Eido Walny, founder of Walny Legal Group LLC, an estate planning and asset protection boutique law firm based in Milwaukee, discusses the most important financial planning issues and strategies for surgeons through the end of 2012 and beyond.
Q: What are the biggest concerns for surgeons heading into next year?
Eido Walny: From my perspective, people focus primarily on the income tax and capital gain consequence of the fiscal cliff. One of the bigger concerns for surgeons is the wealth transfer implications. We are in an environment today where we have a $5.12 million per person estate and gift exemption. After the fiscal cliff, that drops to just $1 million. The tax rate will also jump from 35 percent to 55 percent. The impact for high net worth surgeons can be very dramatic.
Q: What can surgeons do to avoid being hit hard by these changes?
EW: For those who can manage it before the end of the year, if they haven't consulted with a financial advisor, they should do so. Take advantage of the current tax environment and do some estate planning before the end of the year. Once the fiscal cliff issues are resolved, the tax environment likely won't be as good as it is now. There will still be opportunities for planning in 2013, but the new environment will make it even more important to actually do that planning and maximize opportunities. Work with qualified professionals on estate planning and other asset production strategies.
Q: With potential changes to the tax code in 2013, what are the smartest financial strategies going forward?
EW: The strategies themselves aren't going to change and the things we can do today are still going to be available to use in 2013 and beyond. There has been some talk of restricting our tools, that hasn't come to fruition yet. However when you have a smaller exemption you can't move money as efficiently or as quickly, though you can still move it. You can maximize wealth transfer strategies over the course of time, for example. It's not a lack of strategies; it's just for the way they will be implemented after 2012.
Q: Are there any particular concerns for orthopedic surgeons or other healthcare professionals?
EW: One of the things that keeps surgeons up at night is malpractice. One of the side benefits of doing estate planning is the asset protection benefit. They could protect some of their wealth from being available after a potential malpractice suit. Asset protection strategies have gotten much more refined in the last decade. Every strategy is different, but the goal would be to maximize the assets that are available to the surgeons and their families, and minimize what is available to their creditors or predators.
Q: Are there any common mistakes surgeons make with financial planning they should be aware of as the year closes?
EW: The one mistake that a lot of people are going to make is, as it gets closer to the end of the year and around Christmas time, they will decide that the fiscal cliff is upon us and they'll be handing out gifts of multimillion dollar checks. However, a check is a promise of payment, not the payment itself. The recipient needs to cash the check in 2012 for it to count within the 2012 gift tax exemptions.
If you give a Christmas present of $5 million and the beneficiary deposits the check on December 29, there won't be any gift taxes on the gift. If the check isn't deposited until the first week in January, the gift giver could be exposed to nearly $2.3 million in gift taxes. That's a huge trap for the unwary, and unfortunately the tax isn't paid by the recipient of the gift but by the gift giver.
Q: What steps should busy surgeons take to maximize their efforts through the end of the year and beyond?
EW: The best thing they can do is find a good team of financial service professionals that the surgeon can trust, and whom they feel can work with other members of their team to come up with the best financial strategies for the individual surgeon. Surgeons are busy and singularly focused on being the best surgeons they can, so find team members who have that same commitment and dedication, with the best interest of the surgeon in mind. You don't want to have just the banker doing the banking, and estate planner doing the planning; you want everyone working together, in communication with one another, and understanding what their role is on the team. That's how you get good results.
I think when you are dealing with high net worth clients where there is significant wealth and complicated financial situations, I can't underscore enough the need to not cut corners. Deal with qualified professionals. You need to rely on specialists in the financial world. Work with people who know what they are doing because the stakes are quite high.
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