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Do doctors need to establish a trust for their heirs?

Posted on July 7, 2018January 30, 2021 by SmartMoneyMD

One common question that doctors face in estate planning is whether to establish a trust. This topic gets brought up in the doctors lounges, especially after someone gets a pitch from their financial planner. Most doctors who bring up the topic are quite enthusiastic, and cite that doctors need a trust because “we make a lot of money.”

Fair enough.

Medical students and residents probably do not need a trust

I’ll get this one out of the way. If you’re still in training and have very little wealth tied to your name, you don’t need a trust. You can always establish one later. If you actually need a trust while you are in residency, then you already know why. In this case, your parents probably already have set one up for you. I had several classmates in college and medical school who did have living trusts, and it was obvious. It’s good to have old money.

Establishing a living trust doesn’t necessarily break the bank

Doctors (and everyone else) can have strong opinions. Some of us can’t be convinced that we are wrong. I’ve long decided that my job in this world isn’t to convince everyone else who is right or wrong. Living trusts, along with insurance policies, real estate, and gold are various financial vehicles that can make sense for some people but can instigate argument to no end.

Establishing a living trust won’t break the bank. If you decide to do it yourself, you might spend a few hundred dollars. If you go through official channels with a professional, it might cost you several thousand dollars. If you must, put in a few extra shifts in the ER or cut back on some of your other spendings. It’ll be healthier for both you and your coworker who is trying to talk you out of getting one.

The fundamentals of living trusts

In a nutshell, living trusts are written so that your assets are distributed according to your wishes after you are no longer able to make decisions. You also have to have some net worth that is to be distributed to your heirs too.

Let’s rephrase it:

You probably won’t be enjoying any of your hard-earned assets when the trust comes into play. So the entire premise in establishing a trust is so that your beneficiaries will benefit from your demise. If you wish to have a clear allocation of your assets to those other than your spouse or heirs, then you can specify on your trust.

He does not have a living trust to rely upon!

Won’t a will give me the same results?

Once you die, your will has to be executed through probate court. The exact policies vary per state, but the intention is to make sure that your debts are paid off prior to distribution of your assets to your heirs. This often does not happen immediately and will incur attorney fees.

A living trust allows heirs to bypass probate courts, because the assets in the trust are considered to be part of the trust in the eyes of the probate court (but not to Uncle Sam). Interesting, eh?

There are two types of living trusts: (1) revocable trusts, and (2) irrevocable trusts. The main difference is that the designated instructions in an irrevocable trust cannot be changed once you’ve finalized it unless the benefactor grants her permission. The entire premise behind an irrevocable trust is that you established it for tax reasons. This means that you have enough assets to benefit from this vehicle. Most doctors aren’t going to fall into this category because we probably aren’t going to reach the estate tax limits. In 2018, the gift tax limit is over $11 million. Even if your net worth exceeds this amount, there are plenty of ways to draw down your assets beforehand.

Revocable trusts provide an instruction set on how to handle one’s assets during her lifetime, once she loses her ability to make financial decisions, and death. The person who establishes the trust is labeled the “grantor”. In a revocable trust, the grantor has full control of the assets of the trust during her lifetime, and can add or remove assets into the trust at any point. All taxes from the trust are treated as pass-through to the grantor.

Where the revocable trust comes into play is when the grantor is unable to manage the assets or dies. The designated trustee in the trust will then take over and execute the instructions given by the grantor accordingly. This transition proceeds seamlessly without any involvement of local probate courts. Of course, the grantor’s debts will still have to be paid off, but someone (not the grantor) will end up saving several thousand dollars and the beneficiaries will likely get the inheritance more quickly.

There are also nuances and clauses that can be attached to living trusts, just like in any job contract. What might be most helpful for some doctors is a spendthrift clause. Suppose that you wanted your child’s inheritance dispersed annually until she is an adult instead of in a lump sum. You can specify the terms in the spendthrift clause of your living trust down to the tiniest details.

Interesting material, although it is somewhat morbid to think about it. After reviewing all of the stipulations, I’d imagine that whether to establish a trust is going to be a 50/50 split for doctors.

