Estate Planning for Dentists: Safeguard Your Dental Practice and Secure Your Legacy ( 6 Tips)

Proper estate planning for dentists is a crucial responsibility and, when done correctly, ensures your dental practice’s longevity. It preserves your legacy, safeguards your loved ones, and maintains patient care continuity. Ensure you consult with an experienced attorney for a comprehensive dentist trust.
Estate Planning for Dentists

Every professional, including dentists, needs to think about estate planning, but dentists have unique considerations that make estate planning vital.

Estate planning for dentists extends beyond personal assets to include their dental practice. In California, a dental practice can only be owned by a licensed dentist (with a few minor exceptions).

As a dentist, your dental practice is likely one of your most significant assets, and it needs to be properly handled after death.

7 Reasons Every Dentist Should Have an Estate Plan

  1. Protecting your dental practice: Dentists often spend years building their practices, investing substantial financial resources and time into them. They’re not just businesses but are significant assets that need protection. Without an estate plan, there’s uncertainty about what happens to the practice upon the dentist’s death. The practice might be sold hastily and undervalued, mishandled, or shut down.
  2. Avoiding the Probate of your dental practice: Probate can be a lengthy and expensive process. By setting up a Trust for Dentists as part of their estate plan, dentists can help their heirs avoid probate, ensuring a quicker and potentially less costly transfer of assets. Read more in the next paragraph.
  3. Providing continuity of care for patients: Even if you do not own your own practice, you still have a duty to your patients. In the event of sudden incapacitation or death, an estate plan ensures that arrangements are in place for patients to continue receiving care. This might include specifying a successor who can take over the practice or making arrangements for who has custody and access to your patient records and files.
  4. Tax estate planning for dentists: A well-crafted estate plan can help manage tax liabilities. The value of a dental practice can significantly increase an estate’s value, potentially leading to high estate taxes. Proactive planning can help minimize these taxes and preserve more of the estate for heirs.
  5. Providing for your family: Dentists want to ensure that their loved ones are cared for after they’re gone. An estate plan can include directives for distributing personal and business assets and life insurance policies, providing for family members’ financial well-being. In addition, if you have minor children, an estate plan will allow you to nominate who their guardians will be and how (and when) they will receive their inheritance.
  6. Peace of Mind: Lastly, having an estate plan provides peace of mind. Dentists can rest easier knowing they have a plan in place that protects their practice, provides for their family, and continues their professional legacy.

Estate Planning for Dentists Video

Proper Estate Planning For Dentists to Avoid Probate in California?

By way of example, (and overly simplified for ease of understanding), let’s look at a hypothetical Dr. Kim.

Dr. Kim is 55 years old and has been practicing in San Diego for 21 years. She owns her practice outright through a professional S-Corp and is the only dentist working in the practice. Let’s assume her practice is valued at $1,700,000 and her home is worth $1,300,000 and she does not own any other assets.

The total value of Dr. Kim’s estate is determined by adding up the value of her practice and her home (her assets) which equals $3,000,000 ($1,700,000 + $1,300,000).

If Dr. Kim does not have a valid trust in place, her estate would likely have to go through the probate process. Now let’s look at the cost associated with the probate process for dentists in California.

1. Probate for Dentists is Expensive.

In California, probate fees are set by statute and are calculated based on the gross value of the estate.

Probate fees include compensation for both the executor (or administrator) and the attorney handling the probate process.

Now, let’s look at a breakdown of the statutory fees for Dr. Kim’s estate (valued at $3,000,000):

                        4% of the first $100,000 = $4,000

                        3% of the next $100,000 = $3,000

                        2% of the next $800,000 = $16,000

                       1% of the next $2,000,000 = $20,000

    This totals $43,000 for the attorney’s fees.

    The executor is also entitled to the same amount, this doubles the total to $86,000.

    Other costs associated with probate include:

        • Court filing fees: These vary by county, but for an estate of this size, the filing fees will likely be more than $1,000.

        • Probate referee fees: A probate referee appraises the non-cash assets in the estate (e.g. a dental practice). The fee for this service is set at 0.1% of the value of the assets appraised, or $3,000 for a $3,000,000 estate.

        • Newspaper publication fees: A notice of the probate must be published in a local newspaper, which may cost a few hundred dollars.

        • Bond premiums: Unless the will waives the requirement or all heirs waive the bond requirement, the executor may be required to post a bond. The cost of a bond depends on the size of the estate and the executor’s creditworthiness, but for a $3,000,000 estate, it could be several thousand dollars.

        • Miscellaneous costs: These can include costs for certified copies of the death certificate, postage, and other miscellaneous expenses, and can add several hundred dollars more to the total cost.

      So, a $3,000,000 probate estate in California could potentially cost upwards of $90,000 or more, plus any additional costs for extraordinary services rendered by the attorney or executor.

      This does not factor in the possible loss of value for any time in which the practice was unable to operate during the probate process.

      These estimates are provided as a general guide. Actual costs may vary depending on the specifics of the estate and the circumstances surrounding the probate process. Always consult with a qualified probate attorney or estate planning professional to understand all the costs associated with probate. In addition, the cost of estate planning for dentists varies based on the location and experience of the estate planning attorney.

      2. Probate for Dentists takes a long time

      Probate is a court-supervised process that can take a significant amount of time to complete.

