide” her over while recovering from John’s death, right?

Wrong!

Jane will get all of the jointly held property by operation of law, and no Federal estate tax will be owed. John, Jr., however, will be legally entitled under Pennsylvania law to $72,500 of the liquid assets. So when John Jr. decides to “find himself” in Alaska with his new found wealth and takes off with his roommate, there will be further grief beyond the loss of John Sr.

This example may seem farfetched, but there’s really nothing extraordinary at play here. The Procrastinators’ estate is certainly not “large” enough to cause any tax concerns, just big enough to create problems a will would avoid. Things could get worse though if other factors are involved: minor children, spouses of children, etc. A will ensures that your property goes where you want it to go, not where the State thinks it should go.

An added benefit to having one’s will prepared is that an estate planning attorney should also be able to help you determine if your assets are sufficient and properly titled. Purchasing life insurance, or retitling assets can be fairly painless while alive, but impossible after you are gone. In our example, the Procrastinators would have been well served by advice on both of these subjects.

Having a will also gives you the additional benefit of allowing you to name the person who will wrap up your affairs and handle your estate: your Executor. The Executor is responsible for collecting up your property, filing tax returns and distributing your estate in accordance with your will. The Executor will have access to some very sensitive material, and the choice is not to be made lightly. Without a will, however, this choice is taken out of your hands. The rules, in the absence of a will, are rigid and may require all of your family to agree on a choice. If they can’t, the Register of Wills (a local official) will make the choice for you. This can be a very time consuming, expensive, and tedious process, and what’s more, your assets are inaccessible until the appointment is made. Even if the beneficiaries are in agreement as to who should be the Administrator, they will be required to go through some extra steps to get the appointment made. The duties and legal responsibilities of an Executor and Administrator are basically the same, but you get to choose the Executor. Moreover, in a properly drafted will, you can tailor the powers of your chosen Executor to fit your special needs; not so with an Administrator.

If you have young children (under age 18), the need for a will is even more imperative. With a will you get to name who will be the guardians of your minor children in the event of your death after or simultaneous with the death of the other parent. The guardian will raise your children and may manage any property which they inherit. This may be the single most important decision you could ever make. By not having a will, you are leaving the decision up to the courts. Is this really a decision you want a stranger to make?

There are many problems caused by not having a will. All the problems have a common theme, however. With no will, the state or someone not chosen by you will make decisions about your family, your money and their future. With a will, though, you are in control. Preparing a will is relatively inexpensive and easy to do; dying without one can cost your estate and your survivors plenty.

Ronald I. Nagel, Esq., and Robert A. Wade, Esq., are with the law firm of Wade, Goldstein, Landau, Abruzzo, MacKarey & Davidson, P.C. in King of Prussia, Pennsylvania.