WCI #389: Estate Planning, Navigating Your First Attending Job and 529s

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

Hello WCI listeners.

I'm still taking some time off to rest and recover from my accident, but don't worry, I'll be back in a few weeks. Until then, enjoy this episode from one of our friends of WCI.

Hi and welcome to White Coat Investor podcast number 389. I'm Dr. Margaret Curtis. I'm a pediatrician in Vermont and a White Coat Investor columnist and I'm filling in for Dr. Dali while he's recovering from an injury. So we'll start with an ad from our sponsor. Today's episode is brought to you by SoFi. Helping medical professionals like US bank borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY in their savings accounts as well as an investment platform, financial planning and student loan refinancing featuring an exclusive rate discount for med professionals and $100 a month payments for students. Check out all that SoFi offers at www.whitecoatinvestor.com SoFi loans originated by SoFi Bank Nanmls 696891 advisory services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC member Finra SIPC investing comes with risk, including risk of loss. Additional terms and conditions may apply. Today's quote of the day comes from Walt Disney. The way to get started is to quit talking and begin doing so. First, I want to thank you all for what you do. Being a doctor is hard. Being a dentist is hard. Being a veterinarian is hard. You are bringing your best every day and you're doing good things for good people. So keep up the good work and we are here to help you get through it. So today we're going to answer readers questions from the Speak pipe and our first question is about estate planning.

Hello Dr. Dali, thank you for your words of financial wisdom throughout the years. I am half of a two position household. My question is regarding my mother. She is asking me if she should set up a trust. My mom is recently widowed. She's 73 years old. She's doing some estate planning after the death of my father and she wants to pass all of her assets on to my brother. My brother is 46 years old and is choosing to be financially dependent upon my mom. He still lives at home. He does not make a salary that he can live off of currently. And she is asking if a trust is the best way to pass on her assets to him in a way that she could manage how much money he gets every year for the rest of his life so he doesn't run out of money quickly. She owns a small house, three bedroom, one and a half bath and middle portion of the United States in Arkansas, actually, Arkansas. And she's wanting me to be in charge of this trust. And so when she dies, her plan is to sell the home that she lives in currently, use the assets to buy a very small one bedroom, one bath type of home for my brother to live in for the rest of his life and for the trust to pay out, you know, whatever's left from the sale of the house and whatever's left from her retirement yearly until he dies, or monthly or whatever until he dies. And she wants me to be in charge of this trust and in charge of selling the house, moving him out, buying a new house. I'm not quite sure this is feasible. This seems like a lot of undertaking that I'm not quite sure I'm prepared to do. I'm not sure he will, my brother will assist me in any of this. I'm not sure I can move someone who lives in a different part of the country that I do, a place that I don't really go to anyway. Any words of wisdom would be appreciated. Does my mother need a trust? That's my question. If so, where would she go? And she then had a follow up question. Is it a good idea to put my name or my brother's name on the deed to her house that she currently owns? It's paid for. I don't know if any of those are good ideas, so any of your thoughts would be appreciated. Thank you. Bye bye.

Okay, I'm going to get to your questions about a trust and the deed to the house. But first let's talk about your mother's plan. This is a terrible plan. In general. People should leave their estates in equal shares to their descendants, leaving different amounts to different children based on their circumstances, like, oh, he's got plenty, he's all set, or they have more kids, they need more money. This just leads to bad feeling all around. The exception to this is if someone in the family has a disability or an impairment or if there are minor children who will need care and support and education until they launch. If that was the case, your mother would be justified in leaving a greater share of her estate to that person. But it would still be tricky. But from your question, I Don't think that's what's going on here. It sounds like your brother is able bodied and could work, but is in some kind of dependent relationship with your mom. If I'm wrong about that, or if I'm being too hard on your brother, I apologize, but I'm just going to work with this worst case scenario assumption. So if your mother wanted to make an estate plan that ensured your brother's ongoing dependence and your future resentment, she. She nailed it. Now you can't do anything about this. You can't stop her. It's her estate and she can do whatever she wants with it, as can we all. But there are two things you can do. The first is you should assume that you will inherit nothing. Now, you said you're part of a two physician family, so you should be fine financially. If you're not feeling fine financially, we've got you covered. You just need to adopt a Zen mindset about this, about her house and her money. My father came from a very wealthy family. He inherited a lot of money and if he just let it be, he probably wouldn't have had to work his whole life. But he mismanaged it. And when he died, I think I inherited $40. And I was like, oh, $40. Because it was more than I was expecting, which was zero. It really helped me feel at peace with the decisions he made. And I really encourage you to take a similar mindset. The second thing you should do, and this is important, is that you should refuse to participate in any of these shenanigans. If she asks you to be a trustee, just say no. If she makes you a trustee anyway, you can decline the position. You are not legally obligated to be a trustee for someone's estate or for a trust when you don't want to be. You really need to stick to your guns on this one because this is going to be an ongoing saga of dysfunction. Okay, so does your mother need a trust? Yes. If she wants to control your brother's access to her money after she dies, she will need a trust, probably an irrevocable one, a not revocable one, so that he can't gain access to it, she will need to ask a lawyer. The trust should be administered by a professional who has lots of experience. If your brother is as dependent as I'm making him out to be, there's going to be lots of complaints and challenges and asking for more money. So he should be complaining to someone who gets paid for their time and that is not you. The other benefit of Using a professional as a trustee is that it's a lot harder for someone to sue the professional for possible conflict of interest in administering the trust. Should anyone else's name be on the deed of the her house? No, and here's why. Every investment has a basis which is the original purchase price. If your mother were to sell her house today, she would have to pay taxes on the difference between the original purchase price and the sale price. If if your brother's name is on the deed and he inherits the house and then sells it, he would still have to pay taxes on the difference between the basis, the original purchase price and the sale price. But if the deed is only in her name when she dies, the basis resets to the value of the home at the time of her death. If your brother inherits the house and then sells it, he'd only have to pay tax on the difference between the new basis, the the value of the house when she died and the sale price. This is called a step up in basis and it saves a lot of money in taxes. So if anyone else's name is on the deed, you will lose that step up in basis. The second reason you should not be on the deed is that you are not participating in this. This is nonsense and you have better things to do. Okay, next question.

