Should I set myself up as an LLC?

[huktonfonix]

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Has anyone set themselves up as an LLC? Is it worth the cost and hassle? Thanks for the advice. Something I gotta look into after the oral boards. Currently in a PP group on partnership track.

 

[BLADEMDA]

Has anyone set themselves up as an LLC? Is it worth the cost and hassle? Thanks for the advice. Something I gotta look into after the oral boards. Currently in a PP group on partnership track.

Yes.

 

[2win]

Has anyone set themselves up as an LLC? Is it worth the cost and hassle? Thanks for the advice. Something I gotta look into after the oral boards. Currently in a PP group on partnership track.

Yes -it is worth. It is not so hard....
There are some tax benefits advocated by some but most important it is the first step to create your OWN business.
2win

 

[Pilot Doc]

If you are an employee of a group, what advantage is there to being an LLC? Even assuming the group would contract with your LLC rather than hiring you, you still have liability for your own actions and you're not gaining any distance from anyone else's actions.

 

[cchoukal]

I was curious about that too. will a group 'allow' you to be your own LLC w/in the group? will the hospital contract w/ your LLC rather than 'hiring' you?

 

[moos]

There are no tax advantages as an LLC.

Essentially, an LLC provides some legal protection, hence the name "Limited Liability Corp". This means if you were sued past the limits of your insurance, the LLC would protect your personal assets to some degree while if you didnt have an LLC you would have no protection at all.

When you are the sole member of your LLC your tax benefits are the same as if you were simply a sole proprietor. If you were working a 1099 and were not an LLC the only difference is you would not get the liability protection but you would still be a sole proprietor.

If you are a W2, there is no point in having an LLC.

 

[2win]

There are no tax advantages as an LLC.

Essentially, an LLC provides some legal protection, hence the name "Limited Liability Corp". This means if you were sued past the limits of your insurance, the LLC would protect your personal assets to some degree while if you didnt have an LLC you would have no protection at all.

When you are the sole member of your LLC your tax benefits are the same as if you were simply a sole proprietor. If you were working a 1099 and were not an LLC the only difference is you would not get the liability protection but you would still be a sole proprietor.

If you are a W2, there is no point in having an LLC.

"Tax Benefits of an LLC – inclusion of company debt
One of the most interesting, but not very famous, tax benefits of an LLC is that its members may include company debts in the tax basis of their ownership interests. If you have a business that generates tax losses, the difference between forming an LLC and forming an S Corporation can be massive. For an S Corporation shareholder, the limitations regarding inclusion of corporation debts are certainly considerable."
Now - set up a LLC and when the time is coming or there is another hospital ready to renegotiate the contract with the anesthesia group - you'll be there. The costs and headache to form one - in most states is minimal.
If you intend to stay with the same group and get the income ONLY from them - there is no point to form one.
2win

 

[moos]

Win

That is the same as sole proprietorship which you dont have to obtain an LLC to get.

There are no tax benefits of an LLC.

If you work for anyone as a 1099, an LLC will shield you from liability. It is irrelevant if you do most of your work for one person or not. So if you are not a W2, i would suggest opening an LLC for this reason alone.

However, I would suggest that if you work for one person as a contractor you should pick up some locums or shifts somewhere else each year. Otherwise, the IRS can classify you as an employee and that leads to a whole mess of legal issues for you and the company you contract with.

Here is a simple website with the info tho i would use a lawyer to form one not one of these places.

http://www.llc.com/llcs_and_taxes.html

 

[mcgreen]

Has anyone set themselves up as an LLC? Is it worth the cost and hassle? Thanks for the advice. Something I gotta look into after the oral boards. Currently in a PP group on partnership track.

There are two basic issues, Taxes and Liability.

If you are paid W-2 income by your group, you probably will see little benefit from an LLC.

If you are paid 1099 income you probably will benefit from forming an LLC. Since you will able to deduct legitimate business expenses. If you deduct these expenses from your personal income you will likely run into the alternative minimum tax.

Liability laws changes greatly from state to state. You need the advice of a lawyer and accountant that specialize in the area. You need to keep very good records and hold regular meetings and comply will all pertinent rules and regulations. If your LLC is not run properly to the full letter of the law, the Liability advantages will be quickly lost to a persistent attorney who can easily pierce the corporate veil and throw away your LLC shield if you are not in full compliance of all the rules.

Another Issue is the dim view many courts hold of single member LLC's, In many states a single member LLC offers almost no liability protection.

Unfortunately sites that profit form creating LLCs or lawyers who generate huge fees from creating LLC are unlikely to have very objection advice about complex issues such as liability treatment of LLCs.


"Fraudulent Conveyance, Civil Conspiracy
The central issue to single member LLCs (one owner) is "FRAUDULENT CONVEYANCE" which, if not handled properly may become part of a "civil conspiracy" to fraudulently act against creditor claims. In some cases the financial planner, lawyer, or accountant becomes part of the conspiracy and in some cases such advisors have been reprimanded.


Single shareholder corporation, single shareholder of Sub "S," and single member LLCs can provide the owner with protection against liabilities arising from "the conduct of the LLC" but not the owner of the LLC membership shares. In other words, "if" the LLC does something wrong, the owner is not necessarily responsible. To reach the owner's personal assets, a plaintiff would have to "pierce the veil" of the entity showing that:

• The LLC, the corporation, or the Sub "S" was undercapitalized for it's intended business purpose,
• Formalities were not followed,
• The owner used the LLC, Corporation or Sub "S" mostly for personal purposes,
• It did not serve a "bona fide" commercial purpose,
• It lacked in economic substance and was merely an alter ego of the owner whose sole intention is to frustrate the creditor(s), etc.

A single member LLC (one owner), Corporation, or Sub "S" will not protect the owner, because the charging order protection that is much touted, is based on protecting the "innocent" non-debtor."

from; http://www.ultratrust.com/single-member-llc.html

 

[Pilot Doc]

This means if you were sued past the limits of your insurance, the LLC would protect your personal assets to some degree while if you didnt have an LLC you would have no protection at all.

I have a hard time believing that one.

The physician patient relationship on which the concept of malpractice rests is between you and the patient. The LLC has nothing to do with it. Barring special circumstances (federal employee, etc) it is very difficult to exclude your assets from a malpractice claim.

Even if it is, I suspect manuevers to put your assets into trusts, joint ownership, etc would be far more successful.

 

[huktonfonix]

I have a hard time believing that one.

The physician patient relationship on which the concept of malpractice rests is between you and the patient. The LLC has nothing to do with it. Barring special circumstances (federal employee, etc) it is very difficult to exclude your assets from a malpractice claim.

Even if it is, I suspect manuevers to put your assets into trusts, joint ownership, etc would be far more successful.

This is what I'm trying to figure out. I've heard differing opinions on the legal protection the LLC affords your personal assets and as someone else mentioned a lot of the websites providing information may not be the most impartial sources.

 

[moos]

Best thing to do is contact a lawyer in the state you will be practicing.

