Palmer Price

Without planning, your assets could end up in the hands of the state or federal government .

No one wants to think about their own death, but like taxes, you can't avoid it.

If you care about those you leave behind and you want your business to survive, you need an estate plan. It doesn't matter how much money you have. If you don't create a plan, the laws of the state where you live will govern what happens to your property.

Estate planning is more than just a will. Here's what you need to know.

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A will is a document that directs what should happen to your property upon your death, and it appoints an agent, called the executor, to follow your wishes.

Beyond a will, everyone should have an advance healthcare directive, also called a healthcare proxy or living will, and a document that authorizes the release of protected health information.

These can be all in one document or separate documents.

"Their purpose is to state your wishes with respect to medical care should you be unable to communicate your intent, and further, to name an agent to make medical decisions on your behalf consistent with your stated intent," said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park, N.J.

Romania said the directive can be general, such as that you would not like to be kept on life support should you suffer irreversible brain damage and are comatose, or it can include specifics, such as refusing food and hydration in certain situations. 

To make sure you have someone to handle your financial affairs should you be unable to, you need a general durable power of attorney.

Without planning, a big chunk of your assets could go to Uncle Sam or to your state's taxation department.

Your estate would be subject to federal estate taxes if your assets are worth more than $5.49 million and you die in 2017. Many states have lower thresholds, so check this chart by the 

One of the most overlooked strategies is good old-fashioned, plain vanilla gifting, said Thomas Katz, an estate planning attorney with Katz Baskies & Wolf in Boca Raton, Fla.

You can gift $14,000 per year to any number of individuals, or $28,000 for a married couple.

You can also gift an unlimited amount for educational expenses as long as the funds are paid directly to the educational institution, or for healthcare as long as the funds are paid directly to the medical provider, Katz said.

"While the amount in any given year might not be significant, over time that gifting can really add up," he said.

Another strategy is a life insurance trust.  

If a policy is owned in the trust and if death occurs at least three years after a transfer of a policy to a trust, the proceeds will escape taxation both when the insured dies and when the spouse of the insured dies, Katz said.

Another way to leave tax-free assets to your heirs is through an IRA conversion.

With this strategy, you'd convert a traditional IRA to a Roth IRA, paying taxes on the conversion now. Then your heirs will receive the funds tax-free.

Romania said she sometimes recommends this strategy to older clients who are in a lower tax bracket as long as the client has significant liquid resources outside of their retirement accounts to pay the taxes due.  

If you have young children, your will would name a guardian, but you also need to plan for who will manage the assets inherited by the child.

Romania recommends you incorporate a trust into your estate plan so that any funds inherited by minors are managed a responsible adult.   

You would name a trustee to manage the funds, and payouts can be made at the trustee’s discretion and/or when the child reaches specified ages or at specific events, Romania said.

Don't forget about charitable contributions. These would be deductible for your income and estate tax purposes, Katz said.  

While everyone worries about how an estate should be structured to benefit their family, you have an extra burden as a business owner — planning for your company's future without you.

Start by creating a team of advisors, including an estate planning attorney, a financial advisor, an accountant and a business attorney.

List your assets and meet with these professionals to discuss your financial position and goals and to review your estate plan.

Then, plan a smooth transition for the business.

You need to be aware of the federal and state rules governing the sale or closing of a medical or dental practice.

In New Jersey, for example, the transfer of a medical or dental practice can only be to another duly licensed person, Romania said.

"Transfer or closing of the practice must also address the custody or transfer of medical/dental records, which are subject to privacy rules and thus patient consent must be obtained before transfer," she said.

As part of all this, you need to analyze how selling your practice to a younger partner or to a completely unaffiliated dentist will impact your estate.

Romania said succession plans are generally set forth with a buy-sell agreement or a partnership or shareholders’ agreement. These will create certain contractual obligations and/or rights with respect to your estate.

For example, she said, the succession plan may require the surviving partner to buy the deceased partner’s business interest for an agreed upon formula price and require the estate of the deceased partner to sell at that price, she said.

Your estate planning attorney needs to know all the details so they can be part of your overall estate plan.

Life insurance is another popular tool for succession plans, but you must make sure to do it right.

Katz said one frequent mistake practitioners make is to value a practice based solely on the amount of life insurance that can be obtained to fund a buy-sell arrangement.

