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Estate planning and management—a dentist’s viewpoint
E s ta te a
p la n n in g
d e n tis t’s
a n d
m a n a g e m e n t—
v ie w p o in t
A rt h u r W . E a s t o n , * D .D .S., N o r w a y , M a i n e
Being well aware that the ablest econo mists freely admit that nobody under stands finance, money and credit in all o f its theoretical ramifications, it appears presumptuous for me to attempt to pre sent even a few elementary thoughtprovoking suggestions on the subject. W hen a young dental student gradu ates and enters private practice, he im mediately faces a new environment and its challenges. T o attain a rewarding measure o f success, he must possess good health, professional competency, a rea sonable personality and the ability to apply practically the basic principles of public relations. H e must be recognized by his community as discharging the re sponsibilities of good citizenship. T h e existence o f a successful dental practice and a happy family life are, to a large degree, dependent on the appli cation o f sound principles o f business administration, a field in which few den tal graduates have had an opportunity to acquire much practical knowledge. ■T h e omission from a dental school cur riculum o f a major in finance is under standable ; however, experience in this field must be acquired in the interests of survival. There is no escape from the fact that money will be required to pay inter est on mortgages, to meet office and household maintenance and to pay in surance premiums. Savings must be ac cumulated to meet the cost o f possible emergencies, as well as to provide for
college educations for the children and to maintain the high standard of living that is the constitutional right and justifi able expectation of all American citizens. It is often wiser and more economical to rent a home and an office until some capital and knowledge o f real estate val ues have been acquired. Ownership of real estate, with taxes, insurance, mort gage interest and maintenance is a much greater burden than is usually recognized by the nonowner. T h e trust officer o f your bank usually w ill give you more valuable advice re garding a piece o f property than a real estate agent who is enthusiastically seek in g a commission. You r bank officer will do everything possible to suggest real estate that would have a proper environ ment, a good resale value and be priced within your ability to meet payments. He is interested in having you become suc cessful so that you w ill become a life-long customer and depositor. Finance logically involves money, se curities, real and personal property and debts. Whether the dentist’s debts be per sonal or governmental, their payment is an obligation and the object o f the den tist’ s concern. Unless a new graduate has acquired adequate finances through in heritance, gifts or through marriage, it is inevitable that, to meet his financial obligations, he must obtain the necessary incom e from private practice or from a salaried position.
EASTON . . . VOLUME 60, MARCH I960 • 93/355
Intelligent practice administration is o f m ajor importance in connection with the production o f vital net income. The Council on Dental Health o f the A m er ican Dental Association is presently en gaged in an intensive fact-finding study in this field. T h e findings of this research and study are available without cost. They represent one of the many valu able diversified services which the Asso ciation renders its members. INSURANCE PROGRAM
A man’s first obligation to his family is protection. A t the inception o f a dental practice, when current income is inade quate, the only way to provide such pro tection and to create an estate quickly is through insurance. Adequate insurance should be determined by age, standard of living and the number and ages of the dentist’ s dependent children. It is the best protection against the hazard o f a prema ture end o f a productive life. L ife insur ance may be incorporated as a part of mortgage and personal loan contracts so that they are paid in full at death. Health and accident insurance pays loan install ments during illness, costs very little, and is often the salvation o f a stricken family. Before purchasing insurance, the young dentist should evaluate himself and the type o f insurance required. Today Am er icans live in an era in which they are free to spend income or save it; where debts, now at an all-time high, are con tracted rather lightly and where there is an apparent willingness to exchange self reliance for dependence. Insurance pri marily is a protection as distinguished from a savings and investment program. Insurance counselors recognize that only a small fraction of American citizens exercise the self discipline necessary to make periodic voluntary income contribu tions in support o f a carefully planned investment program. Some people need a compulsory program as otherwise they would never save. For them, therefore,
