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Surgeon's Bulletin Board

Surgical Rounds®, July 2006, Volume 0, Issue 0

Protect your assets for future generations

By Stewart H. Welch III, CFP?, AEP

The concentration of wealth in America is moving towards an apex as parents of the 80 million baby boomers begin to pass away and leave their wealth to their children. Combine this concentration of wealth with the malpractice litigation crisis in this country and you have a great reason to consider advanced strategies for protecting the assets that you intend to pass along to your heirs.

Most parents will direct their entire estate to their adult children, but if children are minors, typically parents opt to hold estate assets in a trust until their children reach the age of majority, which is 21 years in most states. Yet this estate planning strategy will still subject the parents' assets to their children's future liability risks, such as court judgments and divorce settlements.

To address this situation, many people are now choosing to create a family legacy trust in their will instead of leaving assets to their children outright. During the child's lifetime, he or she will receive all of the trust income and have reasonable access to the principal of the trust as well. Not only can this type of trust last through the child's lifetime, but it can leave a lasting legacy to future generations of heirs.

The family legacy trust has a number of key advantages. First, the assets in the trust are not subject to the claims of creditors. If your child is sued, the plaintiff can be awarded your child's assets but not the assets of the trust. In addition, the trust assets cannot be included as part of your child's divisible assets should he or she divorce. By including special language in your trust document, your assets will not be subject to estate taxes upon your child's death (subject to limitations).

What is the downside to setting up a family legacy trust? First, most children prefer to inherit their parents fortune outright. It is only natural for them to want full control, and most people think that lawsuits and divorce are events that happen to others, not themselves. But since it is your assets at stake, you need to decide whether you should protect your lifetime of hard work from very real potential threats.

Second, a trust does require administration and tax filings, all of which cost money. I would suggest that this price is well worth the peace of mind that comes with knowing that your hard-earned wealth will be preserved to provide a foundation of financial security for future generations.

The family legacy trust is a complex document. Surgeons should seek the assistance of an attorney who specializes in estate law to create a trust. The American College of Trust and Estate Counsel (www.actec.org) is an excellent source to help you find an estate law attorney in your area.

Birmingham Post Herald.

Stewart H. Welch III, CFP?, AEP, is the founder of the Welch Group, LLC which specializes in providing fee-only wealth management services to affluent retirees and health care professionals throughout the United States. He welcomes questions or comments at (800) 709-7100. This article was reprinted with permission from the

529 savings plans respond to complaints

Wall Street Journal


Several states sponsoring 529 college savings plans have switched their investment offerings to low-cost alternatives in response to complaints of high fees. According to an article in the , a persistent problem has been that administrators of 529 plans manage large numbers of small accounts, requiring higher fees per account to cover fixed administrative costs, such as accounting and mailing fees. These college savings plans have become so popular since their inception in the 1990s that they contain an estimated $72 billion in assets today. Wyoming's plan, one of the smallest in the country, has only 1,379 accounts that hold a cumulative $16.8 million. Yet investors in Wyoming's 529 savings plan pay double or triple what investors pay in other states?2.4% of assets?for a limited choice of high-cost mutual funds. This percentage also includes 0.9% in state-imposed program fees. Vanguard, known for its low-cost index funds, has been making a push into the 529 market. Over the past several years, it has assumed management for 529 plans in Arkansas, Colorado, and New York and now manages $10 billion in 529 plans. Vanguard's lower fees have created ripples in the market. According to the article, Maryland renewed its contract with T. Rowe Price last fall only after negotiating lower fees. A dozen other states have also reduced costs for their 529 college savings plans.

Get ready for the invasion of Chinese automobiles

USA Today

Believe it or not, it's quite possible that one day in the near future you may be attaching your vanity license plate to a Chinese-made Geely instead of a Lexus. The Chinese automaker will begin rolling out a line of models in early 2008, and they're expected to be priced at thousands less than their American, European, and Japanese counterparts. For example, indicates that a Chinese-made automobile costing $20,000 will be similarly equipped to a regular mainstream car that costs around $35,000. Right now Geely is upgrading their line for North American consumers, replacing 3-liter V6 engines with 3.6 liters and four-speed transmissions with six speeds. John Harmer, COO of Geely USA, is in charge of helping Geely automobiles meet US emissions and safety standards and establishing dealerships around the country. Harmer proudly states that, "There will not be an automobile of equal quality available for this price anywhere in America in terms of superior quality, price advantage, and integrity of dealerships."

