Estate planning mistakes for physicians to avoid [PODCAST]

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“My thoughts immediately went to the tragic loss of one of my best clients, a physician who recently passed away after battling COVID-19. I remember him not only as an excellent physician but even more so as a great person.

Unlike many physicians I speak to in the course of my work, this client had the foresight to do some careful estate planning. While his loss cannot be measured, this planning has provided his grieving family with some financial peace of mind and allowed them to focus on him during his illness. According to the latest CDC data, physicians on the front lines throughout this pandemic have been some of the most affected by COVID-19; over 460,000 health care professionals have been diagnosed with COVID-19.

Estate plans are not one-size-fits-all, and the various strategies may not work for everyone. Without some experienced professional guidance, anyone might make some mistakes in decisions that seem unimportant at the time but could have huge ramifications on your family’s financial future. Here are some of the most common mistakes that are best to avoid.”

Syed Nishat is a partner, Wall Street Alliance Group. He can be reached on LinkedIn and on Twitter @syedmnishat.

He shares his story and discusses his KevinMD article, “8 estate planning mistakes for physicians to avoid.”

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Hosted by Kevin Pho, MD, The Podcast by KevinMD shares the stories of the many who intersect with our health care system but are rarely heard from.

Transcript

Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Today on the show we have Syed Nishat. He is a financial advisor, and he wrote the KevinMD article “8 estate planning mistakes for physicians to avoid.” Syed, welcome to the show.

Syed Nishat: Thank you, Kevin, for having me.

Kevin Pho: So we’ll get into the article in a little bit, but first off, can you share your story and journey to where you are today?

Syed Nishat: Sure. So, Kevin, I’m a first-generation immigrant. I was born in Bangladesh and came here as a foreign student almost 21 years ago, and I immediately fell in love with this country and wanted to settle down here. I graduated from the University of Nevada with a bachelor’s degree, but that was on the heels of September 11, and it was impossible for me to get the sponsored visa that I needed to stay in this country. So I was actually staying in California, working at 7-Eleven and a part-time internship, and I was about to go back. Then I got a call from a friendly broker-dealer in New York City. They wanted to sponsor my visa and hire me as a stockbroker to do cold calling. It wasn’t the ideal job I dreamed of, and I remember when I called my dad back home and told him I wanted to be a stockbroker, he sounded very disappointed and asked me to come back home and hang up the phone. I don’t blame him, because he didn’t grow up with the financial planning concept that is considered to be the norm here.

But that actually gave me an idea to start reaching out to affluent first-generation immigrants in the U.S. and speak about the importance of financial planning. Coincidentally, when I was reaching out to them, I was actually getting physician clients, because if you read a statistic from the Journal of the American Medical Association, one out of six medical professionals in the U.S. are foreign-born. They have a similar story to me, a humble story, a similar background. They came from nothing, worked hard, and made a fortune, so we connected very well with the physician community, and they came to know us.

At the same company, I met my business partner, Adil Zaman. He’s from Pakistan, and we have a similar background. We figured out that the best way to serve this physician community is by becoming a fiduciary, and we realized that one thing physicians don’t have is time. So we came up with a team of experts, from CPAs to actuaries to attorneys, created a dream, and formed Wall Street Alliance Group in the year 2010. It’s been more than 10 years, and now we have over 300 million in assets under management, and we’re providing wealth management solutions across the United States for physicians.

Kevin Pho: Now, from all your years working with physicians specifically, what do you see are the biggest financial mistakes that they’re making?

Syed Nishat: The biggest financial mistake we see physicians making right after they graduate is that they talk about investment: “All right, give me a Bitcoin,” at least for the last two years. But we must understand that physicians always start with negative debt. At least a few hundred thousand is not uncommon, and they’re looking to see if it’s possible to make the money quicker to pay off the debt. On top of that, they have residency, they have fellowship, and on top of that, they have these pressuring jobs. So it’s very easy for them to make mistakes with the shortcuts they’re trying to take.