endowment, annuity and similar con tracts have been made available. In -the event o f death, however, those types of programs provide much less family pro tection per dollar invested than does a straight life insurance contract. In re ality, a savings program has been in corporated as part of the annuity insur ance program. I f the young dentist possesses the nec essary discipline and knowledge for reg ular savings and periodic, wise investment o f a specific percentage o f his income, then he may properly purchase either ordinary life or term insurance contracts for the length o f time and in the amount necessary to obtain the desired protection. Such contracts provide nearly twice as much family protection per dollar of in surance premium paid as do those which incorporate the element o f savings. T h e American Dental Association has made available to its members a valuable service in the form of a low cost group life insurance program. In addition, the Association offers members a group ac cident and health insurance program also at low cost. Such a program aids materially in protecting the continuity of income o f recent graduates who often carry heavy debt burdens. Group insurance coverage o f various types is often available as a benefit of state society membership. Hospital insur ance, professional liability insurance, fire insurance, blanket home and office lia bility insurance, comprehensive personal liability insurance and automobile bodily injury, property damage and collision in surance are all vitally necessary. For a dentist to be without a large amount of liability insurance is not only negligent but dangerous in view of the astronomical monetary awards frequently handed down in court judgments. L ife insurance (other than term ) pos sesses the advantage o f “ guaranteed gain,” current liquid assets and the priv ilege o f borrowing nearly 100 per cent of the cash value while retaining the full
,94/356 • THE JOURNAL OF THE AMERICAN DENTAL ASSOCIATION
insurance benefit. It also has certain ad vantages over stocks in that it is usually exempt from executor’s and attorney’s fees, claims o f creditors, and in varying degree, inheritance taxes. It also permits a variety o f settlement options which provide stable income for widows and children. Dividends on stocks are taxable but those on life insurance are normally tax exempt. L ife insurance may provide for double indemnity in case o f accidental death and monthly payments fo r life or dura tion in case o f total disability. Term in surance is the lowest cost life protection. It has no cash value, and is intended to protect a family until sufficient assets have been accumulated or family respon sibilities reduced. Some types may be purchased with the privilege o f conver sion into other types o f life insurance. Some life insurance contracts are con vertible at a stated time into retirement income annuity contracts, the proceeds o f which are largely exempt from federal income taxes. In general ordinary straight life insur ance costs less and provides greater bene fits than other types although it may be necessary to supplement such benefits in order to obtain greater coverage and pro tection to meet individual requirements. INVESTMENT PROGRAM
A fter the accumulation of sufficient funds for business purposes, if additional money is available, it should be put to work for personal financial growth in a manner designed to keep the principal intact and the income dependable. Common stocks representing a well diversified cross section o f American in dustries with a future growth potential have a logical place in every well-rounded investment program, but the matter of timing purchases can be rewarding or disastrous; even the late J. P. Morgan limited himself to the statement that “ stocks will fluctuate.”
I f a young dentist intends to purchase common stocks over a long period of years, it would be profitable for him to subscribe to a reputable investment ad visory service and seriously commit him self to studying the many complex factors that influence and determine values and price movements. His best safeguard doubtless would be to invest at frequent regular intervals similar amounts of money, thus assuring himself o f owning stocks at low prices as well as high prices. I f a dentist desires to invest in gov ernment securities, the new 3% per cent interest rate on U . S. Savings Bonds ac tually yields 4.06 per cent on redemption value which is better than the current rate paid by banks on savings and affords maximum security. Treasury notes now available, which yield 5 per cent, are very attractive for investment and have the advantage o f immediate conversion into cash without loss o f a day’s interest, contrasting with savings accounts which yield less and where a withdrawal might cost a depositor the loss o f six months’ interest. ta x p r o v isio n s ; w il l s
Many dentists pay a larger income tax than is necessary by failing to take ad vantage o f provisions that have been in serted into tax laws for their benefit. An able certified public accountant can be invaluable in establishing for the dental graduate a simple but effective system of accounting, and it might be advantageous for him to prepare the young practi tioner’s first income tax return. N o dental graduate is too young and no estate too small to justify the absence o f a will. A t any age, continuance of life is not assured. T h e smaller the estate, the greater the need to conserve it, as every dollar is vital to the support and protection o f the surviving family. Changes in tax laws and values often outdate wills. A will, if not reviewed and changed with reasonable frequency, may
EASTON . . . VOLUME 60. MARCH I960 • 95/357
