By: Edward J. Leach CFP®, MBA
In today's video, Certified Financial Planner™ Ed Leach delves into a crucial yet often overlooked aspect of estate planning for dental practice owners. For both your personal and business life, ensuring the correct legal documents are in place with updated beneficiaries is essential. This video will provide a quick overview of all the estate planning documents and their purpose for your financial health.
Welcome Back to Financial Planning for Dental Practice Owners
Hi, everyone. Welcome back to our series of financial planning videos for dental practice owners. What I want to talk to you today about is the importance of having certain documents in place. They're traditionally called estate documents, but these documents ensure that you have a continuity plan for your practice if, God forbid, something were to happen to you—either death, disability, or incapacitation. They make sure the practice is secure, the asset is secure, and that you have the right documents in place to take care of your personal situation. So, I'm going to break this video down into talking about a set of personal documents you should have as well as business documents that you should have.
Personal Documents
Starting off with personal documents, traditionally, many people will immediately think that they need to put a will in place. However, while you're living, the two most important documents you should have are:
Durable Power of Attorney
This is essentially a document that designates someone to make financial decisions on your behalf if you become incapacitated or unable to make financial decisions on your own. Traditionally, this person is a spouse, and you'd also want to include some successors, such as kids or a trusted relative—somebody you believe would be able to make those decisions on your behalf.
Advanced Health Care Directive
Also known as a health care power of attorney, this document ensures appropriate HIPAA language is involved. Just like a durable power of attorney authorizes someone to manage your finances, this document expresses your medical wishes if something were to happen to you. It specifies who will make medical decisions on your behalf if you are incapacitated and who will have access to your medical records if needed.
These are the two most important documents that you should have while you're alive because, oftentimes, we think of estate documents traditionally involving death, but there are also many situations where incapacitation occurs. If God forbid, something were to happen, those are the two most important documents you should have from an administrative standpoint.
Will
The third most important document is a will. This document outlines who will be the executor—the administrator—ensuring that all your accounts, investments, assets, and dental practice go to the right place, individuals, or trust if one is created. It also specifies to whom these assets are being passed and in what form.
Oftentimes, we think a will controls all of our assets or accounts, but one of the second most important things, in tandem with a will, is to review beneficiary designations. Not all accounts will end up going through your will if they are appropriately titled. For example, retirement accounts, 401(k)s, and life insurance—make sure all your beneficiary designations align with your will. If you have a retirement account you wish to pass to a spouse or your children, and in your will, you say you leave everything to me, believe it or not, that retirement account will go to the beneficiary designations you put in place, not to me because your will says so.
Revocable Living Trust
The fourth document, and this is something many of our clients have, is a revocable living trust. When you hear the word trust, you might think of giving up control, but a revocable living trust is something put in place while you are alive. As the trustee of that revocable trust, you can move assets around, retitle assets, and make investment decisions—you still have complete control. Titling assets in the revocable trust avoids probate. Whenever you hear the word probate, think administrative duties. Avoiding probate brings ease to the administration, especially if you have assets in multiple states.
Lastly, it's important to remember that having a will and a revocable trust is not enough. The most important thing is to get these documents in place. The second most important thing is to ensure all your assets are titled appropriately. If you create a revocable trust but none of your assets are titled there, a pour-over will essentially grabs all those assets and put them into your revocable trust. If you have assets out of state or not titled in that revocable trust, you will lose the ease of administration.
Traditionally, when clients work with their estate planner to design these documents, we're part of that process—guiding and advising, ensuring a full inventory of all assets and accounts is appropriately titled in the revocable trust or jointly or has the correct beneficiary designations. It's an often overlooked step in the estate planning process. You may have a great stack of documents, but it's crucial to ensure all assets, specifically your dental practice, are titled correctly.
Documents for Your Dental Practice
The last piece I want to talk about is the documents you should have in place for your dental practice.
Buy-Sell Agreement
First, if you have partners or co-owners in the practice, likely you already have a buy-sell agreement in place. If not, you need to get one. A buy-sell agreement outlines what happens to an owner's shares in case of death, incapacitation, disability, etc., and includes valuation and funding methods to govern the practice.
Practice Continuation Plan
If you're a solo owner, it's unlikely you have a buy-sell agreement, but you should have a practice continuation plan. Whether you're a solo owner or have partners, this plan ensures that your patients are taken care of if something happens to you, and the practice remains operational. For example, if you are temporarily disabled, arrangements should be in place for another dentist to cover your practice, ensuring continuity and protecting your assets.
Business Succession Plan
Additionally, a business succession plan outlines potential successors for your practice. Communicating this plan to the successor is important. It should outline valuation metrics to ensure your family is compensated if something happens to you.
Summary
In summary, today we discussed the importance of having certain estate and legal documents in place for both your personal situation and your practice. Personally, ensure you have your Advanced Health Care Directive, medical power of attorney, Durable Power of Attorney, wills, pour-over wills, or revocable trusts. Review all investment accounts, bank accounts, and assets to ensure appropriate titling.
From a business perspective, ensure you have updated buy-sell agreements or operating agreements if you have partners. Whether solo or with partners have a practice continuation plan and a business succession plan in place. These steps protect your assets and family.
Thank you so much for listening today. Down below, in the description of the video, I'll include a helpful checklist outlining all the documents mentioned. If you're interested in a free initial consultation, head over to our website to schedule a quick 15-minute phone call with one of our advisors. If you're enjoying these videos, hit that subscribe button to get notified of new posts. Thank you so much, and I'll see you soon!
Ed Leach, CFP®, MBA, is a Partner and Wealth Advisor at HIGHLAND Financial Advisors, LLC in Wayne, NJ, and works directly with clients advising them on their financial planning and investments. Ed’s work focuses on the unique needs of business owners, helping them extract value from their businesses while creating efficiencies in their business and personal financial plans. He is also a member of NAPFA, which is dedicated to serving fee-only advisors.