So what we’re trying to explain to physicians is to go back to the basics, go back to financial planning first. Right out of residency, you don’t have to worry about spending the half a million. You still need to work like a resident and live like a resident for a couple more years to pay off the debt. Once you do that, then have a budget, then buy a house, have a retirement plan, and then investment will automatically fall into play. This is where we come to KevinMD, to echo the importance of financial planning for physicians.

Kevin Pho: All right, so let’s talk about the KevinMD article that you contributed recently. It was back in April, and it’s titled “8 estate planning mistakes for physicians to avoid.” Now, during the pandemic, I get a lot of emails and articles from physicians who, because of the pandemic, are realizing their own mortality. They realize they don’t have an estate plan, and they’re busy drawing up their wills and creating estate plans. With that in mind, for those who didn’t get a chance to read that article, can you just walk my audience through it and share the story of why you decided to write it?

Syed Nishat: Yes, it’s a very good question. Usually when we talk about a fiduciary financial plan, we talk about investments, asset protection, and estate planning, but we also talk about preparing the client for uncertainty, so that if something goes wrong, you’re prepared. We hope none of this comes true, but last year was an anomaly for us: 80 percent of our clients got affected, by situations like disability, lawsuits, loss of income, and loss of job. And there was even a shocking moment for us: One of my best physician clients passed away. There’s no way to describe his loss, but having proper estate planning and financial planning gave financial peace of mind to the family and allowed them to focus on his health when he was seriously ill.

But unlike him, not many physicians are financially savvy. Last year we were getting a lot of physicians, like you mentioned, who don’t have any will and trust set up coming to us, or they had already gotten a lawsuit, and now they’re coming to us. Usually you should prepare ahead of time, so that if something goes wrong, you’re actually prepared. So we decided to echo the importance of financial planning through social media. We have been writing in Medscape and Medical Economics, and one of my clients actually forwarded me an article on KevinMD, “Keep insulting physicians, good luck finding them,” and it resonated with them. That’s a fact.

And when we talk about being a fiduciary advisor, there’s one thing we cannot quantify for physicians. OK, what are the other challenges you’re facing? Depression, burnout. They don’t want to talk to me about this, because they feel like they’re still a mature man and they can handle it: “You know, I can deal with it.” But it is there. So I was looking for a safer environment to talk to them about these areas, because there’s no point, Kevin, in doing financial planning if you’re not happy in life. What’s the point of doing all of this? So we believe KevinMD is a two-way street for us: We can echo the importance of financial planning, and we can take the videos where your audience is actually openly talking about this and share them with my clients, so we can have a fruitful conversation and a meaningful life. That’s why we actually came to KevinMD and started to write articles about the estate planning mistakes physicians make.

Kevin Pho: Why did you go a little bit deeper into the article? If a physician already has an estate plan or is thinking about starting one, what are some of the mistakes and red flags that they should be looking out for?

Syed Nishat: So I’ll talk in a little bit of detail, obviously not about all eight points. The biggest mistake we see is physicians saying, “OK, I have a will, I’m set to go. I don’t have to worry about any estate planning, because my assets are not too much.” You have to keep in mind, if you just have a will and you die, it’s not like the beneficiary gets the money tomorrow. Usually what happens is the trustee has to take the original copy of the will and send it to court, the court has to authenticate the will, and then they have to release the funds. It takes some time; it’s called probate. Depending on the state you live in, probate takes between a few weeks to a few months, but meanwhile, the beneficiary needs money, and they cannot have access to it. You can easily avoid that by creating a revocable trust as well.

And for most physicians, like on your show, I see they all talk about passive investment, they talk about investment in crowdfunding. So it’s not uncommon for a physician to have multiple different investments, and they’re segregated. So make sure that you have a trust and fund the trust as well, so that if anything happens to you, there’s no probate process. That’s one of the biggest mistakes we see, number one.

