Physician Estate Planning: Protect Your Legacy
Minimize Taxes and Maximize Transfer
High-income physicians face unique estate planning challenges. Learn how to protect your practice, minimize estate taxes, and transfer wealth efficiently across generations.
- Beneficiary designations override your will - review retirement accounts and life insurance annually to avoid disaster
- State estate taxes start as low as $1M - your state of residence matters enormously for estate planning
- ILIT removes life insurance from taxable estate - potentially saving 40% of death benefit in estate taxes
- Practice succession planning is essential - without it, your largest asset may be worthless at death
- Asset protection and estate planning should integrate - irrevocable trusts protect wealth from creditors and reduce estate taxes
The Opportunity
Why This Matters for Physicians
High Income Creates Estate Tax Exposure
Physicians accumulate wealth rapidly: $350K+ annual income, practice equity, retirement accounts, and real estate. The federal estate tax exemption ($13.61M in 2024) may seem high, but life insurance, practice value, and appreciating assets can push estates over thresholds. State estate taxes start as low as $1M.
Practice Succession Planning
If you own a practice, your estate plan must address: Who continues patient care? How is the practice valued and transferred? What happens to staff? A sudden death without succession planning can devastate your family financially and abandon your patients and employees.
Asset Protection Integration
Physicians face malpractice risk throughout their careers. Estate planning should integrate with asset protection: assets in irrevocable trusts, properly titled property, and adequate liability coverage all protect your legacy from claims while ensuring efficient transfer to heirs.
Multi-Generational Wealth Transfer
Physician families often want to support children through education, first homes, and business ventures while preserving work ethic. Dynasty trusts, family limited partnerships, and graduated trust distributions can transfer wealth across generations while maintaining family values and tax efficiency.
Implementation
Proven Strategies
Irrevocable Life Insurance Trust (ILIT)
Life insurance proceeds are income tax-free but included in your taxable estate. An ILIT removes the death benefit from your estate, potentially saving 40% in estate taxes. The trust owns the policy, you make annual gifts to the trust for premiums, and proceeds pass to beneficiaries estate-tax-free.
$3M life insurance policy in your name: $3M added to taxable estate. At 40% estate tax = $1.2M to IRS. Same policy in ILIT = $0 estate tax. Full $3M passes to beneficiaries. Net savings: $1.2M.
Dynasty Trust for Multi-Generation Transfer
A dynasty trust passes wealth through multiple generations while avoiding estate tax at each generation. Fund with annual exclusion gifts ($18K/person in 2024) or lifetime exemption. Assets grow tax-free across generations. Can include incentive provisions (education requirements, work requirements) to preserve family values.
Fund dynasty trust with $1M. Grows at 7% for 30 years = $7.6M. Without trust: $7.6M taxed at 40% each generation. With trust: $7.6M passes to grandchildren estate-tax-free. Multi-generation savings: Millions.
Practice Succession Trust
Create a trust specifically to hold practice interests and facilitate succession. The trust can: buy out your interest if you die or become disabled, provide liquidity for estate taxes, ensure continuity of patient care, and protect the practice from creditor claims against your estate.
Practice valued at $2M. Without planning: Estate must sell quickly (often at discount) or burden heirs with running the practice. With succession trust: Pre-arranged sale to associate at fair value, funded by key person insurance, protects family and patients.
Avoid These Pitfalls
Common Mistakes
Outdated Beneficiary Designations
Retirement accounts and life insurance pass by beneficiary designation, not your will. Ex-spouses, deceased relatives, or missing designations create disasters. Review ALL beneficiary designations annually - this is the #1 estate planning error for physicians.
Ignoring State Estate Taxes
Federal exemption is $13.61M (2024), but state thresholds vary widely. Oregon: $1M. Massachusetts: $2M. New York: $6.94M. Your state of residence matters enormously for estate tax planning. Moving states in retirement can save hundreds of thousands.
No Practice Succession Plan
If you die or become disabled without a succession plan, your practice may be worthless or sold at distress prices. Your family loses your largest asset, and patients are abandoned. Every practice owner needs a documented succession plan with funding mechanisms.
Questions
Common Questions
Here are the most common questions we receive about this topic.
Ask Your QuestionReady to Protect Your Legacy?
Every physician family is unique. Let us help you create a comprehensive estate plan that protects your family, minimizes taxes, and ensures your legacy.