Proper estate planning for dentists is critical for protecting loved ones, legacy planning, and ensuring your patients will continue to be cared for.
When you plan for the future, remember to consider both your practice and business assets, as well as your personal assets in your estate planning. Dentists need an estate plan more than most people, because of the added complexities of having a heavier reliance on a dental practice as an asset and income, and more limited liquidity.
Have a Will
Having a current will is critical, to ensure your estate plan and wishes are executed properly, and make sure family members know about it.
Avoid Probate Fees and Estate Taxes
The probate process is expensive and time consuming. While some assets will fall under your will as estate assets, other assets and investments can be accounted for separately. You can give or sell an asset, or with many mutual funds or similar investments, you can designate a beneficiary directly, so the value of this does not fall under the overall estate. This means your designated person benefits from the value nearly immediately, and the amounts are not subject to probate and any taxes on your estate.
Tax Planning for Dentists
Keeping your practice in good financial health and being on top of it completely is an essential part of your estate plan. Don’t forget any income tax will be due, and this will come out of any amount your beneficiaries receive, so make sure these expected amounts are accounted for.
Ensure your taxes are in good order, and consult a professional on ways to reduce your estate administration taxes.
Inheritances aren’t directly taxed in Canada but property and assets left do get taxed, as the taxes are applied before the estate is delivered. Essentially, the deceased is getting taxed before the estate is allowed to be released to the heirs.
You can reduce your estate administration tax amount by either gifting or selling assets, to reduce the value of estate assets.
Estate Planning for Dentists Includes Preparing Your Dental Practice for the Unexpected
Many dentists are counting on the value of their dental practice to help fund retirement, as a significant portion of their net worth. With this comes a heavy dependence on the state of your dental practice.
At any stage of your practice, therefore, you should prepare for any eventuality. If you suddenly have a temporary disability and cannot work, disability insurance helps, but office overhead insurance, to cover the cost of rent, utilities, and other ongoing expenses while you can’t work, can make the difference in keeping your dental practice afloat.
Remember, too, to take into account any considerations of what will happen if you pass away before your dental practice is sold to provide these funds, and how this will impact your dependents. Be sure to get a comprehensive life insurance policy that can compensate for loss of income and the possibility of losing value in your practice if it sells on the low end or below fair market value because the sale is unexpected and needs to be done quickly. It is often hard to know how much insurance you really need to ensure your beneficiaries are taken care of, and there are a wide variety of life insurance policies with a wide range of premiums, so getting professional help with this is recommended.
Sale of Your Practice
While your family may be able to have ownership of your practice, or sell it, it’s important to have a plan, and ensure your dependents are aware of it.
Make the potential sale of your practice as simple as possible. Maintaining excellent financial records for at least the past three years ensures a faster and simpler sale; given that preparing for the unexpected means you won’t know when this three-year period will have begun, it’s a best practice to always have meticulous records.
Consider Your Patients
Dentists have a duty to also consider their patients and provide continuity of care plans, if they pass away or are disabled and unable to provide care.
Enjoy Peace of Mind With a Comprehensive Estate Plan
While no one wants to think about wills and estates, and the planning process is complex and confusing, having comprehensive estate plans will remove a big stress from your life. You can get professional help to ensure your family will be properly provided for and your dental practice will be handled as you wish, with legacy planning to pass it on or sold effectively for full value. Expert help can save you and your family a lot, and give you the confidence that you are fully prepared.
At Dental Tax, we can help with insurance for the unexpected, as well as some aspects of estate planning for dentists, as part of overall business planning.