 

[maceo]

There are two basic issues, Taxes and Liability.

If you are paid W-2 income by your group, you probably will see little benefit from an LLC.

If you are paid 1099 income you probably will benefit from forming an LLC. Since you will able to deduct legitimate business expenses. If you deduct these expenses from your personal income you will likely run into the alternative minimum tax.

Liability laws changes greatly from state to state. You need the advice of a lawyer and accountant that specialize in the area. You need to keep very good records and hold regular meetings and comply will all pertinent rules and regulations. If your LLC is not run properly to the full letter of the law, the Liability advantages will be quickly lost to a persistent attorney who can easily pierce the corporate veil and throw away your LLC shield if you are not in full compliance of all the rules.

Another Issue is the dim view many courts hold of single member LLC's, In many states a single member LLC offers almost no liability protection.

Unfortunately sites that profit form creating LLCs or lawyers who generate huge fees from creating LLC are unlikely to have very objection advice about complex issues such as liability treatment of LLCs.


"Fraudulent Conveyance, Civil Conspiracy
The central issue to single member LLCs (one owner) is "FRAUDULENT CONVEYANCE" which, if not handled properly may become part of a "civil conspiracy" to fraudulently act against creditor claims. In some cases the financial planner, lawyer, or accountant becomes part of the conspiracy and in some cases such advisors have been reprimanded.


Single shareholder corporation, single shareholder of Sub "S," and single member LLCs can provide the owner with protection against liabilities arising from "the conduct of the LLC" but not the owner of the LLC membership shares. In other words, "if" the LLC does something wrong, the owner is not necessarily responsible. To reach the owner's personal assets, a plaintiff would have to "pierce the veil" of the entity showing that:

• The LLC, the corporation, or the Sub "S" was undercapitalized for it's intended business purpose,
• Formalities were not followed,
• The owner used the LLC, Corporation or Sub "S" mostly for personal purposes,
• It did not serve a "bona fide" commercial purpose,
• It lacked in economic substance and was merely an alter ego of the owner whose sole intention is to frustrate the creditor(s), etc.

A single member LLC (one owner), Corporation, or Sub "S" will not protect the owner, because the charging order protection that is much touted, is based on protecting the "innocent" non-debtor."

from; http://www.ultratrust.com/single-member-llc.html

so whats the best way to shield your assets?

aside from putting it under your mattress?

 

[mille125]

so whats the best way to shield your assets?

aside from putting it under your mattress?

First, understand your state laws. In my state your homestead, retirement, cash value life insurance policies, and educational funds (ie 529's) are exempt from creditors. Check your state laws. Therefore, in my case, it makes sense to "max out" all of these investments. It makes a lot of sense for a doctor to "put money into his home" for asset protection even though this may be ridiculous advice for 99% of the populace. You must remember that you are not "the populace".


The first part is a no brainer. After this it gets fun and creative. Many people adopt different strategies. Some of the popular ones include combinations of trusts, FLP's, and multiple corporate strategies (ie usage of ccorps and scorps in concert). Get a good advisor. PM me if you have specific questions. You can be more creative if you are not a W2 employee and actually own your practice.

Cash value life insurance is something to consider as well. There are pros and cons:
Cons: Very high insurance premium in any industry that is flooded with unscrupulous insurance agents

Pros: 100% protected in those with large assets and tax free growth. This is important for most of us who are all in the 33-35% bracket.


Going back to the LLC question, I agree with those who say that there is not much benefit to creating this structure if you are a W2 employee. Concerning asset protection, you can rest assured that a good lawyer can pierce one of these without even breaking a sweat.


Good luck........

 

[2win]

so whats the best way to shield your assets?

aside from putting it under your mattress?

Don't get married!
I think it is a trust fund combined with FLP.
Better to don't have associates (avoid...).
Keep separated entities for your assets.
Use separate bank accounts.
regarding the offshore - see the UBS scandal...

The LLC will protect your business except the malpractice...
With a LLC the assets (house, other accounts) are not subjects for seizure in the event of a litigation IF the litigation is about a business made in the LLC name. And of course (like always) some exception may apply.
If you put the money under a mattress - better that mattress to be in the Cayman Islands!

 

[touchadream]

I am a tax/financial lawyer from a family of MDs. There is good info here, but here is the real skinny:
1. If you married money or have a lot, you need different asset protection.
2. If you are starting to practice and 1. doesn't apply, then you don't need an LLC for asset protection bc you don't have any assets to protect. I have seen lots of docs pay lawyers a lot for structural protection of empty structures. Don't bother.
3. It is your INCOME you need to protect, your ability to earn. This is done by putting all you can into ERISA qualified plans (401K, combo 401K & Defined Benefit Plans). This is what I call the "OJ" plan. You can kill someone on purpose and their family still can't get your pension money. Most docs have no idea what a Defined Benefit or Cash Balance Plan is, and that it can be combined with a 401K Profit-sharing plan, but it can due to Pension Protection Act of 2006, & 2001 EGGtra law.
4. Mille 125 is correct that 1099 income makes it easier for you to get the benefits you want and need, provided your advisor knows how and frankly, my dear, they don't give a ****. CPAs and Attorneys think you make too much money anyway, and they charge by the hour, so you need a good financial advisor (1 in about 1000 know about this stuff).
5. To find help, an advisor should be mentioning: Defined Benefit Plans, cash balance plans, "roth" type corporate plans for rich drs, Health savings accounts, and, if you or your group pays over about 4 or 500,000 in tax, captive insurance.
6. Most docs have problems with tax because it comes from financial advisors (oops the new word is "wealth manager") and few know this stuff. Also, each doc wants his or her "own personal" advisor, which may or may not be any good, may be a frat bro or college friend, etc. Groups should ruthlessly interview advisors for common financial issues. If you are not hearing "tax" first, you don't have the right one. Your biggest ticket family budget item is tax, next is loans or insurance. Reduce those and you are coming out ahead. Most advisors want to talk about investments and insurance. They should be saying, lets see what we can save in taxes, fees, and excess insurance costs.
7. YOU have to solve the prob of dealing with your group. If you can just be up front and talk dollars, you will be ok. If it gets into egos and friendships, try to just get 1099 income and form your own PC or PA/ You don't want an LLC as a doc because LLCs are partnerships for passing through losses, and unless you are very rare, you won't have losses. LLC's and S corps are used by accountants a lot bc they are used to most small businesses failing or barely making it and this enables the owners to lose.
You won't, so you will be trying to "make up" deductions pretty soon. Much better to use a C corporation and take the benefits that executives pay themselves, more allowed in C than other corps, have to be alert to them, stay nimble, laws changes, but use what they give you at least.
8. Need more asset protection: www.medicaljustice.com proactive and it works. They go AFTER "experts" who stretch, and it backs them down quickly. Awesome company. Tell them Victoria sent you!
9. Eventually you will need an estate plan, and LLC or FLP will come into play. When young you need life ins to protect your family, when older you will need it to pass income to next gen and to use yourself in retirement. The trick to ins FOR DOCTORS, is to make it deductible, if you are not hearing out of the box, from your agent or advisor, how to do this, again, you have the WRONG one. Ins is expensive, but a 35-40% discount from buying it pre-tax is a huge discount on a necessary product.
10. What you get to keep matters a lot more than what you earn. True of salary, 1099, and investments, too. If you pay for life insurance, for example pre-tax, then the gov't is paying the commissions and admin fees! How does that sound? Do a lot of listening to different financial advisors, CPAs, attorneys, etc. and you can easily weed out those who don't understand your problem. You are a late earner of high income, without savings, with pressure from realtors to buy a mcmansion, from bankers who want to loan you too much, colleagues who have hotter cars, etc. It can make you less nice to experience all of that. I like my doctors to be relaxed, confident, and keep more of their hard-earned money, but then, I am married to one. I worry about how much tax we pay. That's what you want on your side, someone who actually HATES it when you overpay taxes, fees, bad investments, wrong or overpriced insurance coverage, etc.
I am glad to share advice here, in case I need some back. This discussion reminds me of my own experience recently with a so-called "Jones" fracture of my foot. I researched the H out of it on the internet, could even tell you about Jones himself and how he broke his foot. BUT, not being a doctor, I just didn't know that is what I didn't have. So, it was a big waste of time. Its not enough to know the definitions. The art is in knowing what applies when. So, yes, you should look at the details of LLCs, S corps, etc., but don't be like the docs I know who pay thousands for the do-it-yourself kit on asset protection, and try to protect things that don't need protecting, while their accounts receivable are exposed to every trial lawyer around. And yes, you can equity-strip your AR and keep those safe too. Law, like medicine is an art, too. I want to know how many procedures you have done before you do mine, right? And I should not ask a lawyer friend, or a financial analyst friend to recommend a doctor--I should ask a dr. Best of luck, I am delighted that people still go into medicine, and you can still prosper, just need good guys on your side to prosper MORE.

