First, Do No Harm

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Protecting Assets

One common financial disaster that can result in a significant loss of assets is a civil lawsuit. Lessons #5 and #6 will offer almost two dozen specific solutions to help mitigate litigation risks. Though malpractice lawsuits are a significant risk for physicians in today’s society, they do not pose the most significant risk to one’s wealth if proper insurance is in place.
This Lesson will explore those additional—and more devastating—financial disasters that must be addressed if you wish to achieve and maintain wealth. These risks include both health-related and financial events. More specifically, this section of the book will teach you how to:
· Protect your family from an unexpected death
· Keep paying your bills even if you can’t work due to disability
· Handle long-term care expenses before they arise
· Make sure you don’t run out of money in retirement
· Avoid healthcare and insurance threats
· Avoid employment threats
· Obtain insurance to protect against business and personal risks

post 7Protecting Your Family From an Unexpected Death
The emotional distress caused by the premature death of a loved one cannot be exaggerated. Long before the psychological scars begin to heal, financial devastation for surviving family members may begin. If proper planning is not undertaken, the value of the medical practice, which could be a saleable asset to help the family, may be lost.
There are various obstacles to successful financial planning in the case of unforeseen death simply because none of us knows when our time will come. The 2003 National Safety Council’s study on deaths (http://www.nsc.org/lrs/statinfo/odds.htm) and the 1999 US Census Bureau’s Statistical Abstract of the United States, which surveyed the year 1997, reported the following statistics in regard to unforeseen death types:
· There is a 1 in 24 chance (4.17%) that you will ultimately die from a stroke
· There is a 4% chance you will die from an accident or the adverse effects of one
When you add these two risks together, you can see that approximately 1 in 12 people will die from an unforeseen risk. In addition, a number of people will find out they are terminally ill and their families will not be able to purchase personal life insurance to help them manage the financial burden created when they pass away.
Another obstacle to successful financial planning in the case of unforeseen death is that most people don’t enjoy contemplating, let alone discussing, the death of a family member. As a result, few families are financially or emotionally prepared for this traumatic event.
In this chapter, we will discuss two financial losses that can occur at the time of death:
· Loss of income
· Loss of an estate (via estate taxes and probate costs)
Physicians and their families can use particular insurance planning strategies to efficiently manage the risks which often result from the premature death of a family member. In addition, proper legal documentation must be created to allow for efficient handling of financial matters at death—including offering the executor of the estate the legal power to effectuate a transfer prior to the estate going through probate. If there are unnecessary delays in this process, the patients will seek another practitioner, thus diminishing the value of the practice further. This chapter aims to teach you how to protect wealth from the death of a patriarch or matriarch. Let’s explore how this can be done.

Income Protection
A key to successful planning is an ability to put one’s fear of death aside and focus on the financial impact a death may have on a family. The first financial impact of death, especially for younger families, is the lost income. Once a father or mother has passed away, they obviously will not earn any more income. If the family hasn’t met all of its saving goals (most don’t until they are well into their fifties), there will be a significant financial strain from the death. The key to maintaining wealth is making sure that no financial catastrophe wipes out the family. To show you how significant this loss of income can be, consider the following.
The present value of twenty years of lost income for the Average American family (with $45,000 of annual income) is approximately $636,000. That means that, at the time of death, the family would be in the same financial situation if they had 20 years of income OR had a lump sum of $636,000.
For the family of a physician who earns $300,000 per year, the present value of twenty years of lost income is over $4,200,000. For the family of a very successful specialist who earns $1,000,000 per year, the present value of 20 years of lost income is $14 million. The simple estimate implies that a family needs approximately 14 times the annual income of the breadwinner to replace twenty years of lost income. If you have a younger breadwinner or a breadwinner who just intends to work 30 more years, the multiple used to approximate the present value of future income is 18 times one year’s income.
What these examples illustrate is that a family needs life insurance in the amount of at least 14 times the annual income of each wage earner just to keep them on track to meet their financial goals (assuming that their current earnings were keeping them on track before the death). Also, this estimate assumes no adjustment for inflation. Over twenty to twenty five years, the value of a dollar is reduced by 50%. For that reason, you could estimate that a family needs between 14 and 28 times one year’s after-tax salary to replace twenty years of income. Do you have enough life insurance to protect your family and leave them in a position to meet their goals if you were to die?
In addition to lost income, the practice asset will be lost if proper estate planning doesn’t establish a trustee with a power of sale. This is the best possible option since More