How to catch a phish in your inbox


Of all the forms of identity theft, phishing e-mails are the most common. Although these seemingly authentic e-mails appear to come from legitimate sources, they are a crook's sly attemptto lure bank account information, full names, Social Security or driver's license numbers, and passwords out of you. Armed with your personal information, a thief can easily steal your identity, at a cost of thousands of dollars. According to , the following are three ways to spot a phishing scam:

Emphasis on urgency

- ?With threats of unauthorized transactions, login attempts, and username/password changes, phishing frauds try to convince you to respond immediately, or else. Other ploys include threatening that an account will become deactivated if vital information is not updated promptly.

Phony Internet links

- ?You receive an authentic-looking e-mail, and when you click on the link, you are directed to a page that looks just like the legitimate site; however, before you type anything, make sure the URL is genuine. On occasion, a legitimate company name is part of the URL, but a different subdomain is embedded within the address. Oftentimes it ends with an international domain, such as www.changeinfo.paypal.nl. Other deceptive measures include linking Web users to spyware, which are programs that allow criminals to monitor your computer sessions and capture vital information or cause you to download a virus.

Suspicious content and language

- ?One of the best ways to spot a phishing attempt is to read the e-mail aloud. If the language sounds odd or awkward and the writing contains incorrect usage and spellings, it is likely that the e-mail is a fake. Phony letters also begin with a generic greeting such as "Dear Bank Customer," rather than addressing an individual.

Correlations between health and wealth



As a surgeon, you know the importance of good health, and as an investor, you know the value of wealth; oddly enough, those two could be related. According to , a RAND Corporation study showed that a cross section of 35- to 44-year-olds who said they were in excellent health in 1984 almost doubled their wealth over the next decade, whereas those with self-proclaimed poor health only experienced a 9% increase in wealth. In addition, those who saw their health decline lost money over the decade. The association between health and wealth makes sense when you consider that unhealthy people simply have to spend more on hospital visits and insurance costs. For example, people who are overweight spend 10% to 36% more per year on hospital stays and ambulances, while smokers pay 20% more. Your health may also influence your paycheck. points out that a robust man will earn on average 3% more than an unhealthy man, while a woman who's in shape will earn 6% more than her unfit counterpart.

How long should you keep your financial records?

You've always been advised to hold onto your tax documents, pay stubs, brokerage statements, and other financial records, but may not know exactly how long to keep them. According to Bankrate.com, it depends on the type of record.


- ?This includes returns, canceled checks, and records for deductions. The suggested length of time to keep these is 7 years. The IRS has up to 3 years to audit your tax return for good-faith errors and 6 years to challenge your return if it thinks you've under-reported your gross income by 25% or more. After the 7-year deadline transpires, those files are no longer relevant.

Bank records

- ?Pore through your checks yearly, and keep the ones related to your taxes, practice expenses, home improvements, and mortgage payments. Shred the ones that don't have any long-term impact.

Brokerage statements

-?Keep your purchase or sales slips until you sell the securities so you have proof of capital gains or losses during tax season.


-?After you get a canceled check back from a bill you've paid, you can go ahead and shred it. But you should keep the bill receipt for a major purchase (eg, jewelry, furniture, and cars) for the lifetime of the purchase so you can prove its value in the event of theft or damage.

Pay stubs

- ?Keep your stubs until you get your W-2 to check if the information matches. If it doesn't, call the IRS to order the W-2c corrected form.

Five questions to consider before retiring

Wall Street Journal

Are you ready to give up a steady paycheck? Although the idea of retiring sooner rather than later is tempting to many surgeons, there are several factors to consider. The asks prospective retirees to ponder the following five questions before making this important decision:

Do I need help?

- ?If you do not have the expertise, interest, or time, you should seek the advice of financial experts to help with managing retirement accounts beyond initial planning.

What are my retirement expenses?

- ?Deciding your annual needs determines how much you can safely withdraw from your accounts. Create a detailed list of the basics (eg, bills, health care, and food) and dreams (eg, trips and retirement business plans).

Is this the right time?

- ?Every extra year that you work adds to your retirement nest egg, whether it's an IRA, 401(k), Keogh plan, or even Social Security. The minimum age you can begin taking distributions penalty-free varies.

