Estate planning is many times an afterthought, and I have been surprised at how many people I speak with who have not yet drafted their estate plan. The problem is when thinking about estate planning, most veterinarians tend to think solely of end-of-life planning, or put more abruptly “who will receive my money when I die.” And while this is certainly an integral part of any estate plan, estate planning is much more and has more immediate purposes as well.
Why All Veterinarians Need An Estate Plan
Death is evitable. Nobody understands this more than veterinarians, as they deal with death on an almost daily basis, and much more than their human doctor counterparts. There are many facets of death, but one of those is the financial impact death can have. Estate planning is a critical piece of any financial plan, but due to the high student loan amounts veterinarians carry and also the prevalence of private practice owners within the industry, estate planning is especially important for vets.
For veterinarians, a well-executed estate plan will help address:
- Protecting your assets (bank accounts, investments, real estate) with proper titling and risk management
- For practice owners, safeguarding your practice against lawsuits or an untimely death
- Accounting for guardianship for your children and/or pets
- Properly naming beneficiaries on life insurance policies and retirement accounts
- Making a plan for how to handle remaining student loan debt
- The distribution of your estate, including any bequests or charitable gifts
- Who will make financial and/or medical decisions on your behalf in the event you become incapacitated
Components of an Estate Plan
Depending on your life situation, the legal documents you need to create your estate plan will differ. It is important to go through this process and make these decisions while you are alive, as passing away without an estate plan, referred to as intestate, will place the state in which you live in charge of your estate. The state will appoint someone who will decide how to disburse your assets and who will get custody of your children and pets, certainly something you want to avoid.
At a minimum, your estate plan should consist of the following legal documents:
Last Will & Testament
A will helps direct where your assets & property are to be distributed. The will also names guardians for your children and pets. Depending on your situation, you are also able to establish testamentary trusts, which provide a safeguard for assets for minor children.
Power of Attorney-
This directs an agent to act on your behalf in the event you become incapacitated. Depending on the authorization, the agent can help make legal, financial, and/or medical decisions on your behalf. You can determine how broad or limited you wish to make your power of attorney.
Advanced Healthcare Directive (aka Living Will)
Allows you to specify, in writing, your health care preferences for the time when you no longer have capacity to provide consent. This directive also names who you trust to make medical decisions for you should you become incapacitated.
Depending on your circumstances or wishes, your plan may involve one or more trusts. One of the more common trusts is a revocable living trust, which helps to avoid probate and can be an important estate planning tool. Revocable refers to the fact that the trust can be revoked and/or changed at any time by the trustees, and thus will still be included in the grantor’s estate. There are of course other trusts as well, such as charitable remainder trusts and irrevocable life insurance trusts which can be solid estate planning tools but are beyond the scope of this overview guide.
What Will You Need To Prepare An Estate Plan
Gathering the essential information needed to create your estate plan may initially seem daunting, but I hope by reading this article you understand why this is necessary.
List of Assets & Liabilities
List out all of your assets and all of your liabilities.
- Bank statements (checking, savings, online high-yield savings, CD’s)
- Investment accounts (401ks, IRA, Roth IRA, brokerage accounts, HSA, etc)
- Real Estate
- Property (auto, jewelry, collectibles)
- Insurance Policies (cash values)
- Business interests
- Student Loans
- Car notes
- Credit card debt and other personal debt
These figures help determine your net worth. Your net worth is simply the sum of your assets minus the sum of your liabilities.
Assets – Liabilities = Net Worth
If your student loan debt makes your net worth negative, that’s ok! Not included in your assets is your ability to earn a high income as a DVM, which with proper planning will help you to build wealth over time. Also, regardless of your net worth, you still need an estate plan as most private student loans are not forgiven due to death and this debt may pass to your heirs.
Securely storing your passwords, account statements, and any digital owned assets such as cryptocurrencies should also be included. Reduce the hassle of having your executor chase down accounts and passwords by including these in your estate documents and updating when necessary. A service like LastPass can securely store passwords and information and cut down on the amount of information that needs to be regularly updated.
