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Podcast: Estate planning as a physician

This week Angele LeBlanc and special guest Patricia Schmeichel get into some of the details about estate planning – why it’s important and the unique factors that physicians should consider to ensure their estate plan is executed the way they wish. 

 

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You’re listening to The Financial Literacy Podcast, brought to you by MD Financial Management.

Canada’s only national financial services firm dedicated to helping physicians and their families with their unique financial needs.

AL: Welcome listeners, to The Financial Literacy podcast, where we explore all the ways that finances and financial planning can be different for physicians. My name is Angele LeBlanc. I am very excited to be hosting today. Last week on the podcast, they talked about preparing for retirement, so if you haven’t checked that out already, there’s some great information there that will lead into our topic for today, which is estate planning. We are going to get into some of the details about estate planning, why it’s important and unique factors that physicians should consider to make sure that their estate will be divided and distributed they way the wish.

Now, whether you are at the beginning of your medical journey, or a seasoned physician getting ready to wind down, taking some time to think about and develop a proper estate plan can make a big difference to your loved ones later on. So, our goal today is to help prepare you for what to expect, what to plan for, and what resources can help you leave the best legacy you can behind.

And here to help us reach that goal is Patricia Schmeichel. Thank you so much for joining us today.

PS: Thank you so much for having me, <host name>. I’m so happy to be here. I know that talking about your plans for when you die can seem a bit dark, but I hope that I can help our listeners see the value in this type of financial planning so they can be assured that their wishes will be carried out and their loved ones will be provided for as they intended.

AL: Awesome. Well, let’s get started by talking about what exactly estate planning is. First of all, what is an estate?

PS: Sounds great.

Your estate is essentially the net of all your assets, such as cash and property, minus any liabilities, such as your mortgage and debts. A simpler way of looking at it would be to think of it as your individual net worth.

When you pass away, everything in your estate is passed on or distributed to your loved ones, as well as any charities or philanthropic causes you may want to support. And so, estate planning allows you to decide exactly how and to whom you would like different parts of your estate to be distributed.

Estate planning is important because it allows your estate to be divided effectively and efficiently. It also allows you to create special plans for some of your loved ones.

AL: Absolutely. So, is estate planning just creating a will to determine how you want to divide your assets?

PS: Your will is a large part of your estate plan but is essentially only one of the documents that comes out of an estate plan. You will also need to put some considerable thought into your power of attorney, your life insurance plans, and your funeral arrangements.

Making sure all of these elements work together to fulfil your wishes in how your estate and loved ones are taken care of can be complicated. So, one of the main points we want to get across in this episode is that you don’t have to figure all this out on your own, and we strongly advise that you don’t. As a physician, you wouldn’t tell someone to do their own biopsy, right? And so, the same can be said here.

Working with a financial advisor and a professional estate planner is the best way to ensure that you have a plan that works best for you. And that’s why MD Financial is a great resource for our listeners, because their advisors specialize in the unique circumstances and needs of physicians when it comes to their financial planning. And that includes estate planning.

AL: Excellent. When do physicians, or anyone for that matter, need to start thinking about estate planning?

PS: I would say that the best time to start thinking or working on your estate plan is as soon as you start accumulating assets like your first home or your practice, or once you start having children or care for other dependents.  

AL: Right. So, let’s go through some of those key aspects of an estate plan, starting with a will.

PS: Sure.

So, your will is the document that outlines your wishes for how you would like the assets in your estate to be divided after you die. As I mentioned earlier, your assets can be a wide range of things, so it’s recommended that you keep a list of all of your assets, updating it as you acquire more. If you have assets outside of your province, or the country, make sure you are considering how those will be divided. Once you have a list of your assets you can decide if you want those assets to go to any specific person.

Those chosen to inherit your assets are called your beneficiaries. Who you choose to include as beneficiaries in your will can be updated at any time to account for births, deaths, marriages, or if you simply change your mind. It is important to make sure that your dependents and significant others are appropriately included. Otherwise, there could be claims against your estate or your will could be challenged in court and its division could then be altered. It’s also a good idea to have a list of alternate beneficiaries in case the original beneficiaries die in an unexpected order. Your list of beneficiaries should also include any charities you would like to donate to.

If you leave behind children who are minors, you may wish to create a trust and name a responsible trustee, or in Canada, a trust company. This will protect any assets they inherit until they become a certain age and also protects their inheritance from potentially being mismanaged or taken advantage of. But beyond that, it will place it in the hands of someone with experience rather than a fellow loved one who may not have the knowledge or skills to take on that responsibility.