 

[deleted126335]

I am a tax/financial lawyer from a family of MDs. There is good info here, but here is the real skinny:
1. If you married money or have a lot, you need different asset protection.
2. If you are starting to practice and 1. doesn't apply, then you don't need an LLC for asset protection bc you don't have any assets to protect. I have seen lots of docs pay lawyers a lot for structural protection of empty structures. Don't bother.
3. It is your INCOME you need to protect, your ability to earn. This is done by putting all you can into ERISA qualified plans (401K, combo 401K & Defined Benefit Plans). This is what I call the "OJ" plan. You can kill someone on purpose and their family still can't get your pension money. Most docs have no idea what a Defined Benefit or Cash Balance Plan is, and that it can be combined with a 401K Profit-sharing plan, but it can due to Pension Protection Act of 2006, & 2001 EGGtra law.
4. Mille 125 is correct that 1099 income makes it easier for you to get the benefits you want and need, provided your advisor knows how and frankly, my dear, they don't give a ****. CPAs and Attorneys think you make too much money anyway, and they charge by the hour, so you need a good financial advisor (1 in about 1000 know about this stuff).
5. To find help, an advisor should be mentioning: Defined Benefit Plans, cash balance plans, "roth" type corporate plans for rich drs, Health savings accounts, and, if you or your group pays over about 4 or 500,000 in tax, captive insurance.
6. Most docs have problems with tax because it comes from financial advisors (oops the new word is "wealth manager") and few know this stuff. Also, each doc wants his or her "own personal" advisor, which may or may not be any good, may be a frat bro or college friend, etc. Groups should ruthlessly interview advisors for common financial issues. If you are not hearing "tax" first, you don't have the right one. Your biggest ticket family budget item is tax, next is loans or insurance. Reduce those and you are coming out ahead. Most advisors want to talk about investments and insurance. They should be saying, lets see what we can save in taxes, fees, and excess insurance costs.
7. YOU have to solve the prob of dealing with your group. If you can just be up front and talk dollars, you will be ok. If it gets into egos and friendships, try to just get 1099 income and form your own PC or PA/ You don't want an LLC as a doc because LLCs are partnerships for passing through losses, and unless you are very rare, you won't have losses. LLC's and S corps are used by accountants a lot bc they are used to most small businesses failing or barely making it and this enables the owners to lose.
You won't, so you will be trying to "make up" deductions pretty soon. Much better to use a C corporation and take the benefits that executives pay themselves, more allowed in C than other corps, have to be alert to them, stay nimble, laws changes, but use what they give you at least.
8. Need more asset protection: www.medicaljustice.com proactive and it works. They go AFTER "experts" who stretch, and it backs them down quickly. Awesome company. Tell them Victoria sent you!
9. Eventually you will need an estate plan, and LLC or FLP will come into play. When young you need life ins to protect your family, when older you will need it to pass income to next gen and to use yourself in retirement. The trick to ins FOR DOCTORS, is to make it deductible, if you are not hearing out of the box, from your agent or advisor, how to do this, again, you have the WRONG one. Ins is expensive, but a 35-40% discount from buying it pre-tax is a huge discount on a necessary product.
10. What you get to keep matters a lot more than what you earn. True of salary, 1099, and investments, too. If you pay for life insurance, for example pre-tax, then the gov't is paying the commissions and admin fees! How does that sound? Do a lot of listening to different financial advisors, CPAs, attorneys, etc. and you can easily weed out those who don't understand your problem. You are a late earner of high income, without savings, with pressure from realtors to buy a mcmansion, from bankers who want to loan you too much, colleagues who have hotter cars, etc. It can make you less nice to experience all of that. I like my doctors to be relaxed, confident, and keep more of their hard-earned money, but then, I am married to one. I worry about how much tax we pay. That's what you want on your side, someone who actually HATES it when you overpay taxes, fees, bad investments, wrong or overpriced insurance coverage, etc.
I am glad to share advice here, in case I need some back. This discussion reminds me of my own experience recently with a so-called "Jones" fracture of my foot. I researched the H out of it on the internet, could even tell you about Jones himself and how he broke his foot. BUT, not being a doctor, I just didn't know that is what I didn't have. So, it was a big waste of time. Its not enough to know the definitions. The art is in knowing what applies when. So, yes, you should look at the details of LLCs, S corps, etc., but don't be like the docs I know who pay thousands for the do-it-yourself kit on asset protection, and try to protect things that don't need protecting, while their accounts receivable are exposed to every trial lawyer around. And yes, you can equity-strip your AR and keep those safe too. Law, like medicine is an art, too. I want to know how many procedures you have done before you do mine, right? And I should not ask a lawyer friend, or a financial analyst friend to recommend a doctor--I should ask a dr. Best of luck, I am delighted that people still go into medicine, and you can still prosper, just need good guys on your side to prosper MORE.

