Surplus Disability Insurance: Income Tax Reduction and Supplemental Benefit are all Aspects of a well run Equity Disability Trust (2)

Surplus Disability Insurance: Income Tax Reduction and Supplemental Benefit are all Aspects of a well run Equity Disability Trust (2)

Discriminatory Plan

An EDT is not governed by ERISA; and, therefore, there is no requirement to include staff members and no IRS reporting is required (unlike a pension plan). As stated above, an office can choose who is going to be covered under the EDT; and, therefore, one doctor in an office of 30 could have an EDT funded on their behalf without cost or involvement of the other physicians or staff.

Golden Handcuff

For practices (or hospitals) looking to entice key individuals, either partners or associates, to stay with the practice for at least 5-7 years, funding an EDT as a “bonus” program works very well. Since the refund technically comes back to the corporation and not the key individual, an EDT could be setup to reward key individuals for staying with the practice or to punish that key individual for leaving the practice prematurely.

I receive many calls from doctors who work in hospitals or educational institutions that are frustrated with their ability to take advantage of some of the advanced income tax and estate tax reduction topics. The EDT can be implemented without restriction in either a hospital or an educational institution for the benefit of one or many physicians.

Looking at the numbers:

The money contributed to an Equity Trust is typically invested in the market via mutual funds, stocks, or bonds with the expectation that the money will grow very similar to money in a 401k plan or any qualified plan. The following example is for a 40-year old who contributes $100,000 a year into the EDT for 10 years where the money grows at the rate of 8%.

Cost each year Amount Going Towards Growth Account Value Available for Refund at Aged 60
Equity Trust $100,000 $94,000 $3,175,079*

Caution: As with all the “advanced” topics, there are EDTs around the country that I would not recommend. EDT can be a conservative way to lessen your taxes and fund supplemental retirement benefits, but using an EDT that is not in compliance with all the state’s insurance laws will cause physicians a significant amount of grief.

If you like the idea of putting away an extra $25,000-$250,000 into your 401k plan, then you should consider using an EDT to fund a plan with similar characteristics but with more flexibility and no requirement to contribute for the staff.

For more information on the EDT, please give me a call at 269-469-0537.

Roccy DeFrancesco, J.D., is the President of Financial Management Group, LLC a company devoted to help small business owners (specifically physicians) on asset protection, income and estate tax reduction. He can be reached via email at Purchase Roccy’s Book “The Doctor’s Wealth Preservation Guide”.