"Sometimes, the better estate plan for clients that worry they may have taxable estates is to value the practice for its `true' value, and then own the insurance through an irrevocable life insurance trust," Katz said.

And, Katz said, asset protection should always be part of the conversation.

"Malpractice insurance is a first line of defense," he said. "Other possibilities include holding assets in a spouse’s name, as tenants by the entirety in jurisdictions (such as Florida) where that provides protection, in a limited liability company because of the limits (in general) on the rights of creditor to a charging lien, and taking advantage of other statutory or common law protections."

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Articles

Death is an inevitable part of life that requires planning ahead. For small business owners, including dentists, that plan is especially imperative. To be sure your wishes are met after death, there are several steps you will need to take. Continue below to find out what you need to do secure your estate. 

Death Planning: A Must for Small Business Owners

According to financial experts, there are a number of important factors to consider before selecting a planner, such as how they get paid. 

Most of us hire a mechanic to tune up our cars. We call an electrician when the lights are not working. We turn to real estate agents, caterers and landscapers to fill specific and targeted needs.

So why would you leave managing your money to a rookie?

Even if you are comfortable with investing and an ace at managing your personal budget, hiring a pro could give you an edge. That's because a financial planner — someone who looks at your entire money picture — can give you objective advice that goes beyond your portfolio.

We are not talking about hiring a broker or someone to gamble with your hard-saved money, but someone who will look at your goals and your resources and help you plan a future of financial independence. Compare your personal financial plan to your patients' dental needs

Say a patient needs a crown replacement. It is not an emergency, but it could become one if the tooth breaks.

The patient sees it differently. The tooth is not hurting, and they would rather spend their money on a whitening procedure. It is your job to present the best possible strategy for the patient's oral health. Financial advisors have a similar job, but for the health of your finances.

"As an advisor, we routinely ask questions of business owner clients to understand their challenges on everything from revenue, costs and marketing to work-life balance and exit strategies for retirement," said Bonnie Hughes, a certified financial planner with American Capital Planning in Leesburg, Va. "That’s in addition to the real-time planning needed to understand if they can fund future goals."

Anyone call hang a shingle and call themselves a financial planner. But you don't want just anyone. You need someone with education, expertise and ethics — someone who has proven themselves.

The gold standard is the certified financial planner (CFP) designation, said Rick Fingerman, a CFP with Financial Planning Solutions in Newton, Mass. He said hiring a CFP offers certain assurances.   

"They have gone through a pretty rigorous education process, have sat and passed a two-day comprehensive exam, have a Bachelor's degree, have at least 6,000 hours of professional experience, and last but not least, adhere to the CFP Board's Code of Ethics," Fingerman said.

While there are many good financial advisors who don't have the CFP designation, it is reassuring to know CFPs have a fiduciary duty, meaning they're required to put their clients' interests first.

That means they are not going to sell you products or investments because they'll make a hefty commission, but instead will recommend the financial instruments most beneficial to your needs, Hughes said.

"If all the folks who call themselves financial advisors did this, many of the product sales would not happen, and that means a lot of the fees advisors receive would also go away," Hughes said.  "I can’t imagine paying for any service where I did not have confidence the person I’m paying didn’t put my interests first."

Depending on your personal situation, you may want a CFP who has additional designations and additional specialty training.

Certified public accountant (CPA): These are tax professionals. Some have the added PFS designation, which stands for personal financial specialist. CPA-PFS pros have similar experience to CFPs.

Certified divorce financial analyst (CDFA): Planners with a CDFA designation have expertise in divorce planning.

Certified college planning specialist (CCPS): These pros have expertise in all aspects of college planning.

One of the most important questions to ask any advisor is how they get paid. If they avoid the question, that is a huge red flag, and you should cross the person off your list. Planner payments come in three forms: fee-only, commission and a combination of fee and commission.

Fee-only planners do not make any money by selling products or investments. Instead, they are selling only advice. Commissioned advisors suggest certain investments or products, and if you buy, they earn a commission from the company that offers the product.

The advantage of this method is there are no direct costs paid by the client," Fingerman said. "However, this method could have conflicts of interest as the advisor may get paid more for using one company over another."

Hughes said she's biased in favor of fee-only, which is how she has practiced for 27 years. The planner's compensation method is important because you can put that in context with the advice you are receiving.