There is a lot of good advice in the above post, but a lot is not applicable to most of us. It was good for the more prosperous elders. This year defined contribution plans have a $49,000 limit. The is inflation adjusted going forward. Defined benefit plans allow you to shelter almost 4 times as much ANNUALLY, but have significant administrative costs and insurance fees to maintain. Also if your cash flow varies from year to year, you still have to come up with the cash to fund the plan. I am really against cash value life insurance, the tax and estate planning benefits are there, but you are paying through the nose for them. There are cheaper ways to accomplish the same things. And cash value insurance, when it does work takes decades to make up for the commission. You do not receive enough of a liquidity premium IMO for these policies. Captive insurance companies also take big bucks to fund and an extended period of time to work. Equity stripping A/R's is effective asset protection, but you pay up for it. Think of it as a white collar pay day loan. If you believe that you will be looking at 400-500K salaries upon graduation and that your income is secure and will go up with inflation for as far as the eye can see and the first group that you join will be the only company that you work for over your career, by all means go with touchanddreams advice. It probably makes sense in that type of situation. If you are a young attending or resident with six figures of debt and worried that the best days of anesthesia are behind us:

Live on less than you make. repeat please. Live on less than you make.
If you need life insurance, Buy term 25-30 year policy with $2 million benefit sounds about right
Extra cash to pay down debt.
Fully fund defined contribution, 401K, IRA, etc.
Lots of cash in 529 plans if you intend to pay for kids post secondary education these are wonderful plans that plenty of docs don't take full advantage of. Find a low cost one with Vanguard funds. Not an advisor sold one.
asset protection: lots of liability insurance is the cheapest and most effective asset protection.
The OJ plan is good, but if OJ were to get a job, his income would be garnished because it is not protected from a charging order. Similarly the doc who is only 10 years into his career and gets the big judgement will also have his future earned income garnished unless he can satisfy a charging order.
I do hear good things about medicaljustice.com
To Learn about investing and personal finance I strongly recommend:
http://www.bogleheads.org/wiki/Main_Page

If you have no interest in learning about the above or simply cannot execute a plan get a fee only advisor who does not make a commission off the products that they put you into.

 

[touchadream]

Defined benefit plans allow you to shelter almost 4 times as much ANNUALLY, but have significant administrative costs and insurance fees to maintain. Also if your cash flow varies from year to year, you still have to come up with the cash to fund the plan. I am really against cash value life insurance, the tax and estate planning benefits are there, but you are paying through the nose for them. There are cheaper ways to accomplish the same things. And cash value insurance, when it does work takes decades to make up for the commission. You do not receive enough of a liquidity premium IMO for these policies.

Thanks for the comments! I appreciate your thoughtful response and hope you will bear with me--let's sharpen these pencils a little more. With the advent of the PPA 06, Combo 401K/DB plans are possible. Say you want to fund $70,000, but are maxed in a 401K at 49,000. It used to be true that the DB locked you in to a min/max contribution that had to be funded each year and you had to choose either a DB or a Defined Contributon plan (401K, Profit sharing, money purchase,); now that is just one component of a plan. So, for example, if you think you want to put away $70,000 (or more), but not sure you will be able to keep it up, the combo plan gives you the flexibility now that we didn't have in previous years. First, you can adjust your 16,500 salary deferral up or down, as you choose, year to year. Next you can adjust profit-sharing. So if you think backwards, the DB portion is fixed, ok, I AM going to put away 30 or 40,000 or whatever number you are sure you can afford, put that into the DB. (REmember also that DB's have SOME opportunity, under extradordinary circumstances, to be altered.) So, now stack the other contributions as discretionary on top. That way, year two, you can't afford more than the 40 in the DB, don't profit share and don't salary defer. The following year, if you have the funds, do it. This flexibility is new and its good. Of course, this has to be custom designed as off the shelf plans don't do this. As to the costs, I hear this ALL the time. If your tax savings SUBSTANTIALLY outweigh the admin costs, you should do this. Obviously that is just a dollar issue. If admin costs (which include compliance, actuaries, and a tax return, plus misc. updates, notices, and plan changes mandated by our wonderful legislators) are $3,000 per year, but your tax savings on 30,000 DB contribution at 40% are $12,000 a year, you net $9,000. If you fund the whole combo, tax savings that year will be 40% of 70K are 28K, so admin costs on both plans at even $4000 per year are totally worth it. Plus there is a tax credit (dollar for dollar) for new plan admin costs, about 500 per year for a few years, so this is looking better. You also need to remember that people who make over $250,000 are "rich". So, even after schedule A deductions, etc, you can argue that your blended rate of tax isn't a full 40%--however, actually, those dollars are the last dollars you are making, and all of them are taxed at the highest rate. Not the first 150K but certainly that last 70K, so your savings really are at the highest marginal rate. And you don't have to put insurance in a DB plan, its just an option. If you mean you need to bond it, ok, but that is an insignificant cost relative to tax savings, seriously.

One more issue, and I love this one. The age-old hatred of insurance. Franklin Roosevelt was responsible for making the proceeds of life insurance tax free to the recipient. He did this so widows in the depression could give their husband a decent burial. Because that is still true today, insurance, yes, cash value insurance, is one of the greatest estate planning tools around, and my question to you is WHAT else works this well for estate planning if you have a taxable estate? So, you need insurance when you are young to protect your family. You need insurance when you are older to pass wealth to your heirs instead of to the government. Its really that simple. You correctly identify the problems: high costs, high commissions, high mortality costs due to age, limited investment performance unless you give up guarantees, etc. However, again, for doctors, the tax solution becomes the key. Deductible life insurance premiums save that 40%, which pretty much covers a LOT of those costs you are disliking. So, you can let the government pay for that part, if you are willing to jump through the hoops to get it done correctly. AGain, I think its worth it if the needs and dollars line up. One way to identify how good a deal is, when dealing with the IRS, is to look for situations where the IRS LIMITS or CAPS the amount of insurance you can have. It does this in many plans, both DBs and profit-sharing plans, and in SEction 79 plans. Now, if the IRS won't let you buy all you want, what does that tell you? It is too good a deal. I know about all the press and trash talk on the internet but I am just looking at dollars here. If you have, and I hope you will, a 5 million dollar taxable estate, which you earned by working like a dog, longer than other people (and believe me, doctors do this) how are you going to get that money to your kids? If you put it in any other form, it will get taxed. If you spend $3million of your money on life insurance premiums to buy just $5million of coverage, you have given your kids $5million tax-free. If you leave them $5million in stocks or real estate, they have to sell it and pay half to Uncle Obama. So how can you do this cheaper?