Hello Jim, I hope you're doing well and on the road to a full recovery from your recent injuries. My wife and I are both physicians in our early 50s, about 10 years from retirement. We have an annual income of about 1.1 million. We own a primary home free and clear in the state of Wisconsin. And two years ago we purchased a second home which we also own without a mortgage in Michigan. We plan to retire at least during the summer to the Michigan home. Currently spend about three weeks there in the summer. The rest of the summer we rent it out to the tune of around 30 to $40,000 in rental income. We use a CPA firm that was recommended by your website and are very happy with their service and the amount of tax that we pay on that rental income is fairly minimal. A friend of my wife's told her of a strategy called cost segregation study. He is someone that also owns a rental home and apparently uses this to reclassify property assets and reduce income tax liability. I was wondering if you've ever heard of this and have any thoughts or input on it. For one, I am a little skeptical but wanted to get another opinion. Thanks.

This question is about a cost segregation study. First of all, I love the great state of Wisconsin go Badgers. Okay, now to your question about rental properties and cost segregation studies. To answer this, I'm going to give some background on rental properties and taxes. This may be more than you wanted, but it may be helpful to some listeners. So expenses from a rental property can be deducted from the income from that rental property. So for example, if you have to pay $10,000 to replace the roof on your rental, you can then deduct $10,000 from the rental income. You can't deduct that $10,000 from your physician income, your W2 income, unless you fall into one of two categories. You have real estate professional status or you operate a short term rental and do most of the work yourself. Now, real estate professional status is a complicated topic and we're going to leave that for another day. But if you and your spouse work full time doing something other than real estate, then you won't qualify. And you don't say if you operate your rental as a short term rental. If and if it is, you should make sure that your use of it doesn't disqualify it as a business. If you and your family use it more than 14 days of the year or more than 10% of the time that it's rented, you may not qualify. You should ask your CPA about this. There are some workarounds to this, but you need to get qualified professional advice. So that's the background on real estate Taxation Benefits the biggest tax benefit of investing is the real estate. Investing is the ability to write off depreciation. So according to the irs, real estate depreciates from the purchase price to zero over a certain number of years. Of course, in the real world, real estate usually gains in value over time. So this is called a paper loss. It's an expense you can take off your taxes. It doesn't actually cost you anything. Unlike the roof that you had to replace. Commercial real estate depreciates over 39 years. Residential real estate depreciates over 27.5 years. Don't ask me where they got those numbers. Land does not depreciate. Even our tax code recognizes that land doesn't lose value over time. But some property depreciates even faster, like five or seven or 15 years. If you are interested in maximizing your tax deductions sooner than later, you would rather have property depreciate faster so you get a bigger chunk of depreciation up front. This can be helpful maybe if you're planning to sell the property and use the money to buy another rental later on. So that's what a cost segregation study does. It identifies how much of your property should actually depreciate over a shorter timeline than the typical 27.5 years. For example, if you added a road and a fence to your property that might depreciate over 15 years, even though the building depreciates over 27.5. You might even be able to do something called bonus depreciation, which is when you depreciate 100% of the property all at once in the first year, using it for any property that depreciates over five or seven or 15 years. But this typically has to be done the first year you buy a property. Again, ask your cpa. You should also know that this depreciation is recaptured when you sell the property. So essentially that means if you use bonus depreciation or accelerated depreciation, you will get a greater tax benefit when you own the property, but you will get less when you sell the property. So to answer your question, should you get a cost segregation study? It depends. It depends on whether you can use the additional depreciation. You might do the math and find that deducting your standard rental expenses counteracts all your rental income, so depreciation won't help you. It also depends on whether you want to accelerate your depreciations or use a bonus depreciation. I hope that helps. I'm going to put some links to some good sources in the show. Notes so this question is about navigating and finding your first attending job.