be very costly to administer because of the necessity o f obtaining legal interpre tations in resolving claims o f beneficiaries. An attorney o f known competence should be employed to draft the instrument. Wills, valuable papers, and securities should be kept in a safe deposit box in a bank. It is not necessary to die to have an estate— it only requires intelligent plan ning to create one. Livin g trusts, revoc able and irrevocable, are widely used to defer and avoid taxes and probate ex penses, thereby providing more assets and assuring greater income. Trusts entered into with banks are held in sacred con fidence and public inspection is not pos sible. Trusts may contain many provisions governing the invasion o f the principal, distribution o f income, and the appoint ment of guardians for children in case of loss o f parents. Another feature, very important to a professional man, is that trusts and trust income share with life insurance the usual advantage o f not being subject to attachment, garnishment, or assignment. For investment purposes alone, banks accept custodian accounts with or with out investment advice or supervision. Th e securities contained in bank trusts and custodian accounts with bank invest ment supervision are subjected to con tinuous study, supervision and change by a large number o f people who have spent
their lives in attaining competence in this highly specialized profession. Th e cost of these services is very small. Often, if consideration is given to the expectancy of a higher investment return and smaller depreciation, the service actually costs nothing. Furthermore it supplies the client annually with a complete record of investment transactions and income received, simplifying the, preparation of income tax returns and creating for him many free hours that would have been devoted to keeping detailed records. Dentists universally agree that only those individuals who possess dental de grees should be considered competent to practice dentistry. As dentists, are we competent to buy and sell stocks and bonds? I f we are, have we the tempera ment to accept losses such as the recent substantial point drop in the Dow Jones stock average? I f a dentist devotes suffi cient time to attain competence in the field o f finance, what will it cost him in loss o f income from his practice? Some o f the wealthiest and happiest men I have ever known have been those intelli gent people who entrusted their insurance problems to insurance counselors, their accounting to certified public account ants, their legal affairs to lawyers, and the investment o f their funds to the officers o f trust institutions. 12 P earl S treet •Trustee, First District, Am erican Dental A ssociation.
On the Way to Wealth • I experience, loo, the truth of the observation, ‘ that after getting
the first hundred pounds, it is more easy to get the second” money itself being of a prolific nature. Benjamin Franklin, Autobiography.
p la n n in g
d e n tis t’s
a n d
m a n a g e m e n t—
v ie w p o in t
A rt h u r W . E a s t o n , * D .D .S., N o r w a y , M a i n e
Being well aware that the ablest econo mists freely admit that nobody under stands finance, money and credit in all o f its theoretical ramifications, it appears presumptuous for me to attempt to pre sent even a few elementary thoughtprovoking suggestions on the subject. W hen a young dental student gradu ates and enters private practice, he im mediately faces a new environment and its challenges. T o attain a rewarding measure o f success, he must possess good health, professional competency, a rea sonable personality and the ability to apply practically the basic principles of public relations. H e must be recognized by his community as discharging the re sponsibilities of good citizenship. T h e existence o f a successful dental practice and a happy family life are, to a large degree, dependent on the appli cation o f sound principles o f business administration, a field in which few den tal graduates have had an opportunity to acquire much practical knowledge. ■T h e omission from a dental school cur riculum o f a major in finance is under standable ; however, experience in this field must be acquired in the interests of survival. There is no escape from the fact that money will be required to pay inter est on mortgages, to meet office and household maintenance and to pay in surance premiums. Savings must be ac cumulated to meet the cost o f possible emergencies, as well as to provide for
college educations for the children and to maintain the high standard of living that is the constitutional right and justifi able expectation of all American citizens. It is often wiser and more economical to rent a home and an office until some capital and knowledge o f real estate val ues have been acquired. Ownership of real estate, with taxes, insurance, mort gage interest and maintenance is a much greater burden than is usually recognized by the nonowner. T h e trust officer o f your bank usually w ill give you more valuable advice re garding a piece o f property than a real estate agent who is enthusiastically seek in g a commission. You r bank officer will do everything possible to suggest real estate that would have a proper environ ment, a good resale value and be priced within your ability to meet payments. He is interested in having you become suc cessful so that you w ill become a life-long customer and depositor. Finance logically involves money, se curities, real and personal property and debts. Whether the dentist’s debts be per sonal or governmental, their payment is an obligation and the object o f the den tist’ s concern. Unless a new graduate has acquired adequate finances through in heritance, gifts or through marriage, it is inevitable that, to meet his financial obligations, he must obtain the necessary incom e from private practice or from a salaried position.