The devil is in the details, as I am sure it is in anaesthesiolgoy. And by the way, my admiration for your bravery in tackling such a job is IMMENSE. I think I would prefer migrant farm labor to what you do. Insurance depends on the policy and ins companies are masters of confusion, illusion, etc. The risk/reward calculation becomes extremely important and it is so difficult because you are comparing a potential family-wide life altering catastophe (wage earner dying young) to the profits available of spreading that risk over many people. (Dying young is highly profitable, it makes insurance one of the best investments ever. Bummer, but true. ) This is exactly what makes the captive so appealing. So, its not quite right to dismiss the captives as expensive, when their function is to take those profits back for the doctors (owners, partners) who may share ownership of one. Again, its a matter of dollars. And, again, new subtle law changes have brought a new world of captives to small and mid-size businesses, with lots of flexibility for the differing levels of interest, need, cost allocating, etc. I actually like captives, in the right medical practice, better than qualified plans, because the qualified plans DEFER income until retirement, and you are looking at an unknown tax rate in the future, maybe less, maybe more. Its still smart to defer whenever you can, but with a captive owned by a group, say, 10 docs, you can obtain insurance company profits on your own premiums tax free to your captive, and access that money in a relatively short period of time if needed, at qualified dividend rates. Also GREAT asset protection. No waiting until you are 59.5, no mandatory distributions when you are 70.5, no penalties for early withdrawal. AGain, of course they are expensive, but so what if the savings far exceed the costs? If a practice has a wide range of docs age-wise, then it can be used to help young docs buy in at favorable tax treatment for the older docs, like a DB. Why pay a bank when you can pay your group instead? Plus, this is another opportunity to get deductible life insurance for the captive owners, and in some cases, even premium financed life insurance on the owners, so that instead of paying premiums, you are paying interest only on $ borrowed to pay premiums. The loan is paid back, in the best cases, with life insurance proceeds, not during your lifetime. How sweet is that? Clearly not simple, not for the novice, not to be entered lightly, not to be done offshore, IMO, but in the right practice group, an elegant assist for doctors. These techniques are used by large corporations all the time, and their executives get, imo, undeserved benefits that I would rather see go to the medical worker bees. A pet peeve of mine is the highly compensated CEO & executive crew of "medical providers" who have never provided one moment of medical care. Even if you can;t afford a captive, you can afford a "roth type" section 79 plan, and this is a delightful executive bonus doctors can love if it fits. It is because you know so much about medicine that you sometimes lose this tax/finance/insurance/benefits/investments game. And its especially insidious in medicine because you have learned to distrust everyone in finance/insurance, with good reason. Love the Bogle website, you should also check out www.finra.org and especially, the Rand report on investment industry. Its not what you make, its what you get to keep. That's why to beware of sweeping investment statements about "cheap funds", indexed funds (Vanguard cost me a bunch of tax money b/c they cut admin costs and screwed up an estate plan by doing so--cost me a lot more than the fee savings) Yes, certainly fees make a difference, and should definitely be considered, but so does time value, especially yours. Your whole issue, I think is one of trust, and honestly I don't know how to solve that since my exploration of the financial services industry, fairly thorough, is kind of depressing. Fee only advisors can't make a living, unless you are so seriously high net worth that you matter to them... or unless they charge rates comparable to fee-based advisors. The good news is that you are going to win anyway, and that's also the bad news. The smarter you are about keeping more of what you earn the better, but most docs financial plan is work harder, more call, more cases. I think the answer is serious tax planning. No fee or investment can beat that 40% potential gain (my state/fed is 42.9% right now) If you can save any of that money which you have already earned, you can put in in the mattress and not worry about returns, fees, etc., and still be ahead of where you were. I hope I didn;t lose you by now, appreciate your thoughts a lot.

 

[deleted126335]

Thanks for the comments! I appreciate your thoughtful response and hope you will bear with me--let's sharpen these pencils a little more. With the advent of the PPA 06, Combo 401K/DB plans are possible. Say you want to fund $70,000, but are maxed in a 401K at 49,000. It used to be true that the DB locked you in to a min/max contribution that had to be funded each year and you had to choose either a DB or a Defined Contributon plan (401K, Profit sharing, money purchase,); now that is just one component of a plan. So, for example, if you think you want to put away $70,000 (or more), but not sure you will be able to keep it up, the combo plan gives you the flexibility now that we didn't have in previous years. First, you can adjust your 16,500 salary deferral up or down, as you choose, year to year. Next you can adjust profit-sharing. So if you think backwards, the DB portion is fixed, ok, I AM going to put away 30 or 40,000 or whatever number you are sure you can afford, put that into the DB. (REmember also that DB's have SOME opportunity, under extradordinary circumstances, to be altered.) So, now stack the other contributions as discretionary on top. That way, year two, you can't afford more than the 40 in the DB, don't profit share and don't salary defer. The following year, if you have the funds, do it. This flexibility is new and its good. Of course, this has to be custom designed as off the shelf plans don't do this. As to the costs, I hear this ALL the time. If your tax savings SUBSTANTIALLY outweigh the admin costs, you should do this. Obviously that is just a dollar issue. If admin costs (which include compliance, actuaries, and a tax return, plus misc. updates, notices, and plan changes mandated by our wonderful legislators) are $3,000 per year, but your tax savings on 30,000 DB contribution at 40% are $12,000 a year, you net $9,000. If you fund the whole combo, tax savings that year will be 40% of 70K are 28K, so admin costs on both plans at even $4000 per year are totally worth it. Plus there is a tax credit (dollar for dollar) for new plan admin costs, about 500 per year for a few years, so this is looking better. You also need to remember that people who make over $250,000 are "rich". So, even after schedule A deductions, etc, you can argue that your blended rate of tax isn't a full 40%--however, actually, those dollars are the last dollars you are making, and all of them are taxed at the highest rate. Not the first 150K but certainly that last 70K, so your savings really are at the highest marginal rate. And you don't have to put insurance in a DB plan, its just an option. If you mean you need to bond it, ok, but that is an insignificant cost relative to tax savings, seriously.

One more issue, and I love this one. The age-old hatred of insurance. Franklin Roosevelt was responsible for making the proceeds of life insurance tax free to the recipient. He did this so widows in the depression could give their husband a decent burial. Because that is still true today, insurance, yes, cash value insurance, is one of the greatest estate planning tools around, and my question to you is WHAT else works this well for estate planning if you have a taxable estate? So, you need insurance when you are young to protect your family. You need insurance when you are older to pass wealth to your heirs instead of to the government. Its really that simple. You correctly identify the problems: high costs, high commissions, high mortality costs due to age, limited investment performance unless you give up guarantees, etc. However, again, for doctors, the tax solution becomes the key. Deductible life insurance premiums save that 40%, which pretty much covers a LOT of those costs you are disliking. So, you can let the government pay for that part, if you are willing to jump through the hoops to get it done correctly. AGain, I think its worth it if the needs and dollars line up. One way to identify how good a deal is, when dealing with the IRS, is to look for situations where the IRS LIMITS or CAPS the amount of insurance you can have. It does this in many plans, both DBs and profit-sharing plans, and in SEction 79 plans. Now, if the IRS won't let you buy all you want, what does that tell you? It is too good a deal. I know about all the press and trash talk on the internet but I am just looking at dollars here. If you have, and I hope you will, a 5 million dollar taxable estate, which you earned by working like a dog, longer than other people (and believe me, doctors do this) how are you going to get that money to your kids? If you put it in any other form, it will get taxed. If you spend $3million of your money on life insurance premiums to buy just $5million of coverage, you have given your kids $5million tax-free. If you leave them $5million in stocks or real estate, they have to sell it and pay half to Uncle Obama. So how can you do this cheaper?

