More and more people are taking it upon themselves to prepare for the future with an estate plan. While some take it upon themselves to craft an estate and succession plan for their family, it is always a good idea to work with an estate planning attorney to ensure that there are no holes in what you have created. This case illustrates how even the best intentioned estate plans can still have issues that could cause a lot of unintended problems if not corrected now.
Discovering Errors in the Plan
For example, one doctor had built a small specialized practice over the last fifteen years that grossed $1.7 million annually. He had crafted a will and trust for his family that included a wife and children in addition to the creation of a succession plan for his thriving medical practice. However, when the doctor reviewed his plan with an estate planning attorney, a large hole was discovered in his succession plan.
In its current state, the will left the doctor’s practice and assets to his wife in the event that he passed away or was incapacitated. Unfortunately, under the law his wife is not allowed to own the practice because she is not a licensed medical professional. Using this plan, the medical practice would have no owner after his passing, his patients would be without a doctor, and his employees would have no employer. His wife would be forced to sell the practice as quickly as possible, and without any real leverage she would most likely not get the true value for what he has built.
Suggestions to Amend the Plan
When a hole has been discovered in an estate plan, the most important thing to do first is discuss the possible options. In this case, does the doctor plan on retiring early or working for most of his life? Does he plan to pass his practice to his children, a competitor, or liquidating it entirely? These types of questions can help to structure a plan that can be utilized in short-term emergencies as well as in long-term planning.
In this case, the doctor’s children were too young to pass along the business, and he had three other doctors that he worked with at the office. By offering the other doctors partnerships in the practice, he could incentivize them to continue to grow the business while simultaneously provide a mechanism for succession. By selling small shares to the other doctors over time, he could maintain the majority share until he retires or dies. At that time, the remaining doctors at the practice could buy out his shares.
In addition, it was suggested that the partners all purchase life insurance policies. This way, if a partner in the medical office passes away, the insurance can provide the others with the assets necessary to fund the buyout of that share of the practice. Now, the doctor does not need to worry about his family or his practice because both are being taken care of in his estate plan.