Doctors despise two things: lawyers and paperwork. Not surprisingly, many physician families are short on life insurance, lacking a will and have no plan to make sure their spouses and children will be financially secure when they die prematurely.
Estate planning may seem morbid and time consuming but there are a few easy things you can do to start getting on track with a bare bones estate plan.
1. Get $6 Million in 20-Year Term Life Insurance
Term insurance is the purest, simplest and cheapest form of life insurance and it’s the only kind of life insurance most physician families need. It covers you for a period of time (the “term” of the policy) and pays a benefit in the event of death. A 20-year term is adequate for most physician families since it covers the time between now and when your kids should be ready to go off to college. It also buys you time to accrue substantial equity in your home while you start building a retirement fund and a college fund.
Since life insurance benefits are free from income tax in most cases, a six million dollar benefit is enough to purchase or pay off a reasonably-priced home, send two kids to a top notch college and provide an income of $8,000 per month for the next fifty years, an amount comparable to the after-tax income of a primary care doctor. Premiums for a healthy young doctor who doesn’t smoke run about $10 a day.
Almost any licensed life insurance agent will do when it comes time to buy term life. The product is practically a commodity since the price is governed by your state’s insurance commissioner. You will have more options if you use an agent that represents more than one company, and you are likely to get a better deal. However, if the agent offers you “permanent” or “cash value” life insurance, particularly variable universal life (VUL), take your business elsewhere.
2. Make A Will
If you have an estate of $2 million or less (which is most young doctors), you can get away with a “simple” will that determines who will raise your children, who will handle any assets you leave them, and who gets the rest of your “stuff.”
While all states have “intestate laws” that determine what happens when you die without a will, these laws vary from state to state and may leave very important decisions in the hands of the court system.
Ideally, you and your spouse would carefully select a competent, caring attorney, have them custom-craft all of your estate planning documents and give you counsel over the coming years to keep everything on track. However, if you are pressed for time and you wouldn’t otherwise seek legal counsel, you can make a DIY will using software products from LegalZoom or Nolo to get the job done.
3. Check Beneficiary Designations
Some assets—retirement accounts, college savings plans, health savings accounts and property held in joint title can pass to your heirs and beneficiaries by a process called “will substitute.”
Assets transferred by will substitute have a built in mechanism that determines what happens to them upon death. Joint assets pass to the surviving joint tenant. Retirement accounts pass to the named beneficiary and so do health savings accounts. College savings plans pass to the “successor account owner” (not the child, in most cases).
If you haven’t reviewed these beneficiary designations and titles in the past three years, it’s time to check into the matter. You can login to your retirement accounts (401k, 403b, Roth IRA). You can call the company that holds your 529 plan. You can find out exactly who owns your house by visiting your county's recorder, tax assessor or appraisal office online. No attorney required.
While this may seem redundant, you might be surprised by what you find: no beneficiary designation at all, accounts left to minor children, property held with ex-spouses, etc.
4. Make Things Accessible
There’s nothing like the convenience of an online bank account. You can login any time you like, check your balance, move money around and pay your bill. However, if your spouse cannot access your online accounts, the hours and days after your demise will be difficult and scary for them.
To make life easier for your survivors, put your usernames, passwords and other login credentials (including the secret answers to account verification questions) in one secure place where you can grant access. Password management software like Lastpass makes it easy to keep this information secure while allowing you to share it with people you trust.
While this “one size fits none” approach to estate planning will not reduce estate taxes or avoid probate, it’s better than nothing and it goes a long way toward easing the post-death transition for surviving family members.
If you are interested in a custom-tailored estate plan that can protect your assets and keep your family on track with their finances even if you die, contact us for help or check out our guide to estate planning for doctors.