The devil is in the details, as I am sure it is in anaesthesiolgoy. And by the way, my admiration for your bravery in tackling such a job is IMMENSE. I think I would prefer migrant farm labor to what you do. Insurance depends on the policy and ins companies are masters of confusion, illusion, etc. The risk/reward calculation becomes extremely important and it is so difficult because you are comparing a potential family-wide life altering catastophe (wage earner dying young) to the profits available of spreading that risk over many people. (Dying young is highly profitable, it makes insurance one of the best investments ever. Bummer, but true. ) This is exactly what makes the captive so appealing. So, its not quite right to dismiss the captives as expensive, when their function is to take those profits back for the doctors (owners, partners) who may share ownership of one. Again, its a matter of dollars. And, again, new subtle law changes have brought a new world of captives to small and mid-size businesses, with lots of flexibility for the differing levels of interest, need, cost allocating, etc. I actually like captives, in the right medical practice, better than qualified plans, because the qualified plans DEFER income until retirement, and you are looking at an unknown tax rate in the future, maybe less, maybe more. Its still smart to defer whenever you can, but with a captive owned by a group, say, 10 docs, you can obtain insurance company profits on your own premiums tax free to your captive, and access that money in a relatively short period of time if needed, at qualified dividend rates. Also GREAT asset protection. No waiting until you are 59.5, no mandatory distributions when you are 70.5, no penalties for early withdrawal. AGain, of course they are expensive, but so what if the savings far exceed the costs? If a practice has a wide range of docs age-wise, then it can be used to help young docs buy in at favorable tax treatment for the older docs, like a DB. Why pay a bank when you can pay your group instead? Plus, this is another opportunity to get deductible life insurance for the captive owners, and in some cases, even premium financed life insurance on the owners, so that instead of paying premiums, you are paying interest only on $ borrowed to pay premiums. The loan is paid back, in the best cases, with life insurance proceeds, not during your lifetime. How sweet is that? Clearly not simple, not for the novice, not to be entered lightly, not to be done offshore, IMO, but in the right practice group, an elegant assist for doctors. These techniques are used by large corporations all the time, and their executives get, imo, undeserved benefits that I would rather see go to the medical worker bees. A pet peeve of mine is the highly compensated CEO & executive crew of "medical providers" who have never provided one moment of medical care. Even if you can;t afford a captive, you can afford a "roth type" section 79 plan, and this is a delightful executive bonus doctors can love if it fits. It is because you know so much about medicine that you sometimes lose this tax/finance/insurance/benefits/investments game. And its especially insidious in medicine because you have learned to distrust everyone in finance/insurance, with good reason. Love the Bogle website, you should also check out www.finra.org and especially, the Rand report on investment industry. Its not what you make, its what you get to keep. That's why to beware of sweeping investment statements about "cheap funds", indexed funds (Vanguard cost me a bunch of tax money b/c they cut admin costs and screwed up an estate plan by doing so--cost me a lot more than the fee savings) Yes, certainly fees make a difference, and should definitely be considered, but so does time value, especially yours. Your whole issue, I think is one of trust, and honestly I don't know how to solve that since my exploration of the financial services industry, fairly thorough, is kind of depressing. Fee only advisors can't make a living, unless you are so seriously high net worth that you matter to them... or unless they charge rates comparable to fee-based advisors. The good news is that you are going to win anyway, and that's also the bad news. The smarter you are about keeping more of what you earn the better, but most docs financial plan is work harder, more call, more cases. I think the answer is serious tax planning. No fee or investment can beat that 40% potential gain (my state/fed is 42.9% right now) If you can save any of that money which you have already earned, you can put in in the mattress and not worry about returns, fees, etc., and still be ahead of where you were. I hope I didn;t lose you by now, appreciate your thoughts a lot.

The age old hatred of cash value insurance is completely justified. These products are sold, not bought. As far as an investment goes the real world returns of these policies is seldom more than the guaranteed minimums. That is, for those policies that aren't cancelled after a few years. Why don't you tell us what those cancellation rates are? Why don't you tell us what percent of the premium goes to commission during the first few years and how little cash value builds up? As to your question what else works: tax managed mutual funds and ETFs whose underlying asset class is tax efficient in taxable account + term insurance. As to estate planning, today the first $3.5 million per person is exempt. So a 60 year old married couple with $7 million has zero estate tax liability- estate balancing and gifting are basic estate planning tools that are a hell of a lot cheaper than cash value insurance. The 60 year old couple is far more likely to get that $7 million if they don't have to pay fat commissions for unnecessary products with lousy historical returns. One of the docs in my group started getting requests for premiums this year for a "paid up" variable life policy- due to stock market conditions. Meanwhile I tax loss harvested six figures by swapping tax managed funds for similar funds and ETFs, while maintaining my asset allocation. These carry forward losses will be worth plenty going forward.

Suppose you have a need for your money at some point before when you initially thought you would. That insurance policy isn't so liquid, is it? But you can sell your investments every day that the financial markets are open.

Proceeds of your cash-value life insurance stay within the estate unless put into an irrevocable trust. If it is in an irrevocable trust, you cannot spend the proceeds while you live.

As you mentioned, companies use split dollar life insurance policies for executives- One of the prime functions of these being "golden handcuffs" with long vesting periods to retain key employees. Not just as additional compensation.

Why would you need insurance after you are independently wealthy? Why pay for that death benefit? Exception that I agree with: illiquid small family business.


Meanwhile I have continued to pay my monthly premium of $150 for a 1.5 million term policy that will expire when I am in my mid 50s when I plan to be self insured, (even with the market sell off)

I'll bet that some of your income is derived from recommending cash value insurance products.


You did not respond to my criticism of equity stripping A/R as little more than white collar pay day loans (you are paying interest continually- typically prime rate + putting the money in insurance products with fat commissions and lousy returns)

Defined benefit plans are not very portable, have "fairness" issues within a group since the contribution is based in part on age of the participant.

You also did not respond to that while defined benefit plan monies are not reachable by creditors future earned income can be garnished, thus a doc who is not ready to retire is still s crewed if he doesn't have enough liability insurance.

 

[touchadream]

The age old hatred of cash value insurance is completely justified

.
Is this one of those "trust me Im a doctor" statements? Are we having a pronouncement or a conversation--glad to hang around for the latter.

These products are sold, not bought.

Not in my office. I assume you have met some of my delightful and knowledgeable competitors. Also, what have you lumped into "these products"? If you mean all cash value life insurance products, then anesthesia should include the whiskey shot with bullet between teeth, too. I am assuming you are referring to the variable life products like your colleague had the misfortune to bite into. That one was the rubber worm, unfortunately. But maybe you do "hate" them all. As we say down here in the south, that's just ignorant.

As far as an investment goes the real world returns of these policies is seldom more than the guaranteed minimums.

