Physicians receive no formal training on how to evaluate their employment contract. Many make mistakes in this area. James D. Yurman & Associates, Inc. has extensive experience in this area and can help evaluate your offer to ensure a mutually beneficial experience and avoid costly mistakes.
Chances are you are being offered a contract that falls into one of the three most common categories:
- Typical Employment Arrangement
During the first stage (usually 3 years) of this relationship, the physician is employed as an employee only, receiving an agreed upon salary, bonus potential and fringe benefits. Thereafter, the physician becomes eligible to purchase an ownership interest in his Employer, and his compensation package is amended accordingly.
- Institutional Employment
One of the most dramatic changes in the medical profession during the past decade has been the transition of the physician in private practice, to the physician as part of a larger medical practice group. Today, the young physician leaving residency is confronted with many new and complex choices and issues. Very few will elect to practice alone. More frequently, the physician will choose to practice as part of a private group practice, or a large health care practice. Substantial regional hospitals, major health care organizations and even some sizable private practices have begun hiring physicians with the understanding that ownership opportunities will be non-existent.
While overall compensation packages are likely to be less lucrative than private practice, the trade-off provided by institutional employment may be more appealing benefits, such as a reduced workload, less administrative responsibilities and long-term employment stability.
- Hospital “Income Guarantee” Arrangements
A different form of employment contract is that which provides for some form of income “guarantee” as an added inducement to the physician. These contracts can be attractive and offer beneficial incentives. However, they are also complex agreements, and froth with potential negatives that must be clearly explained, and fully understood at the outset. For example, before signing one of these agreements, it is imperative to clarify what, if anything, is being “guaranteed” as well as potential liabilities the physician is incurring.
Physicians interested in “Income Guarantee” Arrangements would be well advised to seek professional guidance with James D. Yurman & Associates, Inc.
No matter which of these three-employment contract categories interest you, here’s an 8-step process to follow in your employment search:
James D. Yurman’s 8-Step Employment Process
- START EARLY. It is highly recommended that you begin the process of selecting a practice at least 12 to 18 months prior to the completion of your medical training.
- DETERMINE THE TYPE OF PRACTICE YOU PREFER. What kind of practice will give you the greatest satisfaction and professional fulfillment? General practice or specialization? Would you work better and get more satisfaction in a small or in a large group practice?
- LOOK AT SEVERAL OPPORTUNITIES. Correspond with and interview several prospective practices. It is recommended that at least a dozen prospective opportunities be explored before beginning the selection process.
- SELECT A BENEFICIAL ENVIRONMENT. Do you prefer large cities or small towns? Are certain parts of the country more desirable than others?
- ASK THE RIGHT QUESTIONS. Get the right answers. In which location will you work? What are the typical office hours? What hospitals and other health care facilities will be involved? How will the on-call hours be divided? How will your patient load be developed? What medical equipment/facilities are available to you?
- VISIT BEFORE BUYING. Take your family with you before finalizing a decision. Visit the local schools. Spend time at the hospitals where you will have privileges. Consider the churches, temples, clubs, social and personal amenities important to your future lifestyle.
- ASK FOR A WRITTEN CONTRACT. Once you have narrowed your choice to one or two opportunities ask for a written contract that covers the details.
- SEEK PROFESSIONAL ADVICE. Select a professional advisor who is knowledgeable and qualified to help you evaluate and compare your various opportunities.
Clients of James D. Yurman & Associates Inc. have long had access to experienced professionals who specialize in analyzing employment contracts for physicians. Here’s how the process works:
One of our trained experts will review your employment contract and educate you about the issues that need to be clarified, or otherwise altered. Then you return to your prospective employer to negotiate these issues and alterations. Once you’ve negotiated your arrangement, you’ll return to us for a final review before signing to ensure that this is the optimal arrangement for you. Sometimes in the negotiation process, an employer will change secondary provisions unbeknownst to the physician. We’ll make sure that does not happen to you! The complete fee for this service is only $500, and the entire process can be handled by phone.