Do you have a living trust?

Top five methods for doctors to reclaim their time

Posted on June 16, 2018January 30, 2021 by SmartMoneyMD

As with most professionals, doctors exchange their time for money. Sure, there are clever side gigs, real estate investments, and other means for us to build our revenue stream but the fundamentally our profession compensates us for our time. Fortunately our time commands a relatively good wage, but using our trade knowledge still requires energy. Sometimes our commitment to work is satisfying. Other times it becomes more of a drain. When our expectations of work do not reflect the reality of the workplace, we can experience burnout.

The best way to prevent burnout is not to get into a work situation that burns you out. Unfortunately we don’t always have that luxury. The second best solution is to maximize your time outside of work. Doing so may be a bridge to a more permanent solution, or it may even be a way to buy you time until you reach financial independence. How do you slow down the burn? These are five strategies for doctors to reclaim their time.

Enter a specialty that is structured around shifts

The rest of the world works on shift work. Each shift is defined by a set amount of time you spend at work. You can structure your life around how many shifts you desire to work, and clock out when you’re not there. The advantage is that you won’t likely to be called outside of your work hours, and you can have more control over your lifestyle. Tweak the schedules so that the pain of work never becomes intolerable. Beautiful.

If you are still in medical school and deciding on a specialty, there is still hope. Specialties such as emergency medicine, hospitalist (internal medicine), intensivist (many routes via internal medicine), and radiology (some employment structures) are some of the specialties that have a shift work structure. This shouldn’t be the only reason why you choose your career path, but consider the lifestyle wisely.

Delegate your tasks at work

Doctor roles have transitioned over the years with the concept of physician extenders, scribes, and midlevels. Whether we agree with the changes, they are here to stay. If you work for a hospital that has its act together financially (let’s see if any corporate folks are reading this), it should provide you with plenty of midlevel help to make you more efficient. When implemented properly, this can get you out of the office faster and bring in more money for the organization and its doctors. The fewer phone calls and prescription refills the doctor has to triage, the sooner the doctor can reclaim her life back.

Negotiate more time away from stressors

I find direct patient care to be most rewarding aspect as a doctor, but the associated tasks imposed by health insurance is a complete nightmare. Patient satisfaction surveys, meaningful use, and an inordinate amount of charting tests our ability to tolerate pain. Some doctors, after a certain number of years in clinical practice, opt to deal more with administrative work. I’m not sure whether that actually provides a more fulfilling career, but it gets us out of the stress of clinical practice. If that’s your cup of tea, go for it. We need more doctors in the C-suite too, if you’re going for the administration route, I urge you to go all the way to the top!

Alternatively, some doctors simply find jobs that allow them to leave work related business at work. No e-mails, phone calls, or meetings outside of the work place. Many startup tech companies push for this structure in order to reduce turnover. One day this will be more of a reality to doctors as well.

Become a full-time locum tenens doctor

Some specialties are more conducive to transient coverage. Doctors go on vacation, they get sick, or take time off for parental leave. Their practices need coverage while the full-time doctor is out of commission. If being a fill-in doctor suites your fancy, you can certainly carve out a career being the temp doc.

You might also like: How to become a permanent locum tenens physician

Being a full-time locum tenens doctor often requires traveling, often for weeks at a time to cover a certain practice. Doctors with younger children may find the travel difficult, but I’ve also known doctors who despise working under a single employer so much that they opt for transient work.

Job share

Job sharing is becoming more popular over the years, as millennials are looking for more flexibility in their work schedules. Many younger doctors in the workforce also have young children. They are faced with three choices:

Work full-time, committing to a career in their profession. Have full-time and overtime nanny support as job dictates.
Quit the workforce completely to care for the children.
Find a way to work part-time. Ideally, there is a working spouse to generate additional income for the family to maintain its desired standard of living.

Depending on your job situation, you might have a senior partner who doesn’t wish to retire completely from clinical practice but no longer desires to work full-time either. Perhaps you have a coworker who shares the same work-life balance sentiment. In either case, you could make a case for job sharing. It may be more of a challenge for an employer to have job sharing employees, but if that’s what it takes to retain good quality doctors then they can make it happen.