EASTON . . . VOLUME 60, MARCH I960 • 93/355
Intelligent practice administration is o f m ajor importance in connection with the production o f vital net income. The Council on Dental Health o f the A m er ican Dental Association is presently en gaged in an intensive fact-finding study in this field. T h e findings of this research and study are available without cost. They represent one of the many valu able diversified services which the Asso ciation renders its members. INSURANCE PROGRAM
A man’s first obligation to his family is protection. A t the inception o f a dental practice, when current income is inade quate, the only way to provide such pro tection and to create an estate quickly is through insurance. Adequate insurance should be determined by age, standard of living and the number and ages of the dentist’ s dependent children. It is the best protection against the hazard o f a prema ture end o f a productive life. L ife insur ance may be incorporated as a part of mortgage and personal loan contracts so that they are paid in full at death. Health and accident insurance pays loan install ments during illness, costs very little, and is often the salvation o f a stricken family. Before purchasing insurance, the young dentist should evaluate himself and the type o f insurance required. Today Am er icans live in an era in which they are free to spend income or save it; where debts, now at an all-time high, are con tracted rather lightly and where there is an apparent willingness to exchange self reliance for dependence. Insurance pri marily is a protection as distinguished from a savings and investment program. Insurance counselors recognize that only a small fraction of American citizens exercise the self discipline necessary to make periodic voluntary income contribu tions in support o f a carefully planned investment program. Some people need a compulsory program as otherwise they would never save. For them, therefore,
endowment, annuity and similar con tracts have been made available. In -the event o f death, however, those types of programs provide much less family pro tection per dollar invested than does a straight life insurance contract. In re ality, a savings program has been in corporated as part of the annuity insur ance program. I f the young dentist possesses the nec essary discipline and knowledge for reg ular savings and periodic, wise investment o f a specific percentage o f his income, then he may properly purchase either ordinary life or term insurance contracts for the length o f time and in the amount necessary to obtain the desired protection. Such contracts provide nearly twice as much family protection per dollar of in surance premium paid as do those which incorporate the element o f savings. T h e American Dental Association has made available to its members a valuable service in the form of a low cost group life insurance program. In addition, the Association offers members a group ac cident and health insurance program also at low cost. Such a program aids materially in protecting the continuity of income o f recent graduates who often carry heavy debt burdens. Group insurance coverage o f various types is often available as a benefit of state society membership. Hospital insur ance, professional liability insurance, fire insurance, blanket home and office lia bility insurance, comprehensive personal liability insurance and automobile bodily injury, property damage and collision in surance are all vitally necessary. For a dentist to be without a large amount of liability insurance is not only negligent but dangerous in view of the astronomical monetary awards frequently handed down in court judgments. L ife insurance (other than term ) pos sesses the advantage o f “ guaranteed gain,” current liquid assets and the priv ilege o f borrowing nearly 100 per cent of the cash value while retaining the full
,94/356 • THE JOURNAL OF THE AMERICAN DENTAL ASSOCIATION
insurance benefit. It also has certain ad vantages over stocks in that it is usually exempt from executor’s and attorney’s fees, claims o f creditors, and in varying degree, inheritance taxes. It also permits a variety o f settlement options which provide stable income for widows and children. Dividends on stocks are taxable but those on life insurance are normally tax exempt. L ife insurance may provide for double indemnity in case o f accidental death and monthly payments fo r life or dura tion in case o f total disability. Term in surance is the lowest cost life protection. It has no cash value, and is intended to protect a family until sufficient assets have been accumulated or family respon sibilities reduced. Some types may be purchased with the privilege o f conver sion into other types o f life insurance. Some life insurance contracts are con vertible at a stated time into retirement income annuity contracts, the proceeds o f which are largely exempt from federal income taxes. In general ordinary straight life insur ance costs less and provides greater bene fits than other types although it may be necessary to supplement such benefits in order to obtain greater coverage and pro tection to meet individual requirements. INVESTMENT PROGRAM
A fter the accumulation of sufficient funds for business purposes, if additional money is available, it should be put to work for personal financial growth in a manner designed to keep the principal intact and the income dependable. Common stocks representing a well diversified cross section o f American in dustries with a future growth potential have a logical place in every well-rounded investment program, but the matter of timing purchases can be rewarding or disastrous; even the late J. P. Morgan limited himself to the statement that “ stocks will fluctuate.”