For an additional $1,000 ($1,500 total), our experienced team will perform the initial review, and then also negotiate alterations and clarifications directly with your employer. We will then perform a final review with you before you sign your new employment contract offer.
In either case, you must be completely satisfied, or you pay nothing!
If your employment contract contains an additional ownership arrangement, please continue reading to find out more about our services.
When approaching the opportunity for ownership, physicians need to pay keen attention to the relevant documents. Two documents (the Purchase Agreement and the Buy-Sell Agreement) are typically involved. Usually, the purchasing physician will have no training, background or experience with this type of transaction. Therefore, a review of these documents with skilled specialists is highly advisable.
The Purchase Agreement
This is the document that details the terms of purchase, including a description of what is being purchased, the cost and the terms of payment. Essentially, the physician is being asked to buy an ownership interest at a price, which may or may not include an inflated value of the estimated goodwill of the practice. Further, the price may or may not include the accounts receivable. Decisions on these variables could markedly affect the tax consequences to the purchaser. The Purchase Agreement may also dictate how the purchasing physician’s compensation package will be determined over the next several years. Whether the terms of compensation are equitable depends greatly on what decisions are made relating to accounts receivable and goodwill issues. Obviously, the document cannot be drafted until agreement has been reached by all parties relative to the many purchase variables.
The Buy-Sell Agreement
This document sets the terms for the transfer of an ownership interest upon the death, disability, retirement or termination of employment of the owner. All owners benefit from having such a document, since it is always easier to arrive at reasonable and fair decisions before the death, disability, retirement or termination of employment of the owner.
Other issues which may be dealt with in a third type of agreement involve benefits that are available upon termination of employment by an owner. This benefit may consist of some of the unvested retirement plan benefits and/or some portion of the accounts receivable of the terminated physician.
Let one of the trained experts at James D. Yurman & Associates, Inc. review your ownership documents and educate you about the issues that need to be clarified or otherwise altered. When combined with an Employment Contract Review, the fee for an Ownership Arrangement Review is just an additional $250. Once again, this service includes a final review after you’ve negotiated based on our recommendations. The entire transaction can be handled by phone.
If you would prefer that our experienced team negotiates, as well as reviews, both the Employment Contract and Ownership Arrangement on your behalf, the total fee is $1,500.
In both cases, your satisfaction is guaranteed or you pay nothing!
Note: For some physicians, your Ownership Arrangement offer may occur 2-3 years after your Employment Contract has been signed. In that case, we treat each of the two reviews separately. That is, $500 for each of the two reviews, with the option to negotiate on your behalf for an additional $1,000 per review ($1,500 total).
Three of every four 30-year-olds will suffer one long-term disability before age 65. Physicians are especially at risk for disabling accidents because of their unique relationship with malpractice carriers, hospitals, patients, referring physicians and their employer. Yet a disabling injury could occur anytime, anywhere, both on the job and off.
What happens to your salary if you are disabled? What would become of your ownership arrangement with your employer? What income could you and your family expect to receive from your disability insurance contracts?
These questions lead you to understand how critical the definition of disability is. Must you be confined to a wheelchair in order to collect disability benefits? Must you remain hospitalized? For how long must you remain incapacitated before disability benefits are paid? What if your disability is partial, permitting you to perform SOME of your duties?
The physician’s largest source of disability income is likely to be his/her disability insurance. Therefore, it is important to fully understand the contractual terms of your disability insurance contracts. Unfortunately, even many insurance professionals don’t really comprehend the provisions of the policies they have sold. Terms like “own occupation protection”, the distinction between partial and residual coverage, the effect of indexing, and cost of living riders are routinely misunderstood. Not all disability insurance contracts are alike. Do you know what’s in yours? Do you know what to look for?
