Physician Estate Planning: Protecting What You Build

Physicians spend their 30s digging out of debt and building income. By their 40s, a typical attending has $600K–$1M in retirement accounts, a mortgage, term life insurance, growing brokerage assets, possibly practice equity — and no coordinated plan for where any of it goes at death or incapacity.

That gap matters more for physicians than for most high earners, for three reasons. First, physicians face above-average malpractice and litigation exposure throughout their careers, which creates urgency around creditor-protected structures. Second, retirement accounts — which are often the largest single asset — pass entirely outside a will via beneficiary designation, and the rules governing inherited accounts changed significantly under SECURE 2.0 and the IRS's T.D. 10001 regulations. Third, physicians who own a practice have a business interest that needs explicit succession planning or it can leave a mess for their heirs and partners alike.

This guide covers the practical pieces: the core documents, where beneficiary designations go wrong, the current estate tax landscape, life insurance as an estate planning tool, gifting strategies, and how a financial advisor and estate attorney coordinate on physician-specific needs.

1. The five documents every physician needs

These aren't optional after residency. If you don't have all five, you have a gap somewhere.

Last will and testament

A will directs how probate assets — real property, bank accounts without payable-on-death designations, brokerage accounts in your name alone — are distributed. Without one, those assets pass under your state's intestacy statute, which may or may not match your intent. More importantly: a will names a guardian for minor children. If you have kids and no will, a court appoints a guardian without your input.

Revocable living trust

A revocable trust holds titled assets during your life and distributes them according to its terms at death — entirely outside probate. Benefits: privacy (wills become public record; trusts don't), faster distribution (no court process), and continuity of management if you become incapacitated. For physicians in high-asset states or practice owners who want clean succession, a revocable trust is typically worth the upfront legal cost ($1,500–$3,000). For physicians with straightforward situations in states with a simplified probate process, a simple will plus beneficiary designations may suffice. An attorney can advise which applies to your state.

Durable power of attorney (financial)

Authorizes someone you trust to manage your financial affairs if you're incapacitated. Without it, a court-supervised conservatorship may be required — expensive, slow, and public. As a physician, you've seen this play out; don't leave it to your family to navigate.

Healthcare directive and healthcare proxy

An advance directive (living will) documents your medical preferences; a healthcare proxy names someone to make decisions you can't make. Physicians uniquely understand why these documents matter — and are often more likely to neglect them because medicine already occupies that mental space. Get these done.

HIPAA authorization

Federal HIPAA rules prevent your medical providers from sharing your health information even with your spouse or family members without explicit written authorization. For physicians, there's an additional layer: your colleagues who may be involved in your care are prohibited from discussing your condition with your family without this authorization. Name the people who should be able to receive your information and keep the form current.

2. Beneficiary designations: the most impactful and most overlooked step

Retirement accounts — your 401(k), 403(b), IRA, Roth IRA, 457(b) — do not pass through your will. They transfer directly to the named beneficiary on file with the custodian, regardless of what your will says. For most physicians, these accounts are their largest single asset category. Getting the beneficiary designation wrong is a serious mistake.

The most common mistake: naming your estate as beneficiary

If your IRA or 401(k) lists "my estate" as beneficiary, or if you simply never filed a designation (which defaults to your estate in most plans), your heirs lose access to the 10-year stretch. The account must be distributed and taxed on a compressed accelerated schedule, potentially forcing your beneficiaries into high tax brackets during the distribution period. Named individuals or a qualified trust preserve flexibility.

Post-SECURE 2.0 inherited IRA rules (important)

Most non-spouse beneficiaries now face the 10-year rule: they must fully withdraw the inherited account by the end of the tenth year after the year of the owner's death.¹ This is a significant change from the prior "stretch IRA" that allowed distributions over a beneficiary's lifetime.

Eligible Designated Beneficiaries (EDBs) are an exception to the 10-year rule: a surviving spouse, minor child of the account owner (until majority), disabled individual, chronically ill individual, or a person not more than 10 years younger than the owner can use the old stretch rules. For most physicians, the practical upshot is: name your spouse as primary beneficiary, and think carefully about whether to name children or a trust as contingent.

Per stirpes vs. per capita — a critical detail

Per stirpes means "by the branch" — if a named beneficiary predeceases you, their share passes to their descendants. Per capita means it's split among surviving beneficiaries only, disinheriting the predeceased beneficiary's children. Most people intend per stirpes. Most people never specify it. Check your beneficiary designations at every custodian and select per stirpes explicitly where the option exists.

Trust as beneficiary: when it makes sense

Naming a trust as IRA beneficiary is complex — the trust must meet specific IRS requirements ("see-through trust" rules) to qualify for EDB or 10-year treatment. Done correctly, it can be useful for protecting an inheritance from a beneficiary's creditors, managing distributions to a minor or spendthrift heir, or coordinating with a special needs trust. Done incorrectly, it can compress the distribution period to 5 years or the owner's remaining life expectancy. This requires an attorney who specifically understands qualified retirement account beneficiary rules.

3. The 2026 estate tax landscape

The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, permanently raised the federal estate, gift, and GST (generation-skipping transfer) tax exemption to $15 million per person — $30 million per married couple with portability.³ Starting in 2027, the $15M amount is indexed for inflation using 2025 as the base year. The prior sunset scheduled for the end of 2025 under TCJA was eliminated.

