RSNA News - April 2005

Taking Care of Your Financial Health:
Estate Planning for Physicians

Part 3 of 3

Sometimes a person wants to make a donation, but he or she doesn't have the capital. You can name a charity as the owner and beneficiary. The premium you continue to pay is tax deductible.
—Alan L. Cates, J.D.

What would happen to your family if you died? How would your spouse and children make up for the loss of income? What would happen to your medical practice? "People buy life insurance out of a sense of necessity," according to Alan L. Cates, J.D., the 2004 president of the Chattanooga Bar Association and a shareholder with the firm of Shumacker, Witt, Gaither & Whitaker in Chattanooga, Tenn.

He said people buy life insurance to create an estate, to create a fund of money to pay estate taxes and/or to fund business arrangements.

Life insurance is particularly important for sole practitioners and physicians with young families. They should purchase it as early as possible, according to Brian T. Whitlock, J.D., C.P.A., partner-in-charge of the Wealth Transfer Service Group at Blackman Kallick, a C.P.A. firm in Chicago. He is also the chairman of the Illinois C.P.A. Society.

"My rule of thumb for life insurance is multiply your current annual take-home salary by 10. That is the minimum amount your family will need to recover and support itself after your death, especially if you have young children and future college expenses," Whitlock said. "The younger you are, the more life insurance you need."

Types of Life Insurance

There are two general types of life insurance—term and permanent. Whitlock said term insurance is essentially a year-to-year bet with the insurance company as to whether or not you are going to die. It is the cheapest form of life insurance because it does not build financial value. As you age, the cost of the premium increases.

Permanent life insurance costs more, but it builds value at the end of each year. There are three types of permanent life insurance:

• whole life
• universal life
• universal variable life

Whole life is the most expensive of the three choices, Whitlock said, but it is also the safest. The insurance company invests the money in long-term bonds and guarantees the premium will never increase.

Whitlock said universal life is essentially a term policy with a side fund attached. Funds are invested in short-term, interest-sensitive instruments. Income generated accumulates tax-free and helps defray future premium increases, but premiums are not guaranteed. The risk is on you, rather than on the insurance company.

With universal variable life, side funds are invested in mutual funds. Again, the consumer assumes the risk that premiums may be higher in the future.

Life Insurance and Planned Giving

Whitlock said as your children age and your pension fund increases in value, you may decide that your life insurance is more than you need. If that happens, you have several choices:

• Surrender a permanent life insurance policy and get its cash value.
• Stop paying your premiums, let the insurance lapse and lose the entire value.
• Transfer the life insurance policy to a charity.

"Your policy may be worth much more to a charity than the cash today," Whitlock said. "If you sell that policy, you'll have taxable income. But if you donate it to a charity and they sell it, it's tax free," he continued.

Cates agreed. "Transferring ownership of your life insurance policy to a charity is a good way to provide ongoing support to a charity you supported during your lifetime. There is also a favorable income tax benefit—the money is not included in your estate, so there is no tax on the proceeds," he said.

There are also options if you are unsure if your family may need the money. "You can name a charity as a beneficiary and give that charity a certain percentage of the life insurance proceeds," Cates explained. "Again, there will be no estate taxes for the charity."

Another option is donating your life insurance policy to a charity on a deferred basis. "Sometimes a person wants to make a donation, but he or she doesn't have the capital," said Cates. "You can name a charity as the owner and beneficiary. The premium you continue to pay is tax deductible."

Charitable Remainder Trust

Cates and Whitlock said there is one more option, called a charitable remainder trust that balances objectives for continued income with your charitable objectives. You can make a substantial capital gift of land, marketable securities or hard assets to a charity and receive an annuity during your lifetime.

You keep a right to the income and the use of the assets during your life. The remainder goes to the charity of your choice upon your death.

Planned Giving

"There are smart ways to make a charitable gift," Whitlock said. "Try to match your desire to make a gift with the assets in your holdings that offer the best tax advantages to you. In the way you give it, you may be able to keep the benefit. I always recommend you first talk to a planned giving officer about what assets you may be able to donate and then talk to your tax advisor. The conversation you have with the planned giving officer is free. The meter is always running when you talk to your tax advisor," Whitlock added.

Gifts to the RSNA Research & Education Foundation

Careful financial planning can enable you to provide lifetime income for you and your beneficiaries. It can offer significant tax savings and can also allow you to leave a legacy in the form of a contribution to an organization, such as the RSNA Research & Education Foundation, to benefit the future of radiology.

For more information on donating to the R&E Foundation, contact Deborah Kroll at (630) 368-3742 or at .