So, You're Dead - What Happens Next???
Well, for yourself that may well be determined by your religious beliefs; however, this is not an article on the afterlife. Instead I want to focus on what happens to those left behind.
As is always the case the actual outcome will depend on our personal situation and responsibilities and what pre-planning was undertaken ahead of time. In an ideal world a deceased person would have an up to date will, business agreement (if a practice owner), succession plan and insurance. Our lives are dynamic and the picture constantly changing so all four aspects should be reviewed regularly to ensure they meet both obligations and intentions.
A will is created to determine your intentions of how and when your estate will be distributed on death. This will relate only to your assets (e.g. not assets in a trust). So as your assets grow and your family (usual recipients of assets) situation changes then so should your will.
Ownership structure of assets becomes important - if an asset is held in a company it is the shareholders of the company that ultimately benefit from that asset just as trust beneficiaries will benefit from assets owned by a trust. We often see situations where assets are being promised that aren't actually controlled by the individual making the offer.
As your family status changes - marriage, children, divorce, blended families (step children or adoption) - then making sure your intentions are current becomes important for obvious reasons. Dying without a will or "dying intestate" means your estate will ultimately be determined by the law. The Administration Act of 1969 lays out the order of priorities.
Have you a solution as to what are the arrangements for your dental practice, your on-going business commitments and patients?
For a practice owner there are two scenarios - you either practice independently or in a group practice with partners or associates.
If you are a sole practitioner then you are unlikely to need a business agreement. However, if you operate from shared premises a business agreement is a vital document that should be drawn up between all interested parties. This applies whether you operate through a single entity, partnership or individual companies but with a joint or servicing arrangement.
While such an agreement will cover off your daily obligations and responsibilities - expenses, guarantees, leases, shared staff, joint assets etc. - it should also cater for the disablement or death of one of the parties.
The agreement will set out the obligation of the surviving parties and usually establish a pathway (time frame and value) for takeover of ownership of the deceased's practice. This is important for both parties. The deceased's estate is protected by having the value of the practice preserved while the surviving parties gain full control and determination of practice management at pre-determined value in a timely manner.
In this instance the preservation of the business, position of staff and patients should transition seamlessly.
Without a business agreement it is possible that the deceased's estate is not in a position to maintain patient treatment and this could impact on the value of the practice. It could also devalue the surviving parties' practice if shared expenses are not met and guarantees not resolved. An obligation to buy ensures the surviving parties protect their value and also who they are in business with.
A succession plan or contingency planning simply identifies all people that need to be aware of your death and their role in ensuring an orderly progression of your affairs. This would include both extended family as well as your circle of advisors (lawyer, accountant, insurance advisor) and business partners. If you are a sole trader (even operating through a company structure) then death will have an instant and significant impact upon your business.
Control of the practice will be determined by who is the owner. If a company structure - who is the major shareholder? If in a trust - who are the trustees?
If there is a practice manager or senior staff member then including them in your planning is essential as many parties will need to be advised - from patients to industry associations and suppliers.
The future of the practice would fall in to one of three categories:
- Be retained and staffed with an Associate / Contractor
- Be sold and the timing of this will affect the value
- Closed down
All options require some degree of planning and should include your advisors, family and staff. Optimising the outcome will be more likely if some planning has been undertaken.
Insurance is simply a mechanism to provide money at the time of an unlikely event. It is not as essential as the other requirements outlined above as we all have a different tolerance to risk. However, the above does present a number of scenarios where money would provide a valuable support at the time of death. It is for this reason many choose to insure against these known risks.
Just as each person's lifestyle is dynamic so too is their risk and their level of insurance will rise and fall with changing obligations.
There is no exact pre-determined amount of cover for any individual at any given point in time hence the need to regularly review your covers. We have seen plenty of situations where people have too much cover and we have seen people who have discovered they are under insured once they have reviewed.
The important thing is to have reviewed and set your level of cover at your point of comfort or tolerance to risk. Of course, with any services we pay for we want to ensure we are managing the costs in the best way possible. Insurance is no different.