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Estate Planning For The Medical Professional

Estate planning for the medical professional is a little different than for most people and vitally important if the professional wants to make sure his or her family receives the most benefit from the practice they have built. If one is in a joint practice, it is likely that they have agreements with the other medical professionals as to what will happen if one of them passes away or if they do not, then the advice in this article applies to them too. If the medical professional is in a solo practice, it is imperative that they have planning in place in regard to the transition of his or her practice. A medical professional should have a well crafted, comprehensive estate plan that provides for his or her family and designates someone to manage the medical professional’s practice if he or she becomes disables or dies.

Medical Practice Requires a Medical Professional

California law does not ordinarily allow non-medical professionals to operate medical practices or to own shares in medical corporations. The Medical Board of California will allow a medical professional’s successor in interest (heir) to continue to run the practice by employing a contract medical professional for up to six months pending transfer of the practice. Ideally, the medical professional will as part of their estate plan make provisions for another medical professional to step in and operate their practice if they die before retirement. A contract laying out the terms of the interim operation of the practice by the contract medical professional should be in place. If the medical professional dies, the most important thing an heir can do to retain the value of the practice is to keep a practice operating pending sale. Employment agencies for medical professionals can be found in medical journals and on the Internet.

Sale of a Medical Practice
If a medical professional becomes ill or dies, he or she should have a plan in place for the practice to be bought by another professional, if possible. A medical professional may want to have a buy-sell agreement with another medical professional whereby each agrees to either buy the other’s practice in the event of one of them dying. Although these agreements are usually seen in practices where medical professionals practice with other medical professionals, there is no reason this arrangement cannot be reached between two practicing medical professionals each with their own practice. An attorney who is familiar with business succession planning should be used to draft the agreement. Additionally, obtaining of life insurance may be part of the agreement in order to provide funding for a purchase. This type of an arrangement can be crucial for the medical professional’s family’s security.

A buy-sell agreement should address the following issues:

The amount of compensation to be paid to the physician for the sale of the practice and the manner of payment. An itemization of the equipment sold. If an office is owned by the selling physician, whether it will be part of the buy-sell agreement, rented by the buyer, or sold or rented to a third party. If mutual life insurance policies will be used to cover the sale, the value of the life insurance policy to be obtained by both parties. If the buyer finances part or all of the purchase, any security to be given to the seller or his or her family. How the seller’s outstanding accounts receivable will be handled, including designation of billing and collection duties. In order to maintain the functioning of the office and give patients a sense of security, the physician’s staff should be retained.

Valuations of Medical Practices

A medical practice is a personal service business and it is often difficult to value. In contemplation of a buy-sell agreement a valuation of the practice must be done. The medical professional should obtain the service of an appraiser who works in the medical appraisal area for advice on how to maximize its value and to obtain an initial appraisal for the purposes of the buy-sell agreement. (The agreement can have provisions for revaluation at the death of one the parties to the agreement, but the appraisal is necessary before the buy-sell is entered into to see whether the funding of the sale will require the purchasing of reciprocal life insurance policies.) One can find appraisers who specialize in valuing medical practices in advertisements in local medical journals.


When a physician stops practicing, they or their successor in interest must notify the medical professional’s patients, third party payors, Medicare, Medi-Cal if they provides services through Medi-Cal, HMO’s/PPO’s if they provided services through one or more, the Medical Board of California, the U.S. Drug Enforcement Administration, hospitals where the medical professional was on staff, and to the medical professional’s professional liability insurance company.

Additionally, every health care provider in the U.S. is issued a “National Provider Identifier” (NPI) and must use this NPI in administrative and financial transactions under the Health Insurance Portability and accountability Act. The medical professional’s NPI should be deactivated as soon as the medical professional has completed billing transactions with health plans.

There are many steps to a successful transfer of a medical practice which will ensure that the medical professional’s family will receive the most value from the practice. The services of an estate planning attorney that is experienced and knowledgeable in business succession planning will provide the best route to a successful transition. The Law Office Of Jane K. Penhaligen can provide these services in California.