For both your children and pets, name who you want to assume guardianship in the event of your death. And yes, let them know you are considering them! Be sure to consider factors such as:
- Do you wish your children to remain close to their friends?
- Does your guardian have children of their own or plan to have children?
- What happens if your guardian gets married or divorced?
- Do they share the same values?
- Do you wish for your kids and pets to remain together?
This decision is not irrevocable, meaning you can update your guardian at any time.
Regarding assets, your attorney should work with you to properly place assets designated for minor children in the right accounts. Whether this is through a trust or other instrument, planning for this scenario can be helpful for both the minor children and the guardian who will be caring for them.
Who do you want to get your stuff? Do you own any sentimental items you wish to designate to a particular person? Are there any circumstances that require a special needs trust? What if your children are minors, how will you structure these inheritances? Are there any charities you wish to give to upon your passing?
These questions and many more will help create the distribution of your assets, and a qualified attorney should assist in helping you think through these questions and scenarios. Explicitly naming beneficiaries is very important, as the more specific you are, the fewer the assumptions that need to be made.
One important consideration to remember in naming beneficiaries with your retirement accounts and life insurance policies is that listed beneficiaries supersede a will. This means that whomever is listed as the beneficiary on these policies will inherit the funds, regardless of what your will may say. Reviewing your estate plan and named beneficiaries annually is critical to ensure your desires and heirs are accurate and up to date.
Choose Your Executor
Your executor acts as the quarterback of your estate when you are deceased. They will be the primary point of contact and will ensure your estate is distributed according to your wishes. Make sure your executor is someone you trust, and review your named executor annually and make any changes as necessary.
Work With an Attorney
Yes, there are a plethora of software options that can create the necessary legal documents for less than the cost of an estate planning attorney. But, in my opinion, what these software providers don’t do is ask the in-depth questions about your situation to help you really understand how to approach your estate plan, and how certain decisions may affect other pieces. Most software follow particular templates, but there are many state specific laws that could be missing with a templated estate plan. I personally believe finding an estate planning attorney who you are comfortable with and who fully understands the laws of your state is worth the additional cost. Be sure to interview at least three, and while an attorney’s time is rarely free, it is important to hire someone who you trust.
Once your estate plan is written and you have reviewed the documents for accuracy, schedule a time annually to review and confirm everything is still in place. Barring any big life change (new baby, marriage, practice purchase, etc.) your estate plan may not need to be updated very often, but an annual review will help keep your plan legal and according to your wishes.
Many people think a will is a public document and is kept at a courthouse or somewhere accessible when needed. That is not the case. You keep your original will until it is needed for the probate process and you should keep your original will in a secure place, like a home safe or safe deposit box. Some attorneys also keep originals on file at their office.
Estate Planning Questions for You to Consider
These questions may help you when preparing your estate plan and/or planning for your meeting with an Estate Planning attorney. These are not exhaustive, but provide a good framework for how to approach the intricacies your estate plan.
Durable Medical Power of Attorney
- Who will you name as your agent to make decisions concerning your medical treatment, health care, personal care and/or residential placement?
- If your first choice can’t or won’t make these decisions, who then?
- Do you want to limit their decision-making powers? How?
- Is living with relatives acceptable to you, if ever you need such assistance?
- Is living in a nursing home or other institution acceptable to you?
- Do you have thoughts on hospice care or other palliative care, if it might shorten your life?
- Do you have thoughts on offering anatomical gifts?
- Do you want to express to your agent your thoughts on quality of life-what you require to make life worth living?
- Do you want to require your agent to consult with other family members or friends, clergy or medical ethicists?
- Do you want your agent to be reimbursed or paid for his efforts?
- If you had a terminal and incurable condition, all medical treatment had already ceased, and you were unable to make your wishes known for whatever reason, how long would you like artificial nutrition to continue?
- If your agent under a Medical Durable Power of Attorney were to disagree or contradict what you’ve stated on paper, which one should take precedence?