"If I worked on commission and I fed my family based on selling you an annuity, I guarantee that’s going to be my advice," Hughes said. "If I am fee-only, I have the obligation to recommend only what is appropriate to you, the client. And I am not persuaded by having to sell you a product to earn income." 

There are several fee-only structures. Some advisors may charge an hourly fee or a flat fee for certain services. Others charge a percentage of whatever assets they manage for you. The average cost is 1 percent of assets, Fingerman said, noting this varies depending on the firm and the size of your assets.

Hughes is not fond of the percentage fee because she said it gives an advisor incentive to keep your money invested.

"That could mean that if you want to pay off your mortgage, an advisor paid by a percentage might be biased in favor of you keeping the money invested. Otherwise, they would take a pay cut if you cashed out that amount to pay off your home," Hughes said.

Interview multiple advisors before you choose one. To get started, try some comprehensive online search tools.

For certified financial planners, check the Financial Planning Association's website at plannersearch.org. If you want a fee-only advisor, look to the National Association of Personal Financial Advisors (NAPFA) at napfa.org or the Fee Only Network at feeonlynetwork.com.

You may also turn to your family and friends for recommendations, but remember that you want to work with someone who has experience with people like you. If your brother-in-law is a construction worker and your aunt is a teacher, they may have planners who work well with their situations, but maybe not with yours.

Look for someone with small business experience. Better yet, look for planners with dentists or medical professionals as clients. Also, consider the person's knowledge in other areas, such as college planning, insurance or divorce, if those top your needs.

 If after all that you are not sure who to go with, go with your gut.

"Assuming one advisor has the same years of experience, same designation, and is compensated the same way as the other, I would work with the one you liked better and felt more comfortable with," said Fingerman. "This could be a long-term relationship, and you want to like who you work with."

Be sure to do some research to make sure the pro you're considering has a stellar record.

If the pro is a certified financial planner, you can help the 

. You can also use the FINRA BrokerCheck tool and check in with the Securities and Exchange Commission.

Finally, Google the advisor's name. You never know what you might find.

Just like your patients seek your expertise to keep their mouths healthy, you should consider hiring a financial planner to keep your wallet happy. There are several routes to take, and depending on your needs, some options may be better than others. Let our certified financial experts show you what to look for and how to find it. 

How to Choose a Financial Planner

Retirement plans are not one-size-fits-all. You need to think about your needs as well as those of your practice.

When you're running a business, the daily demands keep you plenty busy.

Not only do you have to worry about your patients, but you also have to pay bills and balance the books.

Along the way, don't forget about planning for your future.

“These plans can be great for owners who want to save money for retirement and save money on taxes,” said Amy Noel, a Boulder, Colorado-based certified financial planner.

Whether you're a solo practitioner or you have a practice with dozens of employees, and whether you want to save a lot or a little, there's a plan to suit your needs.

SEP IRA is short for simplified employee pension individual retirement account.

It is funded solely by employer contributions and provides the employer flexibility so that in lean years, the contribution can be skipped, said Andrew Samalin, a certified financial planner with offices in Chappaqua, New York, and New York City.

He said for the SEP IRA, an employer can contribute up to 25 percent of compensation — which is about 20 percent of the Internal Revenue Service (IRS) Schedule C net income and based on maximum compensation of $270,000 for 2017—with a maximum of $53,000 per participant. 

A SEP IRA must be offered to all employees who are at least 21 years old, employed for three of the last five years and who had compensation of $600 for 2015 and 2016.

So, if you have a lot of part-timers, they'd probably be eligible for the plan.

Because part-time employee wages would presumably make up a small percentage of overall wages, a SEP IRA would not be too expensive for the business owner, he said.

“Contributions must be based on the same percentage for all participants and are immediately vested,” he said. “An employer may use IRS Form 5305-SEP to set up the plan but the costs to administer are low.”

And a bonus? Tax benefits. The business owner can deduct no more than 25 percent of aggregate compensation for all participants.  

Another option is the SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees Individual Retirement Account.

"The SIMPLE includes anyone who makes over $5,000 as an eligible participant," Noel said.

Employees can defer $12,500 — or $15,500 for those over age 50 — and the employer is required to contribute each year by matching employee contributions up to 3 percent of compensation. Or, the employer can make a non-elective contribution equal to 2 percent of employee compensation up to annual limit of $270,000 ($5,400) in 2017.