Number two, we see that when they draft the will and trust, they name the children as outright beneficiaries. Think logically: Tomorrow the children become older, get into a marriage, and get into a divorce, and the asset becomes half. The best way to give money is through an irrevocable trust, because the assets that are in an irrevocable trust cannot be touched in the event of a lawsuit or divorce. This is the second biggest mistake we see.

And the third mistake I would say is asset protection. Everyone is talking about investments and wills and trusts, but it’s very easy for a physician to get a lawsuit. I was reading an article: According to the American Medical Association, more than 60 percent of physicians over the age of 50 get a lawsuit at least once, and this statistic is quite a bit higher for certain professions, like OB/GYN and surgeon. So make sure that your estate planning is done in such a way that in the event you get a lawsuit, all the assets are protected. A good financial advisor and an estate planning attorney can work together and come up with a good plan for you.

So these are the three major mistakes we would say physicians should avoid, but obviously I’m encouraging readers to read the article. I talked about the problems, but for solutions, everyone’s situation is definitely unique. They can speak to a financial advisor and come up with a solution.

Kevin Pho: Now, I get a lot of questions from medical students and early residents. They ask me how early they should begin thinking about estate planning.

Syed Nishat: Yeah, I recommend it. That should be the foundation. You don’t have to have a lot of money to do estate planning, because if you do proper estate planning, it asks the most important questions. OK, if you die, who will pay your debt? That’s the question where you need to say, “Hey, I have a dollar debt, I have to pay this off, so I have to come up with a budget.” All right, who will take care of your children if anything happens? So this actually creates a proper foundation. This is boring. Estate planning is extremely boring. You don’t want to talk about it; everyone wants to go for the best investment idea. But these are the foundations. So we recommend that before doing investments, please speak to your estate planning attorney and financial advisor and get the basic will and trust done. That will create the foundation for you, the framework for your overall financial planning and investment.

Kevin Pho: Now, if a physician is listening to this and wants to pick up the phone and start their estate plan, is there anything they should look out for? Should they look for financial advisors like yourself, estate planning attorneys? Anything specifically to look out for when they look for counsel regarding this area?

Syed Nishat: So one of the good things about Google is that you have all the information, but the bad thing is that sometimes too much information can lead to a lot of confusion. I was reading a statistic that if you have too much information, you tend to make a bad mistake. So just as you specialize as a physician in doing something, we recommend going to a specialized financial advisor or estate planning attorney who deals mainly with physicians.

I will try to share a personal story with you. Three years ago, my wife was diagnosed with uterine fibroids. Fibroids are very common in women, in South Asian women, but my wife had over 17 of them. In New York City, it was very tough for me to go to a physician, because we had to perform a myomectomy, a surgery. But when we went to the doctor, because of the size of the tumor, they recommended going to different specialists to make sure that there was no cancer and no infection. So they recommended a list of different experts, like an infectious disease doctor, GI, or fertility doctors, to make sure there was no infection there. But every time you called them, there was a long wait, and by the time I got hold of them, they were asking me questions I didn’t even know how to answer. So we were frustrated.

But then we got a specialist referral all the way in Alabama, who specialized in fibroid treatment. He mentioned that he had the team of experts we were looking for in-house, that he could arrange the meeting in one day, and that at the end he would decide the best course of action for me and for my wife. Long story short, when we went to his office, it was exactly what we expected, and at the end of the day we were so happy with his treatment that we welcomed this surgery. And this doctor, you can Google him, is Dr. Risk. I always speak about him. In Alabama, he was a miracle doctor. Because of him, now, two years ago, we were blessed with a beautiful son.

Now, the reason I share this story with you is that when you deal with a financial advisor or an estate planning attorney, make sure you look for a specialist like this doctor we went to, who was a fibroid specialist. Make sure that the financial advisor has a team of experts like this doctor had, so you don’t have to go to 10 different places. And make sure the financial advisor is a fiduciary, like this doctor was for me and for my wife, who saved our lives. So we highly recommend going to a specialist who knows your situation, who deals with physicians, and who understands their issues.

