Estate Planning for Physicians and Dentists: Protecting Your Professional Corporation (PCs) in Massachusetts

Owners of professional corporations (PCs), such as physicians, dentists, and other licensed professionals, face specific estate planning challenges in Massachusetts. The law restricts ownership of PC shares to licensed individuals, so a thoughtful plan is essential to ensure that your heirs receive the value of your business, even if they cannot legally own the shares themselves after your death. Effective estate planning for PC owners weaves together legal, financial, and tax strategies, providing peace of mind for both you and your family.

What Happens to PC Shares at the Owner’s Death?

In Massachusetts, only licensed professionals are permitted to hold shares in a PC. If shares pass to non-licensed heirs (such as a spouse or adult children) upon your death, the law requires those shares to be promptly sold or redeemed—often within just a few months. Your non-licensed beneficiaries receive the value of the shares, not ownership or control. This transfer ensures that professional practices remain compliant with state regulations and that only qualified professionals manage patient care.

Key implications:

· Shares held by a non-licensed heir must be sold or redeemed, not simply transferred.

· The estate receives the proceeds, so your heirs inherit the economic benefit, not actual business control.

· A buy-sell agreement specifies details for valuation and handling the transfer.

Essential Steps for Effective Estate Planning

1. Consult Specialized Advisors

Work with an estate attorney and a financial advisor experienced in planning for professional corporations. They can help you:

· Align your estate plan with PC regulations.

· Coordinate fund sources for a potential buyout, such as life insurance, reserves, or loans.

· Minimize taxes and maximize the benefits for your heirs.

2. Create and Update a Buy-Sell Agreement

A robust buy-sell agreement is a cornerstone of your plan. It should:

· Clearly state what happens to PC shares at death (and optionally, at disability or loss of license).

· Set forth how shares are valued, ensuring a fair payout to your estate.

· Outline funding arrangements for purchasing shares from your estate.

3. Coordinate Your Estate Documents

· Ensure your will, trust, and business agreements are consistent.

· Regularly review and update documents as your practice or family circumstances change.

· Make certain your heirs know what to expect (i.e., a payout, not ongoing ownership).

4. Plan for Estate Taxes and Liquidity

· The proceeds from share redemption add to your taxable estate. Massachusetts imposes an estate tax above a certain threshold, so factor this into your overall plan.

· Tools like irrevocable life insurance trusts (ILITs) or charitable trusts can help address estate tax exposure and provide liquidity.

5. Communication is Key

· Inform heirs and business partners about your plan, so the transition unfolds smoothly and with no surprises.

· Update your team after major life or business events.

Addressing Disability and Other Life Events

While your primary focus is estate planning, a strong plan also anticipates unexpected life events such as disability. If you become unable to practice due to illness or injury, shares may need to be transferred if you lose your professional license or cannot fulfill your professional duties. Consider including disability and other triggers (such as loss of license) in your buy-sell agreement, so your family and partners are protected in a broader range of scenarios.

Key strategies:

· Define disability as a potential trigger for share buy-back or transfer, with clear procedures in your agreements.

· Explore disability buy-out insurance or similar funding tools to provide immediate liquidity to your family if disability occurs.

Why Specialized Advisors Matter

A financial advisor who understands the unique needs of PC owners can ensure your estate and business strategies:

· Maximize the value passed on to your heirs within all legal restrictions.

· Remain fully compliant with Massachusetts law.

· Offer coordinated insurance, tax, and liquidity strategies for all eventualities.

Bottom Line: For Massachusetts PC owners, estate planning needs to address both the succession rules imposed by law and your family’s financial needs. The goal is to create a coordinated plan—one that allows your heirs to quickly and efficiently receive the value of your business, even when they cannot legally own it, while mitigating estate tax and avoiding administrative complications. Disability should be addressed as part of a comprehensive approach, but the primary focus always remains on safeguarding your legacy for the next generation.

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This article is for informational purposes only and is not intended as legal, tax, or investment advice.. The information herein is general and may not apply to individual circumstances; readers should seek independent legal, tax, and financial counsel before taking any action. While care is taken to ensure accuracy, Finivi Inc. does not guarantee completeness and disclaims liability for reliance on this content. This article does not constitute an offer, solicitation, or recommendation for any financial product or service.