RSNA News - February 2005

Taking Care of Your Financial Health:
Estate Planning for Physicians

Part 1 of 3

A qualified plan is a contract. It supersedes a will.
—Brian T. Whitlock, J.D.,  C.P.A.

Death and Taxes

Brian T. Whitlock, J.D., C.P.A., says physicians must consider family needs, taxes and the likelihood of a medical malpractice claim when it comes to figuring out an estate plan. Whitlock is the partner-in-charge of the Wealth Transfer Services Group at Blackman, Kallick, Bartelstein, L.L.P., in Chicago. He is also the chairman of the Illinois C.P.A. Society.

Whitlock says that an income tax deduction is claimed when money is contributed to a qualified plan. As a result, income tax is deferred but will be due when distributions are paid to the individual or the beneficiary. The income tax liability does not disappear with death. If the qualified plan(s) had assets of more than $1.5 million, estate taxes—sometimes called death taxes—will also be charged on the amount in excess of the $1.5 million. The asset figure will rise to $2 million in January 2006.

Whitlock says any assets left to a spouse are not subject to estate taxes if the spouse is a citizen of the U.S. This is called the unlimited marital deduction. Whitlock says the citizenship of the deceased person doesn't matter, just the citizenship of the beneficiary (spouse). While there is no death tax, there are income taxes that must be paid on money deposited into a qualified plan on a pre-tax basis.

For individuals age 35 years or older, Federal law requires a spouse to be named as a beneficiary on a pension plan. The surviving spouse will then have greater tax-saving powers because he or she can roll the money into an IRA so that no death taxes are paid. If the estate had more than $1.5 million in assets, estate taxes must be paid when the surviving spouse dies. These estate taxes range from 41 percent to 48 percent.

Asset Protection for Individuals

Whitlock says physicians who are concerned about malpractice claims can accumulate money in a qualified plan and it will be free from claims of creditors in a malpractice suit. He says stocks and bonds could be taken, but not the assets in a qualified plan. "How you invest your money is influenced by potential malpractice claims," Whitlock says.

If money from a qualified plan is left to a person's children, Whitlock says the children could pay up to 70 percent in income and estate taxes. Qualified plan money left to grandchildren could be taxed at up to 90 percent. Rather than leaving them money from a qualified plan, he recommends leaving children and grandchildren a home, stocks and/or bonds.

Charitable organizations don't face the same tax burdens as children and grandchildren. "If you leave money from a qualified plan to a charity, that charity won't pay taxes," Whitlock says. "On a qualified plan, you can designate a specific dollar amount or a percentage for charity."

Whitlock emphasizes the importance of naming a beneficiary. "A qualified plan is a contract. It supersedes a will," he says. "Name your beneficiary, but remember the tax laws when doing so."

Asset Protection for Members of Private Practice Groups

For members of radiology or radiation oncology groups, Alan L. Cates, J.D., recommends deferring current earnings through plans such as a 401(k) or a simple IRA. "You can take a portion of your earnings each year on a tax-favored basis for retirement," he says. "The options range from simple to complex, depending upon the needs and ages of the members of the group. You can set up an age-weighted component to allow older practitioners to catch up on retirement savings."

Cates, the 2004 president of the Chattanooga Bar Association and a shareholder with the firm of Shumacker, Witt, Gaither & Whitaker in Chattanooga, Tenn., says another choice is a profit-sharing plan that gives members the right, but not the requirement, to contribute. "This option is good in years when the group doesn't take in as much income," Cates says.

In today's market, Cates says people are generally taking a more cautious approach to their portfolios. "A lot of physicians have seen friends retire, then be forced to go back to work due to the falling market," he says.

When the owner of an account dies, the money is paid to the designated beneficiary—typically the surviving spouse. Cates says the beneficiary can take a lump sum distribution or distributions based on life expectancy.

These qualified plans also are subjected to hefty taxes when left to a person other than the spouse. Again, charitable contributions are a tax-saving option.

Gifts to Charitable Organizations

When designating a portion of an estate to a charitable organization or organizations, you can designate benefits in specific dollar amounts or percentages. The RSNA Research & Education Foundation is a charitable organization that can be designated as a beneficiary.

For more information about contributing to the Foundation, contact Deborah Kroll at (630) 368-3742 or at .

Donors should seek the advice of an attorney or other professional tax advisor to determine how any particular type and size of gift would work in their particular circumstances.

 Next Month: Wills and Trusts