Hey, this is Will, a current resident calling from up in the northeast with a question about navigating the first attending job. My wife and I are nearing the end of our training. She's also in medicine in a similar area, and we're starting to get contacted by recruiters through phone calls, emails and LinkedIn. I guess they get our information from a listserv and probably get some kind of commission if we were to go through with them. I'm curious what your thoughts are on how to navigate this next chapter, especially if we have regional preferences and plan to relocate. Before med school, I worked in food service, where getting a job was pretty straightforward. You just sent them your resume, but now I'm wondering if it's best for us to leverage our networks that we've developed in training or if there's other things we should consider. Thank you so much.

First of all, congratulations on nearing the end of your training. This is a huge accomplishment. You've been working for years to get to be an Attending, you've been, you didn't go to medical school so you could be a resident. You went to medical school to be an attending, and now you're almost there. So how do you find and sign on for that first attending job? So first, it's important to define what's important to you. There are obvious things like location, academics versus private practice, salary, scope of practice. You should assume that you won't stay in this job long term. Maybe you will. But most physicians stay in their first attending job for only a few years. So think of your first attending job as kind of a continuation of your training. As well trained as you are, making the jump to attending is still a big deal. It will be nerve wracking. So look for a place where you have support and you will have mentorship. This is not when you want to be the only person in your specialty for an entire hospital. You should try to keep your future options open so when you're in training, you get a full array of skills and knowledge. You can practice in just about all of your specialty. Most of us don't continue to use all those skills as we go through our careers. Most of us figure out over time what aspects we want to continue and which we want to let go. So when I was first out of training for the first two years, I routinely did circumcisions. I hated it. And so I no longer do them and I'll probably never do them again. And if any of you surgeons are listening to this and thinking, oh, she doesn't even do circumcisions, zip it, okay? I don't want to hear it. For the first few years, try and keep your skills up so you have options when and if you do change jobs, because after a few years of being attending, you'll have a much better sense of what you want your future practice to look like. And that will inform your decisions. And at that point, you can start letting go of options, letting skills lapse, letting certifications lapse if you want to. Okay, next, once you have your criteria now, you can start looking. So how do you actually find these jobs? Your network is probably your most powerful tool. Medicine is a very small community, especially in certain fields, and everyone knows everyone. When I lived in Maine, I worked with a medical student who wanted to do emergency medicine in California. And within 24 hours I found him an ER doc in the Bay Area who spent over an hour with him on the phone and then mentored him through the entire process of getting a residency slot in California. Getting a job is the same. You put the word out that you're looking for a position and generally what you're looking for. You should especially talk with people in your current department because it's in their interest that their grads get the jobs they want. You should check the jobs board of your national specialty and you should check the websites of employers that interest you. I got my current job, which I love and which I think will be my final job, by checking a hospital website regularly. It's fine to talk to headhunters. Just remember that they work for employers, not for you. They will try to sell you on a job. They might offer to fly you to interviews, put you up in hotels, that kind of thing. And that's fine. You can accept those offers as long as it doesn't make you feel obligated to then take the job. All right, so think of those interviews as good practice, good fact finding, but not mutually obligating. And I strongly recommend that you don't sign on a job and take an early sign on bonus. Some employers will offer you a certain amount of money per year throughout residency and fellowship and they're really roping you in very early to a job that might not be what's advertised, might not be what you wanted. You should really go into your first attending job as mobile as possible so that you can make changes when you figure out you need to. You didn't ask about negotiations or contracts, but I'm going to throw this in anyway because I really believe that a contract just as much as location, practice, structure, colleagues can make or break an attending job. When it comes to your contract, you should think hard about signing a non compete clause. You may have heard that the Federal Trade Commission ruled against non compete clauses last spring, but there have already been lawsuits filed in court challenging this ruling. So you should assume that any non compete clause will apply to you. Non complete clauses obviously will limit your ability to move and change jobs. They should be reasonable in their duration. One year is reasonable, five years is not reasonable. They should be reasonable in their geographic distribution. So if you live in Manhattan, a two block radius might be reasonable. If you live in Vermont, a five mile radius might be reasonable. They should be specific as to what kind of practice you are prevented from joining. So let's say you're a radiologist and you were practicing doing IR at your current job and you want to go across town and read cts. You should be allowed to go do that. You should not be prevented from practicing all medicine in any aspect of your specialty. Non compete should be Very specific about which locations are involved. So if you work for a large health network, the non compete should affect the location where you worked primarily. It should not affect every single hospital, clinic and satellite of that health network because you could be talking about the entire state at that point. So be very careful about non compete clauses. Look for something called a mandatory arbitration clause. Mandatory arbitration clause means that if things don't go well and you leave your employer and you want to file suit, even for something like unfair working conditions or violations of labor law, you would not be allowed to file a case in civil court. You would be forced to go to arbitration with your employer. The problems with arbitration are that it's expensive. In my area I was quoted $500 an hour. It's by private judges who tend to be repeat customers of employers. So they statistically been shown to more often rule in favor of employers. The proceedings are sealed and they cannot be appealed. So mandatory arbitration really favors employers. If your employer insists on an arbitration clause, you should at least ask that cost of arbitration be covered by the employer and not by you. And lastly, keep your eyes out for something called an indemnification clause. An indemnification clause says that in the case that I am sued, and usually my hospital is sued as well by a patient, that I indemnify my employer, I take all liability off of my employer onto myself. So we could be talking about judgments in the millions of dollars. And malpractice insurance generally won't cover claims arising from an indemnification clause. So you could literally be on the hook for millions of dollars. Personally, you should never sign an indemnification clause. I really question why an employer would even insist on an indemnification clause. But if they insist, don't sign the contract and don't take that job.