      The length of time it takes to probate an estate can depend on numerous factors, including the complexity of the estate, the number of creditors, disputes among heirs or beneficiaries, and the efficiency of the court.

      On average, probate in California takes about 12 to 18 months. However, if a dental practice is part of the estate, it can potentially extend the probate process. The practice will need to be appraised and it might take time to find a suitable buyer if the practice is to be sold. Additionally, if there are any disputes about the value of the practice or its disposition, it can add more time to the process.

      Moreover, it’s worth noting that during the probate process, the dental practice may need to be managed, possibly by an interim manager, to ensure continuity of patient care and maintain the value of the practice. This is another factor that can add complexity and extend the timeline.

      Estate Planning for Dentists: What Happens to a Dental Office After the Death of the Dentist?

      Upon your death, your dental practice can’t simply be passed on like a personal asset. It requires specific handling, and the process can be lengthy, impacting your practice’s value and patient care.

      As of January 1, 2008, California law allows specified non-dentists, like a spouse, legal guardian, executor, or trustee, to contract with licensed dentists to continue the practice of an incapacitated or deceased dentist for up to 12 months. This is possible under Sections 1625.3 and 1625.4 of the Business and Professions Code if the practice satisfies certain conditions, including a formal notification to the Dental Board of California.

      As you already know, the bulk of the value of your practice is tied directly to the number of active patients that are seen in your practice. So, if your practice is forced to close due to your disability or death, there is a high likelihood that your patient base will find a new dentist.

      This is especially the case if your practice is forced to sell within a certain time frame, such as the 12-month limit discussed above.

      But with a well-planned dental estate plan, you can dictate how your practice is handled, and appoint someone familiar with dental offices to help manage the practice in a way that retains value prior to selling.

      The Living Trust: A Key Tool in Estate Planning for Dentists

      One of the most effective tools in estate planning for dentists is setting up a living trust, a legal structure to own your dental practice (and other assets of yours).

      Through the living trust, you will be able to dictate how your practice is managed in the event you are unable to manage it yourself. This can prevent forced sales, protect the practice’s value, and provide for your family.

      A trust may also help manage tax liabilities and avoid probate, the lengthy and expensive court process of paying your creditors, paying your taxes, and distributing your assets on your death. This allows your assets to be distributed more efficiently and directly to your designated beneficiaries.

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      Estate Planning for Dentists: Safeguard Your Dental Practice and Secure Your Legacy ( 6 Tips) 2

      Crafting Your Dental Estate Plan: 6 Steps to Follow When Estate Planning for Dentists

          1. Valuation of your practice: Determine the current value of your dental practice and anticipate its future value. This valuation will form the basis of your dental estate plan. Here is a free Dental Practice Value Estimator that can give you an unofficial estimate as to the value of your practice. Please consult with a certified appraiser should you need an official valuation or appraisal.
          2. Establish a Living Trust for Dentists: Work with an experienced estate planning attorney who has experience in working with estate planning for dentists. They will be able to help you set up a trust that can own your practice.
          3. Decide on a successor trustee: Decide who will step in to manage and distribute your assets upon your death. Provide instructions on how to handle your practice.
          4. Consider Appointing a Special Trustee: If your successor trustee is not a licensed dentist, consider including a provision in your trust allowing your successor trustee to appoint a special trustee who is a licensed dentist.
          5. Plan for Patient Records: Patient records are strictly governed by HIPAA and state privacy laws. Therefore, your successor trustee may need to employ another licensed professional or professional assistant to read and review client or patient records for any appropriate purpose.  Your trust should include instructions that whoever views patient records shall use the best ethical practices for California dentists in order to safeguard confidentiality and avoid conflicts of interest.
          6. Fund your Trust for Dentists: A living trust for dentists is significantly less effective if it is not properly funded with your practice and other assets you wish the trust to govern.
          7. Tax planning: If your estate (i.e., your net worth), on your death, exceeds the federal estate tax exemption (in 2023, $12.92 million per individual, but expected to be between $6 million and $7 million come 2026), you should consider looking into special tax planning for dentists. Work with your attorney and dental CPA familiar with estate tax planning to anticipate potential estate tax issues and plan for them in advance.
          8. Regular updates: As your practice grows and changes, so should your dental estate plan. Regularly review and adjust your plan as needed.

        Why Estate Planning for Dentists Matters

        When you pour your heart and soul into a dental practice, it becomes more than just a business; it’s your life’s work, your legacy.

        It’s the culmination of years of education, training, and dedication.

        Therefore, it’s only right that you have a say in what happens to it after your demise.

        Without a dental estate plan, your practice could be undervalued, mishandled, or sold off in a way that doesn’t honor your wishes.

        Proper estate planning for dentists ensures that your legacy continues, and your patients continue to receive excellent care.

        In Conclusion

        Proper estate planning for dentists is a crucial responsibility and when done correctly, ensures your dental practice’s longevity.

        It preserves your legacy, safeguards your loved ones, and maintains patient care continuity.

        Consult with an experienced attorney for comprehensive estate planning for dentists tailored to your unique needs as a dentist

        Picture of Matt Odgers

        Matt Odgers

        Attorney Matthew W. Odgers is a partner and co-founder of Opelon LLP, a firm based in San Diego, California that focuses its energy on Estate Planning, Trust Administration, and Probate

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