Also, in the case that you leave behind minor children, and their other parent has also passed, your will is where you would name the person or persons you would like to act as their guardian. Always discuss this decision with those you intend to name to make sure they are willing and capable to take on that responsibility, and keep in mind that this decision may not always be a permanent situation as this appointment will need to be confirmed by a court order.

Finally, you must also name an executor. This is the person who will be responsible for administering your estate and carrying out your wishes. This can be one or more people, but the important thing to remember is that this role requires a lot of time and responsibility, so once again, be sure to discuss this decision with whoever you intend to name to make sure they are up to the task.

AL: Right. Well, it looks like just your will alone is a big undertaking. What happens if you die with assets, but you don’t have a will?

PS: In the event that you die without having a will in place, your assets still need to be distributed. If there is no one to step up and take on the responsibility of administering your will, each jurisdiction in Canada has legislation that determines how your estate will be divided. This means that you and your loved ones will have no input or control. And that can have a number of negative effects on your assets and those who would have been your beneficiaries.

For instance, some of the people you want as beneficiaries may not qualify as heirs according to certain laws.

Another consequence could be losing a significant amount of your assets to taxes which could have been avoided with a clearly laid out financial plan.

Furthermore, without a plan for how and when they receive their inheritance, your children could inherit a large sum of money before they are ready, and not know how to properly manage it.

There are plenty of other examples I could go through, but you get the idea. Having a will is the best way to ensure that your loved ones get exactly what you intend, and if necessary, that everything is managed and distributed in the way that you would have wanted it.

AL: Great. And you mentioned earlier that if you are naming someone in your will, be it your executor or who you would like to be guardian to your children, you should discuss it with them beforehand. Could you explain why that is?

PS: Yes absolutely. Naming someone in your will, regardless of the role that they will play, places a lot of responsibility on their shoulders. Having a conversation with them to let them know your intentions because it will help them prepare for that responsibility. Plus, it can help maintain family harmony if everyone is aware of your wishes ahead of time.

And the same should be said for those you have in mind for your powers of attorney, which is another element of your overall estate planning to consider.

AL: Right. Now what exactly is your power of attorney?

PS: Well, death isn’t the only circumstance you need to prepare for. You should also have a clear plan of action in the event that you, for whatever reason, become incapable of making decisions for yourself.

Now, just to clarify, this document can go by different names depending on where you live, but for the purposes of the podcast, I’m going to use the term “power of attorney” for the document that outlines your wishes, and “attorney” for the person you name to carry those wishes out. And just remember that this type of attorney is different than the attorney that practices law.

Another important thing to remember is that there are two different types of power of attorney. One would appoint someone to carry out any predetermined plans or make new decisions regarding financial or business matters. The other would appoint someone who will carry out or make decisions regarding your health and personal care.

You can pick the same person or multiple people to take on each of these roles, but like we mentioned, it is a big responsibility so choose carefully.

AL: Ok so, we have the will, and the powers of attorney. What else makes up an estate plan.

PS: Well, your life insurance is another big one. Not only will having a life insurance plan help provide financial security to your family after your passing, but it can also be used to cover much of the taxes, liabilities, and expenses that will come at that time. This is another area where you will have to make sure your list of beneficiaries is up to date.

Then there are your funeral wishes. While this information can often be outlined in your will, it is also a good idea to make sure a member of your family or someone else close to you is aware of these wishes, because sometimes your will won’t be read until after your services, and you wouldn’t want your loved ones to discover after the fact that you wishes were not carried out.

And lastly, there is the matter of your digital assets, such as your online banking and social media. These assets can sometimes get overlooked, so don’t forget to let someone you trust know where to find the passwords to login to all of your accounts.

And that goes for all of the parts of your estate - make sure whoever you are leaving things to is aware of where to find or how to access any important documents or information they will need to complete their tasks.

AL: That’s very true. I’m sure that just getting organized is a big part of your estate planning. Having your plans all laid out doesn’t do much good if you don’t have the proper paperwork to actually carry those plans out.

PS: Exactly!

AL: Now all of this seems pretty standard. Is there anything about estate planning that specifically physicians, need to consider?

PS: Yes, absolutely.

So, as listeners of this podcast know very well by now, physicians have very unique needs and circumstances when it comes to financial planning. And, as I’m sure it’s been said many times before, that’s mainly because of the large amounts of debt they accumulate from training and how the length of that training means they are starting their careers later.