Clients of James D. Yurman & Associates, Inc. are entitled to receive a no-cost, no-obligation written analysis of their CURRENT disability insurance contracts. This service will give you the peace of mind of knowing more fully the kind of coverage you already have and to clarify if you have the OLD TYPE (benefits to age 65) or the NEW TYPE (lifetime benefits) of disability insurance contract.
Death may be sudden, but it is never timely, in our experience. The physician who is too busy or preoccupied to get his affairs in order, leaves his family a legacy of confusion and frustration upon his untimely death. Inflicting this needless grief on heirs who are dependent upon you for their livelihood can obscure the hard work and sacrifices you make during your lifetime to provide for the family’s well-being.
The problem for most physicians, however, is that life insurance seems to be so darn complicated. Term insurance or whole life? Guaranteed premiums vs. non-guaranteed premiums? Adjustable life or variable life?
The experts at James D. Yurman & Associates, Inc. can help develop a comprehensive needs assessment, and recommend cost-effective life insurance solutions. Everything from meeting daily household expenses to educating dependent children can be provided for through this two-step strategic process:
l. Determine How Much Insurance You Need.
2. Determine what type of insurance best fits your needs.
Contact James D Yurman & Associates, Inc. for further recommendations about how to solve your capital needs.
No one ever said that raising children would be inexpensive. College tuition, fees and other educational expenses have grown at such a rapid rate that they now constitute a family’s second largest major expense (exceeded only by the purchase of the family residence). There are at least two “golden rules” to keep in mind in preparing for this expense:
1. Start Early.
The more time money is invested, the bigger opportunity there is for interest earnings and appreciation. For example, if we assume a total investment return of 8%, one-fifth of a fund created over a five year period consists of investment earnings and the remaining 80% consists of your contributions; on the other hand, if funds are invested over a fifteen year period, almost one-half of the money consists of investment earnings.
2. Take Advantage of Available Tax Savings.
Trying to earn $100,000 or more for one child`s college education may seem daunting, but, consider that federal/state/local taxes may consume 40% of that amount, leaving you with only $60,000. Then as the funds are invested, income taxes take another big bite each year unless proper tax-planning is implemented. For information on how a Section 529 plan may provide very efficient tax-planning, please contact us.
Gathering the necessary funds for educating children is not so simple because there always seems to be other competing goals… paying off medical school loans, furnishing the new home, building a nest-egg for family living expenses or accumulating funds for retirement. That`s why it is not unusual for the most appropriate planning techniques to serve a dual purpose… let`s say creating capital for a family nest-egg AND accumulating assets for college expenses. Thus, while Section 529 plans have become more and more popular, keep in mind that Section 529 plans do have some drawbacks and thus, should not constitute 100% of your planning, in our opinion.
None of the college funding techniques are without its detractions. In order to efficiently accumulate funds for educational expenses, most of the techniques involve income tax planning. However, high-income earners like physicians usually are unable to take advantage of many special tax breaks because of the built-in exclusions. Other tax planning ideas such as state sponsored tuition credit programs will permit physician enrollment but unfortunately, contributions must be invested as the state determines. Gifting funds to children and then investing those assets in the child’s name has been a popular approach, but the danger remains that the child, after reaching maturity, may misuse the accumulation. In summary, the balance here is in finding the income shifting technique that is most appropriate for a physician’s particular family situation.
Providing adequate funds for retirement has become the primary investment objective of everyone, regardless of age. Yet ensuring this outcome requires time, research, and well-informed decisions. Physicians who face continuing study in their medical specialty, and increasing time constraints, find it helpful to entrust retirement planning to trained experts.
The primary source of retirement income is likely to be the funds accumulated in your Employer’s qualified retirement plan. These plans can be of various types: profit sharing, 40l(k), money purchase pension, target benefit, etc. Your Employer’s plan may or may not provide you with the most advantageous accumulation of funds. Due to the complex nature of their occupation and their hectic schedules, physicians are especially prone to neglect this aspect of their retirement planning. Those who start early in their careers are more likely to have sufficient funds to maintain their accustomed standard of living.