Kevin Pho: We’re talking to Syed Nishat. He is a financial advisor, and he wrote the KevinMD article “8 estate planning mistakes for physicians to avoid.” Syed, if you read my site, and I’m sure you’re aware, when you talk to a lot of physicians who are involved in the finance space, they think that physicians should be able to learn about finances themselves. At what point should physicians consider outsourcing their financial planning to a financial advisor like yourself?

Syed Nishat: So ideally, for the investment portion, I do agree that that is something that could be passive. We’re not recommending that financial. The physician can pretty much buy the index fund, those who are residents and who have a net worth. Ideally, the question becomes how big your net worth is. If your net worth is less than a million, you can handle it yourself. That’s the reality: Just buy a passively managed fund and you’ll be good to go. But once your net worth starts to go over a million, we recommend that you hire a financial advisor. You can actually do it yourself; a good combination would be good health, because you need some human touch as well, who can talk about some of the mistakes you can make. That’s why we suggest that a good, ideal point would be once your net worth goes over a million: Hire a financial advisor, just to have a second opinion in your big-picture financial plan. And usually the asset management you pay the advisor covers that.

Kevin Pho: And when a physician looks for a financial advisor, what are some things that they should specifically look out for?

Syed Nishat: Yeah, first, they should start looking that it’s not a one-man show. That’s very important. A lot of times we see a financial advisor who, right off the bat, says, “I do investment management.” That’s not something you should be looking for right away, because, as I mentioned, a lot of physicians may be able to do investment management themselves. But if they say they are a fiduciary, the word is there. If they are a fee-only investment advisor, they have a legal obligation to work in the best interest of their client, and they’re SEC-registered. Check their background in FINRA, to make sure there are no complaints and no lawsuits and it’s clean. Then you can vet them, and you can see if they’re a thought leader talking about financial planning, or whether they’re just talking about some great investment ideas. Also speak to them about their background and see how long they have been doing it and what their investment philosophy is. Ask the questions. And then we actually also recommend shopping around a couple of financial advisors, getting a quote, and trying to go with the best one you can find.

Kevin Pho: And my final question: What’s your take-home message that you want to leave with the KevinMD audience?

Syed Nishat: You know, the one take-home message I will leave is one concern we have: that the physician community, we believe, is not aware of some of the new changes coming from Congress. The new tax law that’s about to pass will have a detrimental effect on both estate planning and income planning if it’s not done properly. Just to give you one idea: Nowadays on CNBC they’re talking about it, and you might be listening, that the Biden administration is talking about it. It just passed about a 2.8 trillion dollar infrastructure bill, and whenever you have a bill like this, the question is how you’re going to pay for it. The best answer, our simple answer, is by raising the taxes. Physicians who make over $400,000 will be affected the most. The taxes will go up from 37 percent to almost close to 40 percent.

And on estate tax, we are seeing that the Biden administration is talking about removing the step-up basis in estate planning. Obviously, I won’t be able to cover what it means in detail, but just to give you an idea of what step-up means: Let’s say I buy Apple shares at $100, the stock goes to $200, and I die. My two-year-old son inherits it, and his inheritance price is $200. That’s called a step-up in basis. The government is talking about completely eliminating it, so if I die, it will be a sale to my estate immediately, and there’s an income tax that will be due. The whole idea is to pay for the 2.8 trillion dollar bill the government is talking about, which I understand.

And it is not uncommon for physicians to make over $400,000, if husband and wife are both working. So make sure you speak to a financial advisor not just about estate planning, but about tax planning as well, income tax planning and estate planning. A fiduciary financial advisor should be able to take a look at the 360-degree angle in your overall financial plan and, based on your needs, create a customized financial plan for you, to make sure that you are in the best position possible.

Kevin Pho: Well, thank you so much for sharing your time and insight, and thanks again for being on the show.

Syed Nishat: Thank you. Thank you, Kevin, for having me.

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