That’s it! What other strategies outside of becoming financially independent have you implemented to take back your free time?

The number one reason doctors need to be financially independent

Posted on May 26, 2018January 30, 2021 by SmartMoneyMD

Most doctors are goal-oriented, which is a useful trait (or personality quirk). Motivation helped get us through a decade of training, and to get to the next step. But putting in your A-game for more than a decade can be tiring if you’re not hypomanic. As I mentioned on a previous posting, once we escape from doctor survival mode it’s normal to let loose the reins and slow down.

You might also like: Getting out of debt is easy. Getting rich is not.

I consider anyone to be out of survival mode if she has accomplished most of the following goals:

Finished medical school, residency, and fellowship
Board certified (no more exams, at least in the interim)
No more high-interest student loan debt (>4%)
Gainfully employed or working with a steady income

Obviously there are many other financial goals that one might add onto the list such as buying a house, having enough to send your kids to school, or simply being financially independent. What’s more important in this checklist of goals is that we all need to enjoy the process as much as possible. YOLO. Leaving your kids with $10 million does you no good if you aren’t around [physically] to enjoy your hard earned sweat.

For most doctors out of financial survival mode, the timeline to further reach our goals tend to get relaxed. At this point in our careers, we typically feel comfortable with our clinical practice, we have a steady income, and most of us are still healthy. There is no longer an immediate urgency to reach the next step in our financial timeline, especially if college savings or another bigger goal requires five or more years to reach anyway. This has certainly been the case for me. It’s better to play the long game rather than sprinting.

Doctors need to remember that nothing lasts forever

That’s right. When the weather is fair, you ride the wave. Don’t expect the wave to carry you through your entire career, however. Bulls can transform into bears, as we’ve seen in 2018. The medical profession, while traditionally stable is fraught with transformations unfavorable to doctors. If you want to hear some unhappy people, go to @SERMO or the doctors’ lounge of your local hospital. 😉

Common complaints I hear and experience in my medical profession include:

Loss of autonomy – No, we’re not talking about rules preventing us from throwing scalpels in the operating room whenever things don’t go our way. Administrators tell us to improve our Press-Ganey scores when we actually have less control over of the numbers. The death blow comes with our salaries end up getting tied to these dubious numbers. By the way, we also have to chart more than ever without much noticeable improvement in outcomes. This is just the tip of the iceberg!
Medical insurance restrictions – Prior authorizations. Medical necessity. Painful. This falls under loss of autonomy.
Medical insurance reimbursement cuts – Doctors are seeing more patients than ever on their schedules, yet salaries don’t necessarily even grow with inflation. Some specialties have even seen salary cuts.
Electronic Health Record issues – No one wants to spend more of their life clicking around a poorly conceived UI on underpowered computers with way too many icons on the taskbar. ‘Nuff said.
Getting locked out of a market – Some health insurers won’t permit smaller medical groups or single-doctor practices from enrolled onto their insurance plans because larger groups bid for the same contract [read: willing to pay their doctors less for more work].
Being characterized as a provider – This hits a nerve with all doctors.

It is upsetting that I see more of my colleagues under some sort of squeeze, and none of it even has to do with the inherent intellectual challenges of being a doctor. How does one get out of this mess?

The key to job freedom is to become an administrator, just like this guy here.

Financial independence solves all of these problems

If you want to get out of the hamster cage, you cannot be beholden to the system. We practice medicine because we love to take care of people. We also do it to put food on the table. Once we have a suitable means sustain a healthy livelihood outside of our day job, the burden becomes lifted.

Think about it. Why do some of us go abroad to volunteer our skills? We do it because we get intrinsic satisfaction outside of a monetary payment. I find that it’s more fun to volunteer than to go to my day job.

If you know that you can walk away from the painful regulations of a broken medical system at any time, some of the daily burdens are no longer burdensome. You might even start considering your day job to be volunteer work that actually generates a salary! If you ever need the motivation achieve your financial goals, think of the negative changes that you’ve witness in our healthcare system even in the last several years. Use this as motivation to get yourself to financial freedom sooner.