Individual Retirement Accounts (IRA) do not generally comprise a major portion of a physician’s retirement program because of the current income tax limitations on funding these accounts. Those with IRA Rollovers, however, may be interested in learning more about various options and should contact us directly with the details of their particular situation.
For many physicians, funds accumulated in an Employer’s qualified plan (even including IRA assets) will not be sufficient to maintain the desired level of retirement income to maintain their lifestyle. Additional assets need to be created and the sooner, the better.
Once you determine what additional money needs to be contributed each year, the next major task is to efficiently and prudently invest those resources. There is a right and a wrong way to develop an investment program. To obtain helpful ideas about creating an appropriate asset allocation model for you, please see the Retirement Income Survival Kit™ process video:
We at James D. Yurman & Associates, Inc. would be pleased to discuss your retirement income concerns. Contact us for an informal, no obligation discussion.
Estate Planning Analysis
You spend considerable time and effort in accumulating wealth. Over time, a successful physician will employ various strategies in aggregating a portfolio of significant financial assets. Yet, without an Estate Planning program, a lifetime of hard work as well as substantial funds, could be needlessly wasted.
The trained experts at James D. Yurman & Associates, Inc. can help you devise an Estate Planning program that:
- Minimizes probate costs, administrative expenses, estate taxes and final expenses. (Currently, Federal Estate tax rates effectively begin at 37%).
- Ensures the appropriate distribution of your assets (e.g. should assets be transferred to minor children without limits and conditions?)
- Creates sufficient liquidity to pay all settlement costs. For example, can the executor of your estate write a check for the thousands of dollars potentially owed to pay various estate expenses without touching your qualified retirement plan funds?
Determine the Estate
The first step in effectively planning your estate is to determine what you own, and how it is owned (individually by one spouse or jointly?). The R.I.S.K. Process™ Questionnaire can help you identify your assets and liabilities in order to determine your net worth.
Determine Appropriate Plan of Distribution
Your Last Will and Testament does not control the distribution of your assets at death. Contractual arrangements, such as joint and survivor bank or brokerage accounts, the beneficiary designations on your insurance policies and IRAs and qualified retirement plans could override disbursements of assets specified in your Last Will.
Additionally, at what age would you be comfortable with your children taking full control of your estate? In most states, the age at which children can legally inherit your estate is 18, which is the age of majority.
A thoughtful and well-conceived estate plan will ensure that your assets are distributed in accordance with your preferences, irrespective of a challenge.
With federal estate taxes currently beginning at an effective tax rate of 37% (2017), and moving higher from there, it is critical for high net worth families to employ tax minimization strategies.
Basic Estate Planning
Since physicians are likely to be high-income earners and accumulate a significant net worth, their estate planning should be more sophisticated than merely drafting a Last Will.
For a number of reasons, we at James D. Yurman & Associates, Inc. feel that a Family/Marital Revocable Trust should be the cornerstone of your Estate Planning program. First, it allows you to determine the appropriate age at which your children will take control of your estate. Secondly, it effectively takes advantage of the Unified Credit (i.e. federal estate tax exclusion).
Common Tax Avoidance Techniques
Another method of minimizing the effect of estate taxes is to establish an Irrevocable Insurance Trust. Since you cannot be taxed on assets not in your control, an Irrevocable Insurance Trust allows you to place an insurance policy into the trust, which is payable at your death to someone else (and therefore, beyond your control). The beneficiary receives the insurance proceeds tax-free! An alternative is to have your trusted children purchase insurance on your life directly, with them designated as beneficiaries. Another cost effective option to consider is the purchase of a joint and survivor life insurance policy within the trust.
The estate planning team at James D. Yurman & Associates, Inc. would be pleased to discuss your retirement income concerns. Contact us for an informal, no obligation discussion.