What will I do with my nest egg?

- ?Other than living expenses, surgeons need to ask themselves whether they would like to leave any money to family or charity or spend it entirely.

Which account should I tap first?

-- ?Retirees need a long-term strategy to determine which tax route is best for them. Focusing only on the short-term exposes your retirement accounts to bigger tax bites than necessary.

Fund's past performance no guarantee of future

Investor's Business Daily.

When choosing a mutual fund, investors often look at previous performance as a guideline; however, past results may not indicate future performance. A fund that does well in the short term may not do well over longer periods of time, according to This is because the road to great gains over the long term is bumpy?even for the top funds. For example, the top 30 US diversified stock mutual funds from December 1994 to December 2004 averaged returns of 17% to 26% during that time, but only 6 funds in 2004 returned more than 15%. The average return during 2004 among the 30 funds was 7.72%. What does this mean? Outperformance usually occurs in one or a few market segments but is not spread over the entire market. When the market begins to favor a different segment, a top fund will falter; thus, if you pick a mutual fund based on a great 12-month performance, chances are that it will not do as well the following year. What's an investor to do? Don't write off a fund that has performed well over time but may not have lived up to its reputation in the short term. Past performance cannot predict returns, but it can give a clue: Top performers tend to stay in the top half, but the bottom 10% tend to stay the same.

The cottage ownership guide

The Cottage Ownership Guide

While the housing market is cooling, waterfront properties are still as hot as the sand that surrounds them. If you are a hard-working surgeon who envisions owning a quaint seaside cottage, (Firefly Books Ltd; 2006) can lead you through the process. This book contains 13 comprehensive sections covering just about everything a surgeon should consider when buying a cottage.

The Cottage Ownership Gui



"Owning a cottage is?and should be?an affair of the heart," author Douglas Hunter writes. "But when we've fallen in love, sometimes we give clear thinking and logical planning a backseat." helps buyers ask the right questions as they begin the purchasing process. Although the advice in this guide is simple enough for a first-time buyer to understand, Hunter brings up questions and issues even a veteran cottage owner should consider. The covers any path you choose to take when incorporating vacation property into your personal assets?from finding and financing it, to selling or renting it, to handing the property down to the next generation. While the book is meant to be consulted as topics arise rather than read cover to cover, it is, nonetheless, a delight to read; it is conversational, practical, and written with a sense of humor.

Sit back and let your bills pay themselves

Wall Street Journal


In a perfect world you would never again have to worry about writing a check to pay a bill, whether for your own personal finances or for your practice. Automatic bill paying has been around for a while, but it is only now becoming possible to pay every bill without having to do anything at all, including visiting your banking Web site. According to the , there are a few ways to put your bills on autopilot. One is placing all of your bills on one credit card, then having an automatic payment made on the card each month. You can also give creditors your bank account information and allow them to withdraw the proper payment each month. While effortless to use, these autopilot methods do have drawbacks. Although you will no longer have to pay bills by check or through a banking Web site, you will have to check your bank and credit card statements frequently to make sure there aren't any errors. Thesuggests that you put as much as you can on your credit card each month to decrease the number of creditors with access to your bank account information.

Trust companies with responsible leaders Surgeons know better than just about any other profession about the need to own up to one's mistakes on the job. According to Business 2.0, honesty is also the best policy for CEOs if they want their company's stock to rise. Many corporate leaders are quick to point fingers and blame myriad sources for their company's problems in an effort to salvage its stock price; however, a 2004 study revealed that companies whose CEO's accepted responsibility for poor performance by citing controllable internal factors saw their stock price rise a year later. While some CEOs may see taking responsibility for a crisis as a threat to job security and consumer confidence in their company, Business 2.0 suggests that in reality it is seen as good leadership. Tossing blame to outside forces negatively affects the morale of company employees because they mistakenly believe that their work does not impact company performance. This only exacerbates the company's crisis. But if a CEO acknowledges the company's culpability, it is the first step toward fixing the problem. For example, in 2001, after only 5 months on the job, Xerox CEO Anne Mulcahy admitted that the Xerox business model was imperfect. She made clear to her employees the challenges they faced, which resulted in a significant turnaround for the company. How this affects your portfolio is simple: If the CEO of a company in which you own stock owns up to poor performance, consider sticking with that CEO and his or her responsible leadership.