Actually, Dr. you didn't go far enough here. With variable life, there isn't ANY GUARANTEED minimum. That would be why I don't recommend them . As in what do nuns and 7-up have in common? Never had it, never will.

That is, for those policies that aren't cancelled after a few years. Why don't you tell us what those cancellation rates are?

I am sure you do not mean any personal insult here towards me, but it seems just a tad sarcastic, to my sensitive mind. I have no idea what the surrender rates are, or lapse rates, or whatever, because as I said, I don't and didn't ever recommend such a product.

Why don't you tell us what percent of the premium goes to commission during the first few years and how little cash value builds up?

Well, lets just turn this around for a minute. When have you ever told a patient how much you are going to make on him or her? I have had a few surgeries and some babies, and I don't recall EVER being told how much the anesthesia cost, or how much that particular doctor was "making" off of my misfortune. In fact the only doctor I can recall who ever talked to me about what he would make was my headache neurologist when I tried botox for headache, which cost me $750, made me look funny and didn’t work. So look in the mirror on this one.

In my case, I do advise clients on commissions, if I have that info. Actually, I don't know how much I make on a case. I do, however, tell my clients what the total costs of the policy are and in fact point them out on paper. I deliberately separate myself from that information in my practice so that it doesn't influence my choice of product. Now if you could get an identical product for less money elsewhere, that might be a problem, but if the client's bottom line is the grail, we are ok. Ditto for investments.

As to your question what else works: tax managed mutual funds and ETFs whose underlying asset class is tax efficient in taxable account + term insurance.

Can you guarantee this? If so, would you do it for me? I hope this works for you, but as my dear departed pathologist father used to say, "there's many a slip between the cup and the lip." You may plan to have your investments and savings grow, but its just not all in your control. Odds are with you to be ok, but I have seen many such plans derailed by all kinds of problems, disability, accident, divorce, drugs, mental illness...or plain old inflation, thats a big one. And the factor I can’t seem to get you to see is that you are investing with after-tax dollars. At highest rates, 42,9% in my state, you have a lot of catching up to do, and the commissions on good policies are well covered by the current deductibility.

Show me how you are going to make more than 42.9% on your investments? That would even it up, then you have to beat my returns. This is the help doctors need. They have high INCOME and therefore high INCOME TAXES. They need SOPHISTICATED tax planning. I was a corporate tax lawyer for a huge oil company. You need what they had for their executives, and most accountants just don’t deal in those programs, nor do most attorneys, or even tax attorneys. Some of us are generalists and some are specialists. Doctors have special tax problems and represent a very small population group for which there is little sympathy. The ONLY reason I lie awake at night worrying about doctor’s taxes and finances is because I live on your side and the guy next to me has the same problems, which makes them nine and motivates me to solve them. You really should be more charming to me.

As to estate planning, today the first $3.5 million per person is exempt. So a 60 year old married couple with $7 million has zero estate tax liability- estate balancing and gifting are basic estate planning tools that are a hell of a lot cheaper than cash value insurance. The 60 year old couple is far more likely to get that $7 million if they don't have to pay fat commissions for unnecessary products with lousy historical returns.

Now you are really getting pedantic, plus getting on my nerves. I am pretty sure I wrote about a taxable estate of $10M. Don't you feel just the tiniest bit embarrassed to be telling me, a tax attorney, the exemption amounts for the lifetime gift/estate tax exemption? Did you think I might have missed that in class one day? Ok, now lets talk about your hypothetical 60 year old couple with $7M. How long do they each plan to live? Are they still working? Are they healthy? Are you projectng a frugal lifestyle, low inflation, low taxes and the $7M growing? Or are you projecting a doctor's lifestyle and it dwindling? So how much do they have at 80 or 85, or are they dead by then? The value of guaranteed growth is one thing, even at a pathetic rate of return. If this couple is at no risk of paying estate tax then they don't need cash value life insurance. But at 60, you dont quite know that, or haven't provided enough info in the scenario to know. We made different assumptions here, so no point in being fat, lousy or historical. And “historical returns” is a joke. You cant beat a crook. Especially big ones. Best you can do is homework, put them in jail, lick your wounds. You have to admit we learned a lot about this in the “recession”

One of the docs in my group started getting requests for premiums this year for a "paid up" variable life policy- due to stock market conditions.

He is probably a really good doctor and it is so rotten that this industry sends people around selling this stuff to people like him/her. This is why my clients call me before they buy something they think they may need. Second opinions are so important, aren't they?
I mean, do you ever work with surgeons who might be doing something that might possibly not be necessary or in the patient's very best interest? Knowing that anesthesia has a built-in unavoidable risk? I bet you don’t speak up, do you? We all face ethical issues like this, don't we?

Meanwhile I tax loss harvested six figures by swapping tax managed funds for similar funds and ETFs, while maintaining my asset allocation. These carry forward losses will be worth plenty going forward.

Smart move on your part, but routine in my world. The other bad part here is the six figure loss you endured to obtain the tax losses. You definitely were smart to make the best of a pretty bad situation in being long this market. I have a pathetic little fixed annuity (I am guessing you don't approve of those either), which works just exactly like a bank CD, only its an insurance co. CD. Its back loaded, so if I cash it out early I pay a charge (commission, penalty, surrender charge, whatever) but if I don't, which I won't, I don't lose principal, and I don't pay any commission, although there is a commission charged. Its just paid by those who do cash out early on their annuities. So there are some of us, doctors too, who didn't lose all that money last year--saved solely to insurance company guarantees. So, I didn't lose ANY money on that product last year, whereas the year before I made 8.5%. Or, maybe, if you had a small amount of your portfolio in managed futures last year, you could have been up 20+%. My point being there is a lot more out there to work with, and because you are reading retail, you won't hear about it. For history, google scholar is better than google. For the future? Whose crystal ball are you going to believe?

Suppose you have a need for your money at some point before when you initially thought you would. That insurance policy isn't so liquid, is it? But you can sell your investments every day that the financial markets are open.

I am taking another deep breath here, saying to myself, he doesn't mean to be insulting. So, do you think I have no awareness of the concept and application of "liquidity risk"? Did I somehow give you the wrong impression? Bert and Ernie probably understand this concept. Its pretty elementary. Given that those closest to the spring crisis say that we were "hours away" from a worldwide financial collapse, "every day" is not true, and public markets do get suspended trading from time to time. Nevertheless, congratulations on being able to sell for a loss. Obviously only extremely poor planning could expose an otherwise intelligent manager of money, one's own, or another's, to too much liquidity risk, and so I hope you didn't think I was suggesting this unbalanced a strategy. I will grant you that some people, from ignorance, or greed, will do this.

Proceeds of your cash-value life insurance stay within the estate unless put into an irrevocable trust. If it is in an irrevocable trust, you cannot spend the proceeds while you live.

