5 precautions for dentists to avoid investment fraud

May 22, 2014

When a dentist has worked hard and invested well over the course of a lifetime, it is no surprise for a sizable nest egg to be the fruits of this labor. However, financial abuses can all too easily put large cracks in the egg. Often silent and unreported - or widely underreported with no easy or immediate solutions - elder financial abuse can affect even the savviest of dentists.

When a dentist has worked hard and invested well over the course of a lifetime, it is no surprise for a sizable nest egg to be the fruits of this labor. However, financial abuses can all too easily put large cracks in the egg. Often silent and unreported - or widely underreported with no easy or immediate solutions - elder financial abuse can affect even the savviest of dentists.

How can this be prevented in our fast-paced, digital, 24/7 world where our personal information can be used to commit highly exploitative crimes? Here are five steps every dentist should consider today:

Create a formal estate plan. This is an excellent first step to deter an uncertainty, including financial abuses and fraud, since it puts asset protection into a legal document. It is astonishing how many people don't have a formal plan, or have not maximized the tax advantages available to them. In Beating the Midas Curse, Rodney Zeeb and Perry L. Cochell write that 37% of people with net attributable income of $10 million and more do not have a will, healthcare proxy, or trust, and they have not named a trustee or administrator for their estate. Those without a formal, written plan are not likely to have their wishes met no matter what their estate is worth. And the more it is worth, the more the tax man is likely to take - if there aren't the right structures in place from the start. Proper estate planning reduces uncertainties around the probate process and maximizes the real value of the estate through reduced taxes and expenses. This is something to put in place immediately if you're without one.

Formalize your asset protection. Plain and simple: the right structures protect assets from getting into the wrong hands. They are typically used as a means to: 1) limit tax liabilities, 2) title assets correctly, and, 3) protect assets from creditors. Employing LLCs, trusts, and titling assets properly are the necessary underpinnings of thoughtful estate planning. They have the added benefit of acting as a metaphorical private security team for your assets since legal structures will define terms of ownership, distribution, and other specifics.

Know who has access to your finances - and at what level. In a busy practice, many hands may have ready, regular access to personal and professional financial information. Do you know who opens the mail? Who pays the bills? Each year, according to a MetLife study, Americans lose an estimated $2.9 billion in financial fraud. The study also revealed that 34% of the culprits are family, friends, and neighbors; 12% is by the business sector; and 4% is related to Medicare and Medicaid fraud. It is estimated that only 1 out of 44 incidents is officially documented. In many cases, the perpetrators of financial crimes are close to their victims, so know who is doing what when it comes to management of your finances.

Hire a financial "bodyguard." Can everyone have a personal chief financial officer (CFO)? This is a key aspect of the Family Wealth Enterprise, a structure that allows personal assets to be managed like a business. All parties involved in a dentist’s personal wealth plan (CPA, attorney, professional investment adviser) work together and the CFO oversees and coordinates everything. This harmonious management means all financial information has a go-to person; a metaphorical "bodyguard" to assure the facets of the wealth plan are and remain protected - and are always executed according to the client's wishes and not someone else's whims (legal or not). It also renders some of the most commonly committed financial crimes virtually impossible to execute. If the Family Wealth Enterprise is not for you, hire a fiduciary financial adviser who may assume components of the CFO role. No matter who your CFO is, do your homework and know what tasks he or she is going to assume. Also, find out if there are costs associated with these services.

Delegate tasks to reduce risk of theft and bolster security. Routine financial affairs can be burdensome or time-consuming for any investor. Optimally in retirement, a dentist is robust and healthy in mind and body. However, if deterioration in physical health or a decline in cognitive ability occurs, over time the most basic tasks may be considerably harder to do. Routine activities such as bill-paying, balancing a checkbook, review of financial statements, and other tasks can be managed within the secure structure overseen by the CFO or financial adviser. This "velvet rope" approach provides the oversight sheltering dentist investors from direct solicitations or offers which can range from illegal scams to the predatory salesperson one grandmother describes. Of course, not all offers will be illegal; some produce offerings may actually be beneficial. However, given the complexity of today's financial offerings, it is recommended to have a "financial bouncer" to eliminate the all-too-common abuses which routinely occur.

Given the stigma surrounding financial abuse, it is vital to change the cultural dialogue around this problem. It starts with a conversation between the dentist and his fiduciary financial adviser or CFO to review what plans are in place now as well as the game plan for future events, positive and negative. Then it extends to family members as well as those involved with any investments and family business. Here, Consumer Reports offers its recommendations.

Editor's Note: The information contained in this article is provided solely for informational and convenience purposes only and all users thereof should be guided accordingly. It may include statistical information which we deem reliable, however we do not represent that it is accurate or complete and it should not be relied upon as such.Investments involve varying degrees of risk and there can be no assurance that the future performance. The Abernathy Group II does not hold itself out as a legal or tax advisor. If you wish to receive a legal opinion or tax advice on the matter(s) in this report please contact our offices and we will refer you to an appropriate legal practitioner.