- If you were comatose with no chance of recovery and your life was being sustained only by machines, would you want your doctors to turn off the machines?
General Durable Power of Attorney
- Who do you trust with this power? If he won’t or can’t, who then?
- Do you want your agent to have authority to handle your financial affairs right now, or only after you can no longer handle it yourself?
- How broad do you want this power to extend? Do you want your agent to be able to give gifts, disclaim property, sue on your behalf, run your business, change beneficiary designations, change your estate plan, engage in sophisticated or risky investment transactions? Be able to convey real estate?
- Do you want your agent to have to give an accounting monthly or quarterly to someone else you trust?
- Do you want a bonded corporate institution to provide any oversight?
- Do you want your agent to manage your property now for a certain time, to test his skill and judgment?
- Do you want to compensate your agent for his efforts?
- Who gets all of your stuff?
- Do you have specific sentimental items such as grandmother’s china doll or grandfather’s shot gun that you want to go to a specific person, instead of being sold?
- What if one of your heirs or beneficiaries predeceases you…what then?
- If you give specific property, do you want it to go subject to any debts or mortgages, or do you want all debts to be paid off first?
- Who are your first and second choices for executor or trustee?
- Do you want to make any charitable bequests?
- How do you want to coordinate all your non-probate assets and transfers, such as POD accounts, TOD accounts, joint tenancy or tenancy in common property, beneficiary designations on life insurance policies, IRAs , 401k and 403b plans, etc.?
- Are there any circumstances that might indicate the need for a special trust?
- If estate taxes seem likely, what sources of funding are in place?
- Who do you want to be the guardian of your minor children? If your first choice can’t or won’t, who then? If your choice is a married couple, what do you want to have happen if one of them dies? What if they divorce?
- Do you have any natural child(ren) given up for adoption, stepchildren, or step grandchildren, etc. who you want to inherit or not inherit assets from you?
- Do you want any non-custodial grandparents or other relatives to have visitation rights?
- Do you want the guardians to also manage the children’s inheritance?
- Do you want the guardians to be able to move your children from their hometown or school district?
- If property is given to your children in trust, who should be the trustee? Should he have to report his actions to anyone?
- When should your children get their inheritances free and clear? What might large cash infusions do to your children’s attitudes or behavior?
- Should the trust assets be put into one big pot, with the trustee empowered to “sprinkle” the money among the children, or should the trust assets be split into equal sub-pots at the beginning, in order to be “fair”? What if one child has more needs-financial, emotional, social- than the others? What is “fair”?
- What guidelines and advice do you want to give the trustee?
- Do you want any trust distributions to be tied to behavioral incentives?
- If one of your children predeceases you, what then?
- If one of your children dies after you, but while still a beneficiary of the trust, what then? Does his share go to someone else named in the trust, or does it go to whomever he names in his own will or trust?
- What are your sons-in-law or daughters-in-law like? Do any of your children or their spouses have behavioral problems or addictions, such as substance abuse, gambling problems, or high debt?
- Do your children get along? Do their spouses get along?
Business Succession Issues
- What should happen to your business when you die? What will happen?
- Could your executor sell your business quickly?
- What might your strongest business competitor do upon your death or disability?
- Do you have a buy-sell agreement or management agreement?
- What are the sources of funding for any such agreement?
- How can you or your family most effectively receive the full value of your business?
- How would the income of the business be affected by your prolonged absence from the business?
- Do you have middle managers who could run the business on their own?
- Are there family members who should not be involved with the business?
- Do you wish to treat certain family members equally in the business, even though each family member’s contribution to the business is not the same?
For guidance on how to best work with an attorney to properly draft your estate plan and how your estate plan integrates with your overall financial plan, we encourage you to speak with a fee-only financial planner or qualified estate planning attorney.
Andrew Langdon is a CERTIFIED FINANCIAL PLANNER™ and the founder of VetWorth, a fiduciary fee-only financial planning firm dedicated to serving the unique needs of veterinarians and their families.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Andrew Langdon, and all rights are reserved. Read the full Disclaimer.