By Brandon Rains, J.D.
From the Fall 2020 Journal of the Colorado Dental Association
COVID-19 has highlighted, at a societal and individual level, how fragile life can be. The purpose of this article is meant to address what you can do, as a practice owner or an associate dentist, to protect yourself personally and professionally if something were to happen to you unexpectedly.
Nobody likes thinking of the future in this manner but leaving these difficult decisions on your “to do” list could have consequences.
There are two main types of medical crises that you can prepare for by executing legal documents beforehand: mental incapacity and death.
Mental Incapacity
There are a few documents that you can implement now to protect yourself and your practice if you ever became mentally unable to practice dentistry. If something were to happen to you without any legal documents, your practice may be without a dentist capable of seeing patients, providing dental care, and managing your practice. This could cause patient attrition and a corresponding loss of practice value.
A General Durable Power of Attorney allows you to name a person who can make financial decisions for you. You can use one Power of Attorney to name someone to take care of your personal financial situation and create a second Power of Attorney to name someone to seamlessly step in and manage the day-to-day and financial affairs of your practice. This business Power of Attorney will protect your patients, your employees, and your practice for as long as possible until you either regain mental capacity or a more permanent solution can be found for the practice.
Speaking of permanent solutions, a Buy/Sell Agreement would be such a solution. A Buy/Sell Agreement’s purpose is to provide a transfer of ownership of a business in return for compensation to your family. In the event of your mental incapacity, a Buy/Sell Agreement can identify who would take over ownership of your practice, and the use of a financial vehicle such as a disability insurance policy would provide the financial means to purchase the practice. Eventually, the dentist who you have selected would become the new owner and your family would receive the proceeds of the disability insurance policy, thus “buying out” the practice.
A Buy/Sell Agreement with disability insurance can also be used to transfer ownership if you were ever physically unable to practice dentistry.
This process is almost immediate. The dentist who you have entered into the Buy/Sell Agreement with can immediately assume ownership, and the disability insurance proceeds begin processing rather quickly. Often with mental incapacity, it is best to have the Buy/Sell Agreement come into effect only several months after you become incapacitated. This will allow sufficient time to determine if you will be able to recover from your incapacity. A General Power of Attorney allows your practice to run smoothly for those intervening months, and only if you are still incapacitated after that period of time does the Buy/Sell Agreement come into effect.
Death
A Buy/Sell Agreement can also be used in the event of your death. The agreement functions essentially the same, but this time, the financial vehicle used to compensate your family would be life insurance. The policy is often processed within a week or two, and the other dentist who signed the Buy/Sell Agreement would use those proceeds to pay your family.
If you are not concerned about compensation for the business, or you want a back-up method to transfer ownership, a will or trust are viable options. The major differences between wills and trusts are beyond the scope of this article, but just know that they both can specifically address your practice and state who you want to either oversee the sale of the business or take over the business. The one difference worth mentioning right now between wills and trusts is that trusts are wholly private from public view and knowledge, while wills are mostly, but not completely, private.
Conclusion
This is an unprecedented time, with unforeseeable challenges. As you confront an ever-evolving world and business environment, these challenges highlight areas in which you might improve your practice, sharpen your focus, or even expand your vision. Having sufficient legal documents to protect you personally and professionally is a piece to the puzzle for the success and stability of your practice. These documents that can help protect your practice include a General Durable Power of Attorney, Buy/Sell Agreement, and a will or a trust. What documents you use, and how you use them, is a reflection of what you believe is the best fit for you and your practice. A knowledge of what your options are is the first step to offering stability to your practice and moving forward to continued success.
Brandon Rains, J.D., is an estate planning attorney in Colorado. You can contact him at The Rains Law Firm, LLC, at brandon@rains-law.com or 720-528-4227.