I f a young dentist intends to purchase common stocks over a long period of years, it would be profitable for him to subscribe to a reputable investment ad visory service and seriously commit him self to studying the many complex factors that influence and determine values and price movements. His best safeguard doubtless would be to invest at frequent regular intervals similar amounts of money, thus assuring himself o f owning stocks at low prices as well as high prices. I f a dentist desires to invest in gov ernment securities, the new 3% per cent interest rate on U . S. Savings Bonds ac tually yields 4.06 per cent on redemption value which is better than the current rate paid by banks on savings and affords maximum security. Treasury notes now available, which yield 5 per cent, are very attractive for investment and have the advantage o f immediate conversion into cash without loss o f a day’s interest, contrasting with savings accounts which yield less and where a withdrawal might cost a depositor the loss o f six months’ interest. ta x p r o v isio n s ; w il l s
Many dentists pay a larger income tax than is necessary by failing to take ad vantage o f provisions that have been in serted into tax laws for their benefit. An able certified public accountant can be invaluable in establishing for the dental graduate a simple but effective system of accounting, and it might be advantageous for him to prepare the young practi tioner’s first income tax return. N o dental graduate is too young and no estate too small to justify the absence o f a will. A t any age, continuance of life is not assured. T h e smaller the estate, the greater the need to conserve it, as every dollar is vital to the support and protection o f the surviving family. Changes in tax laws and values often outdate wills. A will, if not reviewed and changed with reasonable frequency, may
EASTON . . . VOLUME 60. MARCH I960 • 95/357
be very costly to administer because of the necessity o f obtaining legal interpre tations in resolving claims o f beneficiaries. An attorney o f known competence should be employed to draft the instrument. Wills, valuable papers, and securities should be kept in a safe deposit box in a bank. It is not necessary to die to have an estate— it only requires intelligent plan ning to create one. Livin g trusts, revoc able and irrevocable, are widely used to defer and avoid taxes and probate ex penses, thereby providing more assets and assuring greater income. Trusts entered into with banks are held in sacred con fidence and public inspection is not pos sible. Trusts may contain many provisions governing the invasion o f the principal, distribution o f income, and the appoint ment of guardians for children in case of loss o f parents. Another feature, very important to a professional man, is that trusts and trust income share with life insurance the usual advantage o f not being subject to attachment, garnishment, or assignment. For investment purposes alone, banks accept custodian accounts with or with out investment advice or supervision. Th e securities contained in bank trusts and custodian accounts with bank invest ment supervision are subjected to con tinuous study, supervision and change by a large number o f people who have spent
their lives in attaining competence in this highly specialized profession. Th e cost of these services is very small. Often, if consideration is given to the expectancy of a higher investment return and smaller depreciation, the service actually costs nothing. Furthermore it supplies the client annually with a complete record of investment transactions and income received, simplifying the, preparation of income tax returns and creating for him many free hours that would have been devoted to keeping detailed records. Dentists universally agree that only those individuals who possess dental de grees should be considered competent to practice dentistry. As dentists, are we competent to buy and sell stocks and bonds? I f we are, have we the tempera ment to accept losses such as the recent substantial point drop in the Dow Jones stock average? I f a dentist devotes suffi cient time to attain competence in the field o f finance, what will it cost him in loss o f income from his practice? Some o f the wealthiest and happiest men I have ever known have been those intelli gent people who entrusted their insurance problems to insurance counselors, their accounting to certified public account ants, their legal affairs to lawyers, and the investment o f their funds to the officers o f trust institutions. 12 P earl S treet •Trustee, First District, Am erican Dental A ssociation.
On the Way to Wealth • I experience, loo, the truth of the observation, ‘ that after getting
the first hundred pounds, it is more easy to get the second” money itself being of a prolific nature. Benjamin Franklin, Autobiography.