Samalin said this plan may be less expensive than a SEP IRA because some of the employees may choose not to participate.

The Safe Harbor 401(k)/Profit Sharing Plan has a higher cost of administration and a higher potential cost of funding for employees, but also allows for high contribution limits. You can use employee salary deferrals for these plans, and they're easier to administer than a traditional 401(k). Samalin said you can offer employee-vesting schedules to incentivize long-term employment and lower turnover.

Anyone who works more than 1,000 hours a year would be eligible, Noel said.

“So, if you have part-timers that work less than 20 hours a week, a 401(k) can be an option,” she said. "Typically, most employers will choose a Safe Harbor plan which mandates a 4 percent match for participants or a 3 percent non-elective contribution for all eligible employees.”

If you have no employees, or only your spouse works with you, you could consider a Solo 401(k).

These plans allow the business owner and spouse to contribute elective deferrals up to 100 percent of compensation as the employee, up to $18,000 for 2017, plus there's a catch-up contribution of $6,000 for those over age 50.

Then as the employer, the business owner may also contribute up to 25 percent of compensation or earned income.

“Total employee and employer contributions, not counting catch-up contributions, may not exceed $54,000 for 2017,” Samalin said. "Business owners must file Form 5500 after plan assets exceed $250,000."

With this plan, you can still contribute to a traditional or Roth IRA every year, too.

You can always consider a traditional 401(k), but that's usually best for a business with several dozen employees because they're more expensive to maintain and have stricter reporting requirements than some other plans.

A defined benefit plan is another option, Noel said, and could be appropriate for those who want to aggressively save for retirement and who don’t mind the extra costs associated with the plan. 

“This is not a good plan for a large group or one with many employees,” she said.

Because you may have trouble projecting your practice's income from year to year, you may prefer to choose the plan with the most flexibility.

Noel said a SEP IRA is the only plan that “truly has discretionary contributions.”

All the others have "substantial and reoccurring requirements," she said.

“A SIMPLE has an option that allows the employer to lower the contribution from 3 percent to 1 percent in two out of every five years,” Noel said. “This is helpful in this situation but the company still needs to fund the 1 percent.”

Consider meeting with a certified financial planner who has expertise in small business retirement plans.

You can search for an adviser in your area on the websites of the Financial Planning Association at www.plannersearch.org or the National Association of Personal Financial Advisors at www.napfa.org.

You can also contact a plan custodian such as Vanguard or Fidelity.

"The laws are written to allow for employees to succeed alongside management when a retirement plan is set up," Samalin said. “As such, retirement plans are structured to require management to make contributions to an employee’s retirement if the employer is making contributions to their retirement.”

Don't let yourself get too distracted by the day-to-day demands of dentistry. You still have a future for which to plan. Dentists have many retirement account options, but they can't take a one-size-fits-all approach to selecting the right one for themselves and their practices. These are some good IRA and 401k options.

Retirement: Picking the Right Plan for You and Your Practice

If you are like most dentists, you began your career under a massive debt load.

The average dental school graduate in 2016 left school with $261,149 in student loans, according to the American Dental Education Association (ADEA). More than 30 percent of grads reported debt of more than $300,000.  

That doesn't include the cost of business loans to start a practice.

There are strategies you can use to cut down what you owe for your education. Attractive repayment programs, opportunities for loan forgiveness and smart money management can help you make your debt a thing of the past.

First, arm yourself with information about your own finances.

Create a personal budget that lists all of your expenses. You may think you know how you spend your money, but you'll probably find some surprises. Pay close attention to which of your expenses are fixed and necessary (such as a mortgage or car payment) and which are discretionary (such as dining out and entertainment costs).  

Then make a list of all your current loan balances, interest rates and payback terms.

When you graduated with federal loans, unless you made other arrangements, you were probably put on a standard repayment plan with a 10-year payback schedule. Review all those terms and then get started.

Consider payment plans that are based on your income

"Income-driven plans aren’t always the lowest payment but may still make sense in the early years of a career where the income is lower," said Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence, New Jersey. "There are many considerations including expected revenue growth of the practice, having a profit margin that can support not only the business debt but the student loan debt — and allow them to eat."

