When the Doctor Is the (Financial) Patient

4. Macro Risks

Even considering the clear shortage of physicians, the current political trend is slowing the growth of physician earnings. Medicare reimbursements are moving downward, along with the rest of the reimbursement framework. Add to this growing pressures from insurance carriers, new technologies, new types of service providers (e.g., physicians’ assistants), new service models (e.g., telemedicine), as well as the global prospects for continued socialization of medicine, and it should be clear that planning for physicians must account for many future variables.

5. Debt Management

According to a 2017 report from the Association of American Medical Colleges, 76% of medical school graduates had education-related debt, with a median amount of $190,000. In 2016, the median cost of attending a four-year program for an in-state medical student was nearly $250,000, and substantially higher for out-of-state students and those attending private schools.

In turn, physicians often are under increased pressure to rationalize their debt strategy, which may include personal, educational, mortgage, business and investment-related debt. Given the relative costs, repayment periods and tax attributes of each type, a full plan to address debt use and service is critical.

6. Taxes

Physicians that are well-advised regarding tax mitigation are likely better positioned to achieve their financial goals. Yet many physicians are far more focused on other aspects of their financial plans, such as investments. Asset allocation and portfolio construction are important, but they must be considered alongside taxes and other expenses. Tax planning for physicians must focus on both individual circumstances and practices, especially if they are owners of their practices. The following tax planning techniques and tools are often the most effective:

1. Choice of entity for their practices (e.g., using S corporations to mitigate employment taxes)
2. Income deferral
3. Deduction acceleration
4. Education-expense planning
5. Debt planning
6. Philanthropic planning
7. Use of defined benefit, defined contribution  and other tax-favored plans
8. Tax-loss harvesting
9. Creation of capital gain in lieu of ordinary income
10. Alternative structures designed to defer and mitigate taxable income

7. Risk Management

The nature of a physician’s practice is such that the risks of being sued for malpractice or other claims are relatively high — regardless of whether such a suit is justified. This risk amplifies the need for smart strategies around risk mitigation. These strategies should include, at a minimum:

1. Regular, targeted insurance reviews
2. Use of limited-liability entities and trusts
3. Strategic asset titling and gifting
4. Use of homestead and similar liability protections

8. Estate Planning

Estate planning, too, should be specialized for physicians. Many of the traditional concerns, such as the need for a will, trusts, and powers of attorney, may look the same as for other high-net-worth professionals. Yet, there are other items that may look different. Physicians sometimes seek more detailed healthcare-proxy and living-will documents than others. They also frequently require much more planning around succession and exit planning relative to their medical practices.

About Physicians

In addition to their needs, physicians are different because of how they think, work and act.  Not all are the same. Yet, our experience tells us that many physicians experience great scarcity around time. They also may be used to being in charge and expected to have all the answers. Planners who seek to serve physicians should be prepared to accommodate, understand and even leverage these personal dynamics as they formulate their plans and implement them.

As personalized medicine takes hold of the medical profession, so too should personalized planning take hold of the financial advisory profession. Just as for their own patients, the best outcomes for physicians depend on matching their specific needs with customized solutions.

Michael Nathanson is chairman and CEO of The Colony Group.