The Value of Financial Specialists

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The best way to maximize your benefit from leveraging people is to work with experts in many financial and legal fields. As you learned in Lesson #2, you have very different needs than Average Americans do. As a result, the right specialists for most people are not likely to be the right advisors to help you.
As you become more successful, you need advisors even more. Adding employees, making additional investments, purchasing equipment and real estate, and creating new businesses add complexity to your plan. This increased Leverage exponentially increases the complexity of your comprehensive financial plan. This complexity necessitates the need for a team of advisors. Without a very strong team, you will struggle to find the time to focus on the important things that make you money, let alone enjoy any free time. To illustrate the value of advisors, refer to the equation below:

  • Wealth can only be achieved through Leverage
  • Leverage can only be managed with a team of Advisors
  • Wealth can only be achieved with a team of advisors managing the Leverage

In this section, we will discuss the reason why Doctors need a team of knowledgeable advisors with diverse areas of expertise. Then we will discuss how to maximize the value of your advisors and suggest tips for working with your team.

post 6Managing Complexity: The Need For Advisors
Most people realize that wealth creates complexity. What Doctors need to realize is that the management of complexity and Leverage is not the job of a traffic cop. As wealth grows, the number of complicated, technical risks that the Doctor faces also grows exponentially.

As an example, the transition from running a sole proprietorship to having a single em¬ployee may not seem to be major, but that couldn’t be further from the truth. The addition of just one employee creates a need for:
· Payroll creation, funding, and payments
· Regular payroll tax payments (or you can go to jail)
· Withholding tax filings and payments
· Workers compensation insurance or fund payments
· Occupation Safety Hazard Association (OSHA) compliance
· Separate retirement plan (ERISA) regulations and contribution requirements
· A host of other state and federal reporting requirements.

In addition to all of the aforementioned specific issues, the Leverage of assets also increases the need for more general categories of planning, like asset protection, banking (private and commercial), business planning, financial planning, healthcare law, HIPAA, Medicare, income tax management, investing, life insurance analysis, disability insurance analysis, property and casualty insurance analysis, long-term care insurance analysis, educational funding, retirement planning, family law, gift and estate tax planning, charitable planning, Medicaid planning, and a host of other areas.
Each category of planning has its own technical areas that can be competently handled by an advisor who has expertise in that area. Although it is common to find an advisor who has expertise in several areas, there are categories in which the input of two advisors may be necessary. For example, tax issues are typically handled by a both a tax attorney and a CPA. As a result, there is no way that a small team of two or three advisors could possibly handle the needs of a Doctor. This means that a Doctor may need to Leverage the services of six or more advisors over their career.
While the concept of such a large team may seem overwhelming, consider your profession of medicine. Adult patients do not continue to see the obstetrician who delivered them or the pediatrician who treated them in childhood. Patients need to see a number of specialists as they mature and as their needs change, often consulting with a number of Doctors at once.
If you are like your patients, you may want to be able to keep the same financial “primary care” advisors for as long as possible. Having someone you know and trust as your primary contact is very comforting. This “primary advisor” can help explain situations to you, find the right specialists if a need for one arises, and help communicate with you as complicated procedures take place. Keep this in mind. In Lesson #10, there will be discussion of your team of advisors. One of your advisors on this team is going to be the primary contact to help you through it all.

Working With Your Team
Having the right team of advisors is another step in the right direction, but there is still more to do. Having a team that is run poorly is like having an alarm installed in your house but never turning it on. You have to “work” with the team for the team to provide any value. In our discussion with the partners of The Founders Group in San Diego, we learned some valuable lessons about successful business owners (and Doctors need to consider themselves business owners). The Founders Group only deals with families with businesses or net worth above $25,000,000. They have found that the most successful clients and families arranged annual or semi-annual all-day or multi-day meetings with all of their advisors, business partners, and key family members. Sometimes, the costs of flying in advisors to perform these meetings and paying them their hourly wages can cost thousands of dollars per year.
According to Joe Strazzeri of The Founders Group:
“Professionals and business owners who make the effort to spend time with the experts on their team generally see these meetings as the most productive use of time and money.”

Tips For Working Within A Team
As with any collaborative endeavor, the collection of people into a coordinated team is not enough to ensure success. Every conference call and meeting must have an agenda and someone to manage the meeting to make sure that all-important items are handled within the allotted time. It is common to put one of the advisors in charge of organizing and facilitating information between the other advisors. This is usually a financial planner and not an accountant or attorney—though the “quarterback” could be any one of the advisors More