· Income-based repayment (IBR) offers payments equal to 10 percent of your discretionary income for new borrowers on or after July 1, 2014. The payments will never be more than your standard repayment plan amount. Those who borrowed before July 1, 2014, will have payments based on 15 percent of discretionary income, and again, never more than the standard repayment plan amount.   

· Pay as you earn repayment (PAYE) has installments that are usually 10 percent of your discretionary income, but never more than the standard repayment plan amount.

· Revised pay as you earn repayment (REPAYE) will generally have payments that are 10 percent of your discretionary income.

· Under the income-contingent repayment (ICR) plan, you'll pay the lesser of 20 percent of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.

You can use the Department of Education's repayment estimator to see what your payments might be. The estimator can be found on the 

The income-driven plans will extend the number of years you have your loans, but you'll usually have lower interest rates than the standard 10-year plan. When your time is up (20 or 25 years depending on when you took your loans), the remainder of your debt may be forgiven.

That's really attractive, but there are caveats.

Your payments may change every year because you have to "recertify" your income and family size. As your income rises, your loan payments may, too.

"You may qualify one year, and be one dollar over the threshold and have to pay full payments the following year," said Chris Cooper, a San Diego, California-based certified financial planner.

Because the income-driven programs are over a longer time period, you'll pay significantly more in interest over the life of the loan.

Also be aware that if any of your loans are forgiven, you could be in for a big tax bill. The amount forgiven will be considered income, so you'll need to pay tax on that amount.

You can rid yourself of loans entirely with certain loan forgiveness programs, and so-called qualified forgiveness plans won't leave you with a tax burden.

If you work full-time for qualified employers such as government organizations or not-for-profits that are 501(c)(3) organizations, you may be able to join the Public Service 

 Program (PSLF), for direct loans. AmeriCorps and Peace Corps count, too.

To be considered a full-time worker, you must either work 30 hours a week or meet your employer's definition of full time, whichever is greater. If you have several part-time jobs at qualifying employers and you work a total of 30 hours per week, you may be eligible.

PSLF will forgive the remaining balance on your direct loans after you've made 120 payments under the plan.

If the remainder of your loans are forgiven, unlike the income-based repayment plans, you won't have a tax bill for the forgiven amount. 

If you take the right job, you can get lots of help to pay off your debt.

National Health Service Corps (NHSC): Dentists can receive up to $50,000 for loan repayment for a promise of two years of service. You can serve longer for added loan repayment.

Indian Health Service Loan Repayment Program: For two years of service in the American Indian or Alaska Native communities, you can get up to $40,000. You can serve longer for added loan repayment.

Veterans Affairs: If you qualify, dentists who work for the Department of Veteran Affairs may earn up to $60,000 for loan repayment.

Army Dental Corps: You can receive up to $120,000 for loan repayment. The Army has other financial benefits such as signing bonuses. 

Navy Health Professions Loan Repayment Program (HPLRP): You may qualify for up to $40,000 for loan repayment.

Air Force Dental Health Profession Scholarship Program (HPSP): In exchange for three years of service, you could qualify for free tuition and fees.

Ask your state: Many states offer loan repayment and forgiveness programs. Check your state to see its programs.

Refinancing student loans may help you get a lower interest rate and better terms. It will also simplify your finances by consolidating your loans into one monthly payment, which may lower your overall borrowing costs, Lassus said.

"When consolidating loans with the federal government as the lender, you have up to 30 years to repay your loans, the interest rate is a fixed weighted average of your previous loans and you have renewed eligibility for certain benefits," Lassus said. "Even if you have previously used deferments for unemployment or economic hardship, you will be eligible for them again."

By extending the loan term, you'll probably pay more in interest over the course of the loan.

And if you use a private lender, you'll lose important benefits of federal loans, including the chance to move to an income-based repayment plan, a forgiveness plan and hardship deferments.

It may be tempting to shift your student debt to your home by taking a home equity line of credit (HELOC) or home equity loan. Sure, you'll get an attractive interest rate and home loans are tax-deductible, but it's probably not worth the risk.

"Do not use a home equity loan, no matter how tempting it is — unless you have a guaranteed paycheck coming in and no one has that," Cooper said. "If you get behind on a home equity loan, the bank will foreclose on your house."

The average dental school graduate in 2016 left school with $261,149 in student loans, according to the American Dental Education Association (ADEA). More than 30 percent of grads reported debt of more than $300,000.