Doctors, if you want to be able to help others with your skills, get yourself to financial independence sooner.

What motivates you to achieve financial independence?

The calculated approach to outsourcing your life

Posted on May 20, 2018January 30, 2021 by SmartMoneyMD

One of my biggest frustrations early in my career was accepting that outsourcing tasks comes at a cost. My colleagues were always able to justify house cleaners, home-pickup dry cleaners, and handymen even as residents. Their main argument was that it helps stimulate the economy. I understood that we should all help those around us, but I could never convince myself that anyone with a $40,000 annual residency salary truly needed a dry-cleaning pick-up service even if she was working 100 hours a week. If I had only outsourced my chores as a resident, perhaps I would have published more papers. I guess I’ll never know. Did doing my own laundry cost me a career as a superstar doctor?

Fast forward to today. I’m no longer working 100 hours a week, but 50 hours a week is still taxing. Life evolves as we age. We get arthritis. Kids need to be shuffled to their activities. Elderly parents need medical care. Suddenly there are too many events and obligations to meet in a given day. How do we find more time?

Outsource your life.

Welcome to the world of personal assistants. TaskRabbit. You name it, you’ve got it. You pay a negotiated amount for someone else to take care of your unfinished business. Buying furniture. Putting together your furniture that they bought for you. Cleaning your house. There is almost always a price to be named for a chore that you don’t want to complete yourself. If you have an unlimited budget, you could outsource every aspect of your life.

These feline friends know how to take life easy

As reality dictates, most of us do not have unlimited budgets. How do you put a price on time? I generally follow these two principles:

Put a rate on the job.

What is the going rate for a chore that you’d like to outsource? How easy is it to get the job outsourced? It may actually be more difficult to outsource a job than you’d otherwise think.

For instance, two years ago my air conditioning unit stopped working. One of the capacitors broke in the unit, and the unit was mounted on the roof of my two-story house. The cost of the job was clearly over my normal pay scale as a physician, but it was not prudent to for me to risk breaking my neck from a fall on the roof. Unfortunately it was high season for the air conditioners, so the wait-time for a routine repair was 2 weeks! An emergency call would’ve cost 2.5x!

An analysis table was useful in this situation:

Advantage of outsourcing

Avoid fall and shock risk
Avoid other potential injury to unit.
Exchange money easily to no worry about details
Instant resolution of a problem

Disadvantage of outsourcing

Relatively expensive post-tax cost—would need to perform a roux en y surgery to cover the after-tax cost of the air conditioning repair
The paid help may not do a good job on the work.

I ended up paying up for the emergency repair, and all was well for one day. Another part of the air conditioner ended up breaking (supposedly), and I ended up having the call the repairmen back. They had to charge me another fee, stating that the second malfunctioning part was not related to the original repair! Go figure.

Another $400 later, I was back enjoying cold air in the hot summer. Thank goodness for having a decent paying job. The biggest sting when you have to cough up for a big ticket item is that mathematically it delays getting to financial independence. Sometimes that is the only option that you have.

Prioritize according to what gives you pleasure.

In contrast, you can cherry pick what you want to do with your time. One of my friend’s husband, a gastroenterologist managing a relatively large practice, enjoys washing his car. He takes call every three weeks, has limited time for the family yet he spends a few hours every month washing and waxing his car. Is that time well spent?

In a purely time per cost model, he should be outsourcing his car washes. In fact as a highly paid physician, he should actually outsource essentially every task that costs less than what he could generate from his profession if money were the only goal. There are two problems with this logic:

In order to make a direct financial comparison, he would need the ability to generate income from his profession while his car is getting washed elsewhere. Good luck finding a way to match that up. At best, he could generate income through taking more call or working more during the workweek. However, that still doesn’t confer a perfect 1:1 exchange of time for money.
Your day job may actually be mentally taxing, even if it confers a great pay rate. How much mental and physical energy does take to do the day job instead of washing a car? What if every additional weekend you work confers a week of shorter lifespan? What is the price you can place on your health?

Clearly this gastroenterologist has decided that washing his own car provides enough enjoyment that he chooses not to outsource the task. There is nothing wrong with that.