Hey Jim, this is Noah from the east Coast. Thanks for all you do. A question about 529s. What exactly are qualified education expenses? Is this just tuition? Is this room and board? If your kid decides to live off campus in an apartment, can you use the funds to pay for that? What about supplies like laptops or other things they might need for school? And do these rules vary by state or is it consistent across the country? Thanks.

Thank you for your phone call. So your question's about 529 expenses. So 529 funds can be used to pay for what are called qualified educational expenses for someone who is enrolled in school at least half time. Now I should clarify that when you take money out of a 529, you don't have to prove that it's for a qualified educational expense. At that moment you have to check a little box that says yes, this is a qualified educational expense. So then the bank that holds a 529 knows whether or not they should withhold taxes if you are ever audited. Of course you would then have to show that you use the money in an approved manner. So that's why you keep all your school statements, receipts, anything that proves that you use the money in the way that it was intended for. So what can you use it for? You can use it for tuition and fees. You can use it for books and computers such as laptops. You can use it for room and board, but only up to the school estimate. So if your school typically charges $12,000 a year for room and board and you put your kid up in an apartment that costs $25,000 a year, you can only use up to $12,000 of tax free 529 money. You can pay off old student loans up to $10,000 total. With 529 money. You can use the money for K12 tuition, but you should be aware that some states will still treat that as a non qualified expense. So check your state's tax code and you can use money for study abroad, things you cannot use the money for. You can't use it for testing or application fees, for health insurance, for transportation to and from school. And there's a little loophole out here I hear people talking about, which is what if I buy a house in the town where my kid goes to school, my kid lives in the house, maybe has some roommates to help with paying down the mortgage. And we use 529 money to pay their share of the rent. You can do that, but it's not considered a qualified expense. So you will lose the tax benefit of that. You cannot use the tax free money out of your 529 to pay down your own mortgage. It would be nice if you could, but you can't. The other thing people should know is that there is now a new feature of 529s which is that you can roll over money from a 529 to a Roth IRA. Your kid can. I should say there's rules about it. I think it's a $35,000 lifetime limit. You have to have held the IRA for at least 15 years. And there are annual limits how much you can roll over. But. But you should be aware of that too. And again, I'll put more information about this in the show Notes So as I mentioned at the top of the podcast, SoFi is helping medical professionals like US bank borrow and invest to achieve financial wellness. Whether you're a resident or close to retirement, SoFi offers medical professionals exclusive rates and services to help you get your money right. Visit their dedicated page to see all that SoFi has to offer at white coatinvestor.com SoFi one more time. That's whitecoatinvestor.com SoFi loans originated by SoFi Bank NanMLs 696891 advisory services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC. Member Finra SIPC investing comes with risk, including risk of loss. Additional terms and conditions may apply. Please leave us a five star review and tell your friends about the podcast. Here's one recent five star review. Dr. Dali know that I We are hoping for a speedy, strong recovery for you. The White Coat Investor platform has changed so many lives for the better and we are grateful for you and your team. Be well and stay encouraged. Thank you for that review. Thank you for listening. Thank you for being part of the White Coat Investor community. Head up, shoulders back. You've got this and we can help.

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