If you are a dental practice owner, it is only natural to think about what will happen when you die. It sounds morbid, but planning for the future is unquestionably important.
If your dental practice relies on one person to function, then its survival may depend on how well the next person in line is prepared to take over. If your family relies on you as the primary income earner, then it’s equally as vital to think about their well-being as well.
In this blog post, we’ll discuss different ways that you or your business partner(s) can prepare themselves and the dental practice for the death of an owner.
What happens when the dental practice owner dies depends on whether you are the sole practice owner or work in a group practice.
If you are a partner in a group dental practice, then a partnership agreement or shareholder agreement (depending on the type of entity) is the surest way to facilitate a seamless transition.
A well-drafted partnership or shareholder agreement will outline the steps the parties need to take to address the death of one of the owners. The parties here include the estate of the deceased partner and the remaining partners. Instead of having the deceased dentist’s ownership share go to an outside party, these types of agreements will make sure the interest is purchased by the practice entity or the other owners.
In addition, a partnership or shareholder agreement should set up a formula for determining the value of the deceased owner’s interest, outline the timeframe by which the parties must complete the purchase, and address how the deceased owner’s family will get paid. The parties may also want to secure these purchase obligations with life insurance.
Sole owners do not have the benefit of a group dental practice to help with a seamless transition. If the owner of a solo dental practice dies, most states (like California) prohibit the practice from being owned by non-dentist family members. It is essential, therefore, that solo practice owners develop an emergency plan in case the owner-doctor dies unexpectedly.
If a sole owner of a dental practice dies, it is essential that the family sell the practice as soon as possible to cash out any hard-earned equity the deceased doctor has built into their practice. Unfortunately, the value of a dental practice drops precipitously once a sole owner dies because of the loss in production.
For this reason, solo practice owners should look to form a pact with trustworthy colleagues to cover patient care while their family readies the practice for a sale. In addition, the practice should have the contact information of a reputable practice broker and dental attorney ready to facilitate a sale.
Finally, owners should organize essential documents like financial statements and legal documents so their family members do not have the added stress of collecting such information while still grieving. All of this information should be organized and included in an emergency plan and such a plan should be included in a dentist’s estate plan and provided to the office manager.
Here are some things you can do right now to avoid the headache and financial stress that will undoubtedly arise after the death of a dental practice owner:
- Make sure to keep an up-to-date list of assets, both tangible and intangible. Update this list on a regular basis.
- Make sure the business has current copies of all legal documents and financial statements such as the lease and any lease amendments, corporate documents, partnership agreements, profit and loss statements, and tax returns. Update these regularly to ensure that they remain relevant over time.
- If you are part of a group practice, review the agreement with your partners and make sure the formula for determining the purchase price on death is clear, and look to secure the purchase with life insurance.
- Make an emergency plan with instructions for your front office staff. Include the names of doctors they can call to cover patient treatment. Review the plan with your spouse or family and instruct them to call your practice broker and attorney to help sell the practice. Make sure they know where all the critical documents are located to provide to these consultants.
- Be sure your will is up to date and reflects the most recent changes in marital status, assets held jointly or otherwise, business ownership arrangements, and so forth. Update it regularly as part of a good estate planning process.
- The next person in line should consult with a professional before taking any steps toward transitioning or selling the dental practice after the death of the owner. The wrong decisions could lead to mistakes and financial loss for everyone involved, including your staff members and patients who rely on you every day. If this happens, it will be very difficult to rebuild trust and credibility.
Thinking about your death or the death of one of your business partners can be troubling. However, there is much relief and peace of mind once you’ve gone through these tough conversations with your partner and attorney.
Don’t procrastinate! In some cases, a dental practice owner’s death will require the surviving spouse or partner to take over the full operation of the business quickly and with little warning. If you have been putting off getting your own estate planning done, now is the time! No one wants their heirs to go through unnecessary stress in an already difficult time period.
Even though the death of a dental practice owner has many serious implications, it doesn’t mean that you can put off planning for life’s emergencies until the last minute. Feel free to get in touch with us to protect yourself and your business. We’ll help you feel confident and worry-free in the unfortunate case of death.