This means they have to be very strategic with their financial planning leading up to their estate planning. Once they’ve passed those big milestones of getting married, buying a house, starting a family, their focus has likely moved to saving for retirement, and maybe a few vacations here and there. But, as important as it is to be able to enjoy and support yourself through retirement, having your affairs in order and being able to cover expenses after you pass away it important as well.

And one element of this that is unique to physicians is planning what happens to their practice. And this is another area where MD advisors are particularly helpful in their special knowledge of physicians’ finances. They will be able to take all your other financial planning into account and find strategies that work best for both you and your practice. I would especially recommend talking to an advisor if you’ve incorporated your practice, because that can add some complexities to different areas of your estate plan.

AL: Right. Now, you’ve brought up taxes a couple of times. Does that also play into the financial strategies physicians need to think about when it comes to their estate plan?

PS: You’re absolutely right. In any estate planning, in order to make sure that you can preserve as much of your beneficiaries’ inheritance, you need to know how each of your assets is being taxed.

Again, talking to an advisor and estate planner is the best way to come up with strategies that ensure you can make the most of the assets you are passing on. They can help you identify which of your assets are taxable, and which are not, and they can help you come up with a tax-effective spending plan for your registered accounts and investments. This allows you to leave your beneficiaries with the maximum amount of resources for them to take care of themselves and your legacy.

AL: That’s great. Now, another thing that I want to go over, because I think it will be particularly relevant to this new generation of physicians, are digital assets. You mentioned them earlier when we were talking about what goes into an estate plan, but could you go into more detail about what that means and why it is important in estate planning.

PS: Yes, like you said, this is going to be a big component of your assets, especially for future physicians. Over the past couple of decades, we’ve already seen a large and fast shift in how much we rely on technology in both our personal and professional lives. We store so much of our valuable information within technology, so it is incredibly important that we pass along that access to avoid that information  being lost.

 

Like I mentioned earlier, your digital assets could include your online banking accounts and your social media, as well as your email accounts, digital media, like photos and videos, loyalty reward accounts, and important documents stored on hard drives or in the cloud.

 

Some of these assets could be needed in order to access other assets, like your banking or insurance information. Other assets, like your social media, may need to be removed in order to protect your privacy. And some may simply be important to your loved ones for sentimental reasons, such as photos.

 

So, when it comes to including your digital assets in your estate planning, you will need to include your wishes for how you want everything distributed and handled in your will. It’s recommended that you keep a detailed list of all you online accounts, and the password for those accounts, making sure to keep it updated whenever you make changes. Then make sure that your family knows where that list is located.

 

It’s also a good idea to give your lawyer the list of your assets, and detail how you would like them to be handled or distributed. And lastly, when choosing your executor, make sure it is someone who will have all the necessary authority to carry out your plans for these assets.

AL: And someone who is at least marginally tech-savvy, right?

PS: Yes, that’s probably a good idea. We recommend someone local, and younger than yourself. And again, have an alternate in case your first choice is unavailable

AL: Now, before we wrap up today’s episode, is there any final advice you have for our listeners?

PS: Sure. I don’t want to get too dark or emotional, but I will say this. I think that too often people get wrapped up in the hustle and bustle of everyday life, and we can sometimes forget to take a moment to think about what we want our legacies to look like. And I don’t necessarily mean that in a deep philosophical way, but in a very simple way of “Will the people I love be taken care of when I’m gone.” And while this is definitely an important part of life for everyone to plan for, physicians have added complexities that need special care.

So, I think the earlier you know what you want for your legacy, the better chance you have of meeting those goals. Even if that is not your primary goal at the moment, if you are keeping it in mind as you plan for your other goals, you’re on the right track.

And of course, always talk to an advisor. They will help you stay on track to your goals, and if those goals change, they will help you find a new track. Whatever you need they are there for you.  

AL: That’s great. Patricia, thank you again for joining us. This has been so great chatting with you.

PS: Oh, my pleasure. Thanks for having me.

AL: To our listeners, thank you for tuning in today. Like I said at the top of our episode, if you haven’t already, be sure to check out our episode on retirement readiness for more information about post-career planning. Next week, we will be talking all about tax, so you definitely don’t want to miss that. Once again, my name is Angele LeBlanc and it has been a pleasure hosting for you today. Until next time, take care!

This has been The Financial Literacy Podcast brought to you by MD Financial Management.

For more information or to speak to an advisor today, visit our website at mdm.ca

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