Where are you getting this stuff? You must be getting tired here. You can't spend the proceeds of life insurance because their payment is dependent on receipt of your death certificate by the company. And don't even start with me on trusts. You need to spend less time there and more on google scholar. Speaking of hate, I hate estate tax, and I don't understand why doctors like to spout off about trusts, again, to ME. If you are not careful, I will get one of my estate tax buddies on here and he will bury you. What about using a GRIT or a GRAT? Just how much free legal advice do you want, anyway? How many probates have you handled with revocable trusts becoming irrevocable on death? Well, of course you haven';t, and I wouldn't DREAM of even putting on my husband's scrubs to sleep or garden in--not my area, you know. Of course you need a basic understanding and you are working to protect your family, do the best by them and unlike a company Joe, you ARE responsible for your own retirement and planning. My point is at some point you really do need some professional advice. And I don’t mean a stock broker or a so-called wealth manager, or even the guy next door who is a “CFP. Big deal. Very few desginations in this huge field matter at all and what you are looking for is Knowledge and trust, access and specialized information tailored to you, not what the whole world can get retail for its small discretionary accounts.

Seriously, has anyone ever told you that life insurance premiums can be deductible? That a group of 6 or 8 doctors can economically benefit from owning a captive domestic insurance company, paying tax-free premiums to a practice owned registered legitimate Us based insurance company? Wouldn’t you rather be a bank than pay one? Wouldn’t you rather own an insurance company than pay one. This it what it seems to me you are doing by planning on being “self-insured”, but there are sometimes ways that are so much better…Wouldn’t you like to invest at least some of your money with serial billionaires in their private deals if you could” You should be trying to charm information out of me.

As you mentioned, companies use split dollar life insurance policies for executives- One of the prime functions of these being "golden handcuffs" with long vesting periods to retain key employees. Not just as additional compensation.

I didn’t mention that. Where did this come from? The incidential benefits rules in Section 79 (different plan altogether) make these executive plans completely portable as the insurance policies, yes, they are CASH VALUE policies, are personally owned by the executive, deductible to the corporation, and work like a "Roth" for the rich doctor or business owner. The tax code dictates that the plans have insurance in them If the code specified diamond mines, I guess we would be using those. Actually these are better than a Roth, which you don’t qualifiy for anyway, and yes I know about next year’s window for rollovers. They are better because Roth’s are fully taxed on contributions, whereas these are only partially taxed. Yes, they are illiquid, but by the way, you pay tax penalties for early withdrawal of qualified money or IRAs so you might agree its not a place to try to be liquid. Therefore, the 15-20 year timeline makes these ideal supplemental retirement funds, which can, but don’t have to be withdrawn, and when withdrawn are free of tax. So, let’s recap. They are tax-advanataged contributions. (60% taxed rather than 100% taxed, like roth contributions) and they are withdrawn tax free. But they have that awful insurance in them, so if you die, your family gets the money, and if you do or don’t the agent who taught you how to take these tax advantages gets paid. You have more money that you had without doing it, HHmmmm. Tough call. If you would rather pay the government, that is clearly your choice.

And don’t come back to me with that tax-sensitive investment stuff, because you are playing with after tax dollars, so you have a LONG way to go to catch up after that hit with your investment gains. And by the way, I would NOT do this with someone who didn’t have a NEED, a family need, for insurance. And I would not do it for someone who wasn’t in the highest marginal tax bracket, which by the way, is probably going up and not down.

Why would you need insurance after you are independently wealthy? Why pay for that death benefit? Exception that I agree with: illiquid small family business.

ESTATE TAXES. This isn’t agree or disagree. This is just a tax law fact. People who are lucky enough to be “independently wealthy” which I assume to be those who have taxable estates, need this. I can refer you to a wonderful estate lawyer or two who will teach you this in detail. One of them works for a flat fee per will, per trust, with 1 year of questions answered…included. I also like to recommend flat fees on pretty much everything, where possible, so you know exactly what you are paying. So, insurance should be paid for 5 or 10 years, and then done. Same with qualified plans. Fund it and forget it. If you need more, do it again. I don’t advise open ended insurances, where you never know how much you will pay because you don’t know how long you will live….

Meanwhile I have continued to pay my monthly premium of $150 for a 1.5 million term policy that will expire when I am in my mid 50s when I plan to be self insured, (even with the market sell off)

Self insured for how much? You are making a LOT of assumptions and I hope they all come true for you. There is the rub, the law of large numbers can make this a minimum guarantee from a bank or insurance company, but you can’t with your small numbers for one family. While you have term insurance, and are dependent on your relatively frail solo human ability to earn and save, you still have disability risk and you don’t have enough disability insurance to solve for that, because they won’t issue it. That’s your biggest risk, probably, and although its statistically small, its personally devastating.

I'll bet that some of your income is derived from recommending cash value insurance products.

You bet it is, but most of it comes from radiology. Sweet!

You did not respond to my criticism of equity stripping A/R as little more than white collar pay day loans (you are paying interest continually- typically prime rate + putting the money in insurance products with fat commissions and lousy returns)

Now you are getting near my last nerve (another southern colloquialism which I hope you will enjoy) Fat, and lousy are not nice, and you are being repetitive, which isn’t a good debate technique at all. Among “equity stripping” strategies, there are scams, sensationalized on the internet, mediocre ideas, sometimes poor execution, and some brilliant and elegant solutions for foiling nefarious trial lawyers. I am coming to see that you like to talk about worst case behaviors. Again, you are not being precise enough. Equity stripping does not require insurance, can be a source of positive arbitrage (or negative, if you don’t know what you are doing). I hope you won’t think this is for you, but some readers will not know that arbitrage simply refers to making more interest than you are paying. Its what banks do. Loan at 8%, pay at 3%. You won’t do as well but 5% and 4% works well as does neutral when guarding the highly exposed low hanging fruit of medical practices, their accounts receivable. I do recommend my doctors keep open lines of credit where they can strip quickly when threats approach. Kind of a girl/boy scout “be prepared” approach.

Defined benefit plans are not very portable, have "fairness" issues within a group since the contribution is based in part on age of the participant

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Specious argument. Used correctly, they are brilliant. And we don’t use them as DBs anymore, but combination of DB and 401K profit-sharing plans, since the 2006 PPA and the 2007 corrections act. White papers, not newspapers. Magazines and newspapers are in the business of selling magazines and newspapers, not in the business of making you a profit. Always follow the money. You just want to make sure the officers eat last, an excellent rule Wall Street has had some trouble following. It’s the law of the jungle that at some point greed meets fear. And the law of the markets as well. That’s kind of some stunning philosophy there, don’t you think?

You also did not respond to that while defined benefit plan monies are not reachable by creditors future earned income can be garnished, thus a doc who is not ready to retire is still s crewed if he doesn't have enough liability insurance.

Is there no end to the free legal advice you want? I didn’t go to Hogwarts, I went to law school. You probably are referring to the bankruptcy rules which would pemit a creditor to garnish up to 25% of your gross income, IF you went through bankruptcy and if you lost a major lawsuit. At that point, well, I don’t’ know, hair dye, new “passport”, disappear in Hong Kong or Caribbean?