For most physicians, this means no federal estate tax liability in the near term. A physician and spouse accumulating $8–$10 million over a career are well below the combined $30M threshold. However, there are two areas where estate planning still matters even under the current exemption:

State estate taxes

Fourteen states and D.C. impose their own estate taxes with substantially lower exemptions than federal law. Selected examples as of 2026:

Portability election

Portability allows a surviving spouse to use the deceased spouse's unused federal estate tax exemption (DSUE). To preserve portability, the deceased spouse's estate must file Form 706 within 9 months of death — or up to 5 years via a simplified procedure under Rev. Proc. 2022-32. For married physicians building significant wealth, this is often worth doing regardless of whether an estate tax return is otherwise required. The downside of missing it can be millions of dollars of lost exemption for the surviving spouse.

4. Life insurance in estate planning

Most physicians carry term life insurance for income replacement: enough coverage to pay off the mortgage, fund the kids' education, and replace 10–15 years of income if they die during their peak earning years. This is the right baseline. (See the whole life insurance guide for a detailed look at whether permanent insurance makes sense beyond that.)

In estate planning, the key issue with life insurance is that the death benefit is included in your taxable estate if you own the policy. For a physician with a $5 million term policy, that adds $5 million to the estate calculation for state estate tax purposes — potentially crossing a state threshold even if the rest of the estate doesn't.

Irrevocable Life Insurance Trust (ILIT)

An ILIT is an irrevocable trust that owns the life insurance policy. Because the trust — not you — owns the policy, the death benefit is excluded from your taxable estate. The trust names beneficiaries who receive the proceeds free of estate tax. Key constraints: the trust is irrevocable, premium payments are gifts to the trust (typically structured to use the $19,000 annual exclusion), and you must not retain any incidents of ownership over the policy.

ILITs are most relevant for physicians in states with low estate tax thresholds ($2–$4M) or those carrying significant life insurance beyond the federal $15M exemption. For most physicians, the primary value is state estate tax reduction, not federal.

5. Gifting strategies

For physicians who want to transfer wealth to children or grandchildren during their lifetime — for education funding, early inheritance, or estate reduction — these are the core tools.

Annual gift exclusion: $19,000 per recipient (2026)

In 2026, you can give any individual up to $19,000 without it counting against your lifetime exemption or requiring a gift tax return.⁴ A married couple can combine exclusions for $38,000 per recipient per year. For a physician with three kids, that's $114,000 per year in tax-free transfers — meaningful wealth transfer over time with zero paperwork if structured correctly.

529 plan superfunding

You can front-load five years of annual exclusion gifts into a 529 plan in a single year. In 2026: $95,000 per child per parent ($190,000 per couple per child), with an election on Form 709 to spread it over five years. No additional gifts to that child from the same donor during the 5-year period without using lifetime exemption. A physician couple with two children could move $380,000 into 529 accounts in one transaction, out of the estate, growing tax-free for education.

SECURE 2.0 (§ 126) added a 529-to-Roth rollover option: up to $35,000 lifetime per beneficiary can be rolled from a 529 into a Roth IRA if the account has been open at least 15 years. Annual rollover amounts are capped at the Roth IRA contribution limit for the year. This reduces the "what if they don't need it for education" risk of overfunding a 529.

Direct tuition and medical payments

Payments made directly to an educational institution for tuition (not room and board) or directly to a medical provider for medical care are excluded from gift tax entirely — no dollar limit, and they don't count against your annual exclusion. For grandparents funding college directly, or physicians helping family members with medical costs, this is a useful planning tool.

6. Practice succession planning

Physicians who own a practice — solo, group, or partnership — have a business interest that needs specific succession handling. Unlike stock in a public company, a medical practice doesn't automatically have a market or a buyer at death.

• Buy-sell agreement: A funded buy-sell ensures surviving partners can purchase your interest at a predetermined price, using life insurance proceeds. Without it, your heirs inherit an illiquid, professionally-restricted asset that is difficult to value and nearly impossible to sell without physician involvement.
• Practice goodwill: In most states, "personal goodwill" — the value tied to you as a physician — is not transferable to heirs and may not be compensable at death. Only enterprise goodwill (the practice systems, staff, patient base) survives in most sale scenarios.
• Life insurance funding: The most common buy-sell structure uses cross-purchase or entity-redemption life insurance to fund the buyout. The choice between them has estate and tax implications that require coordination between your attorney, financial advisor, and CPA.

7. Common mistakes physicians make in estate planning

Financial advisor vs. estate attorney: who does what

Estate planning requires both. The lines are clear:

• An estate planning attorney drafts the documents (trust, will, POA, healthcare directive), advises on state-specific rules and creditor exemptions, and handles any probate or administration. Legal advice requires a licensed attorney; your financial advisor cannot draft documents or give legal opinions.
• A fee-only financial advisor models the financial tradeoffs — how different beneficiary structures affect the inherited IRA tax exposure, whether an ILIT makes sense given your life insurance and state estate tax profile, what a 529 superfunding strategy looks like alongside your other gifting and retirement goals, and how estate planning interacts with your asset protection structure and tax strategy.

The coordination between them is where physician estate planning often breaks down. Each professional may assume the other is handling an issue — the financial implications of beneficiary designations, for example, sit at the intersection and can fall through the cracks without explicit communication. A good financial advisor initiates that coordination rather than waiting for the attorney to ask.