How do you decide to outsource your life?

How to survive (and thrive) with a doctor (in-training) spouse

Posted on March 25, 2018January 30, 2021 by SmartMoneyMD

Okay guys and gals, this entry is written tongue-in-cheek, but those of you who are in this sort of situation know that there is a great amount of truth in what I’m about to say. Take it in jest, and know that everyone is in good company. Once the dust settles after their training is over, life does get a whole lot better…at least certain aspects of it. Those spouses who just matched into residency last week (#Match2018), well get ready for a bumpy but rewarding journey for the next few years…or decade!

Time

Time is always in short supply. Sure, there are regulation work hours, but it’s uncommon that the work ends when medical residents leave the hospital or clinic. There are exams to study for, grand rounds to present, papers to review, and articles to author. There is a call schedule, where both of you (plus the children and pets) are woken up at potentially ungodly hours. Depending on the specialty, rigor of the training program, and motivation of your spouse, time will always be in short supply.

There really isn’t too much leeway on this borrowed time, especially if you expect your significant other to successfully finish her training, graduate, and start earning the big bucks.

The key to time management is to set protected time, whether it is only a few hours a day and a handful more on the weekends. This is the 21st century, and not the 1980’s where the doctor spouse essentially lives a parallel life from his (more male doctors then) family. The family gets a say in how time is allocated. By simply having a time management schedule, everyone in the household actually becomes more productive. Once both of your schedules open up with more free time, then you will be superstars.

Organization

If your doctor spouse is highly organized and contributes to arranging the family schedules, then consider yourself lucky. Given the hectic training schedules, it is unlikely that any medical resident would have much more executive function that staying alive. If you have more time on your schedule, then it is up to you to plan family schedules and have your spouse follow them. This includes kids’ events, family outings, and whatever other events that your spouse ought to be present in. It is unlikely that you will have any opposition if you lay out everything. Pack her lunch, make sure you have a good system to keep track of important events, and delegate away.

Leftover donuts from grand rounds might be all you’ll get if you rely on your doctor spouse for dinner.

Finance

Finance is an interesting arrangement in a doctor household. If you, the non-physician spouse, have a full-time job, it’s likely that you are the breadwinner. This probably also means that you are calling the shots on home purchases, big ticket items, and the general business structure of the home.

Some spouses have career situations where they will always remain the breadwinner even after the doctor spouse finishes training. It’s actually becoming more common as insurance reimbursements dwindle and some doctors opt to work part-time. It’s even more important for you to be attuned to the financial health of the household if your doctor spouse has no interest in money (that is still okay).

If you are lucky / unlucky to have a doctor spouse to trolls Bogleheads or understands all of the latest nuances in tax codes, just hand over the money matters to him (yes, it is almost always a guy). As long as he can delegate time and organization matters to you, then you have the foundation for an efficient household.

What other strategies have you implemented to keep your doctor spouse in line?

Getting out of debt is easy. Getting rich is not

Posted on March 18, 2018January 30, 2021 by SmartMoneyMD

Financial success is built upon establishing goals and achieving them. We call this the financial plan. This plan is similar to any other blueprint that we create—there should be some concrete achievable goals, a timeline, and an action plan to how to meet the milestones during the process.

The challenge in creating a sound financial plan is to identify what we hope to achieve as the end product. My earliest financial goals had been rudimentary:

“Get rich”

“Become a rich doctor”

Over time, the goals end up becoming loftier:

“Earn $1 million”

“Earn $10 million”

The problem with these statements is exactly how college admission essays are graded a ‘3’ out of five points—they have an endpoint, but the story isn’t very well-developed. I was throwing out great ideas, but none of the goals were concrete. Some of these goals probably weren’t achievable in one full career.

You might also like: How I paid off $148,260 in student loan debt my first year in practice

As I reflect on all of the goals, mini-victories, and long-term financial visions I’ve tackled, perhaps the easiest one that I’ve achieved has actually been getting out of debt. Why?

Goals have to be concrete, with an achievable timeline, and plan in order to succeed.

It turns out that getting out of debt meets those requirements handily. The concrete aspect of getting out of debt was to achieve a net worth of zero, a quantifiable amount on the family balance sheets. The plan for getting out of debt involved reducing my living expenses as much as possible while building up a strong financial offense. Transitioning from a medical fellow to an attending physician is probably one of the only times in a doctor’s life that her earning power easily more than doubles. That’s impressive financial offense. The timeline to getting out of debt for a medical resident transitioning into attending level work is essentially immaterial. As long as your expenses do not increase proportionally with your income, you have a clear-cut formula to get out of debt. Easy peasy.

Getting rich is not easy.

Of course once the income increases, so do the expenses. It’s psychological. Some of us have that innate ability to live on minimal expenses, but it can be tough to sustain especially if you have an income that is several times higher than that of the average household. For this reason alone, many high income professionals never become “rich”. We simply spend too much to become “rich”.

More challenging is how you define “being rich”. In the broadest sense, we are already rich if we are high-income professionals. Some people don’t consider being “rich” until they have a better lifestyle, house, and wealth than most people they know..quite the slippery slope. Some others keep changing how they define “rich”. You simply cannot become rich if you don’t have a set definition of it.

Becoming rich shouldn’t be your goal.

As I became more well-versed in my financial knowledge, I realized that “becoming rich” shouldn’t be my goal. It’s too vague. You’ll never reach a vague goal. What’s more important is to identify a quantifiable lifestyle to achieve with quantifiable measures of wealth.

What is your next goal after getting out of debt?

Employment or partnership? A physician’s dilemma – Part 1

Posted on February 18, 2018January 30, 2021 by SmartMoneyMD

Some people want to run as far away from employment as possible.

The business of how physicians practice medicine has undoubtedly evolved over time. Proponents of healthcare reform argue that many of the changes allow better care for our patients. Some doctors aren’t too convinced. Whether or not we’re on the mainstream bandwagon, we still have to play the game if we practice medicine.

The healthcare system in America has largely operated on a fee-for-service basis. This means that the health insurance (or patient) pays the doctors a pre-arranged amount for services. There was a time in the 1980’s where this compensation almost went away, but due to reasons I can fully understand fee-for-service has stayed alive.

The employed physician

The prominence of the employed physician has grown over time regardless of the underlying compensation structure. This is partly due to growth of certain physician specialties and economic demands of physicians.

Hospitalists, intensivists, and emergency medicine doctors constitute a growing number of the physician workforce. These specialists often work shifts for hospital systems, either as contracted groups or as straight employees. This means that they are compensated for a set amount of work. If they provide more services, they will likely earn more.

You don’t have to belong to those specialties above in order to be employed. Doctors who opt for straight employment contracts with a medical group can also work as an employee. Additionally, you could join a managed care group such as Kaiser Permanente to live a career as an employee.

The benefits of being an employee are exactly the same disadvantages of employment. As an employee, you provide a set amount of services for payment. Life is pretty clear-cut. You receive benefits from your employer, but you also have to work under the rules of the employer. As long as you finish your work, your job is done. Bad coworkers? Tough luck getting rid of them. If you’re the bad coworker, then you could probably feed off of the system while getting paid! In fact, an employed physician exchanges professional time for money. This is an important aspect—whether or not you are actually practicing medicine during this time you are still paid on the clock.

The owner/partner physician

Many years ago, doctors literally started a business to care for patients. They contracted with insurers, bought or rented an office, equipment, hired staff, and worked the business. With any business, the owner is responsible for everything. Deadbeat payors? Deadbeat employees? Your problem. That’s perfectly fine for some of us, but some of us aren’t equipped to run a business in addition to practicing medicine. Some of us simply prefer not to deal with running a business—we became doctors presumably to practice medicine, not to handle the front desk employees.

Presumably the hassle of running your own medical practice or being an owner of a medical practice ought to come with some reward, whether it be freedom to call the shots or monetary compensation that you wouldn’t otherwise enjoy with being a corporate slave or peon.

The take-home? Do you want the freedom to practice medicine for your career in exchange for others managing the business, or does the reward from being your own boss outweigh the additional work?

We’ll look at some financial analyses in a later post. Stay tuned…