← White Coat Investor Podcast
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A
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.
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B
This is the White Coat Investor Podcast. Today's episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn't easy, but that's where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans that could end up saving you thousands of dollars, helping you get out of student debt sooner. SoFi also offers the ability to lower your payments, just 100 bucks a month while you're still in residency. And if you're already out of residency, SoFi's got you covered there too. For more information, go to sofi.com whitecoatinvestor SoFi student loans are originated by SoFi Bank NA member FDIC. Additional terms and conditions apply and NMLS 696891 all right, we've got a sale. By the way, this is our summer sale. You know, I don't know what's special about a summer sale for most businesses, but ours is unique in that a whole bunch of our audience, about three quarters of you, are docs. And for docs, the start of the new year is July 1st. You know, whether you're in medical school, whether you're in residency or fellowship, or once you come out, it's when you tend to hire people, it's July 1st. That's kind of the beginning of the year. And so we kind of celebrate a little bit with a summer sale. So our summer sale this year goes from June 22nd to July 3rd. And we're basically selling everything for 20% off. All you have to do is use code SUMMER20. This includes our online courses. Go to whitecoatinvestor.com courses to see that. It includes all our swag. Go to whitecoatinvestor.com store to see that. And we sell our books in the store as well. So it's not just T shirts and mugs and cool stickers and things like that, but it's also the books. If you want to buy a bunch of bulk books or something, there's 20% off. So check that out. All right, let's get into your questions. Actually, you know what, before we do your questions, Megan is our producer, right? And she says you gotta talk about this thing with the Eugene emergency physicians. And I told Megan, I'm like, this is not new in emergency medicine, Megan. This stuff is happening all the time. The only interesting thing here about the Eugene emergency physicians is that they won because small democratic groups of emergency doctors across the country have been losing their contracts for decades. My entire career, you know, I've been in this small democratic group I'm in now for 16 years, since I came out of the military in 2010. And that's what I was looking for. I was looking for a partnership job, a small democratic group. And so I came to this group and that's where I've stayed my entire career, since I got out of the military anyway. But we've constantly had this threat over our head of losing the contract, right? I like docs owning their job. I like them being in business for themselves and it's not right for everybody. And in fact, right now about 75 or 80% of doctors are employees. It's becoming less and less and less common. It's even becoming less and less and less common among dentists. It's only about 50% of dentists now are self employed. But the truth about emergency medicine is that it's always a little bit quasi employed anyway. Right? Take my group. Yeah, we're in business for ourselves, right? We're self employed. Technically we're a partnership. I get paid on a K1 every year. But our business only has one customer, basically. Right? We contract with the hospital to provide services at the hospital. No, we don't bill the hospital. The hospital doesn't pay us. We don't pay them. Our bills go to the patients. So they get a bill from the hospital when they go to the er and they also get a bill from the emergency physicians that took care of them while they were there. Obviously, the hospital bill is much bigger than the bill they get from us, but that's kind of the way emergency medicine works. But we've always had this fear that we would lose the contract. I mean, our contract, it might be a five year contract at times, but the truth is we both have a 90 day out. So it's really never more than a 90 day contract. My entire career. This business could essentially lose its only customer, really, with 90 days notice. And that's emergency medicine. And it's not awesome, right? If you're out there running a concierge primary care practice, you don't have to contract with just one entity. You might have 2,000 patients, probably fewer. If you're doing concierge, maybe you only have 400 patients. But my point is you're not limited to one. So this has been a unique thing for hospital based physicians. Whether you're an anesthesiologist or radiologist or pathologist or emergency physician or hospitalist or whatever, you know, this is kind of the way the business is. And so many years ago, when emergency medicine was a very young specialty, people started noticing that they were being taken advantage of. And there was a book that came out, you know, before the start of my career even, that was called the Rape of Emergency Medicine. And it was actually written anonymously initially. We all know who wrote it now, but it was written anonymously. And the denigrating term used for the people who owned these contracts was kitchen schedulers, right? So basically this is someone that all they did was schedule the docs for their shifts, and then they took this big cut of what the docs were earning. So the docs were doing all the work, they were taking all the risk. And yet the kitchen scheduler was making a whole bunch of the money they were making. And sometimes it was really egregious, right? You know, 5%, 10%, 25%, 30%, a third, 50% of what they were earning of what they were generating was going to the kitchen scheduler, because the kitchen scheduler had the contract with the hospital and then they hired the docs to fulfill the contract. And so this has been a big point of discussion and a big controversial area in emergency medicine for my entire career and longer than my career. Keep in mind that 40 years ago, there were very few emergency medicine residencies, and most people working in emergency departments trained as internists, or they trained as family doctor, or they just did an internship and then they went out and started practicing. And after a while, we realized maybe that's not the best way to provide emergency care. We could probably do a lot better job if people actually trained in emergency medicine and it kind of became a specialty. But it was a gradual transition. Even now, in 2026, I still have one partner that did not do an emergency medic in residency. He grandfathered in when that was allowed for those who trained as internists or those who trained as family physicians. And in small towns, even today, or places where a lot of people don't want to go, you can go practice emergency medicine still with nothing but an internship or an internal medicine residency or a family practice residency, or sometimes some hospitals are mostly staffed just by APCs, but if you want to go work in any of the places I was interested in working, you know, Boise and Flagstaff and Anchorage and Portland and Denver and Salt Lake and Flagstaff and Phoenix, those sorts of places, you pretty much have to be residency trained in emergency medicine these days. But because of that gradual timeline, that gradual time period where there were people that weren't emergency medicine trained working in emergency departments. And because of this issue with the kitchen schedulers, we actually developed two specialties organizations. The larger one, the older one, is the American College of Emergency Physicians, or asep. The smaller one, the American Academy of Emergency Medicine, or aem, is really in a lot of ways the conscience of emergency medicine. And the real problem they had was that the power brokers in the specialty, those who were running asap, were kitchen schedulers, for lack of a better term, right? They were in these large contract management groups. Because the kitchen scheduler goes, well, how can I make more money? I've got this one contract at one hospital and they start going, well, what if I got another contract at another hospital? It's not that hard to schedule people for shifts at a second hospital, I could probably do that. And then they go to a third hospital, a fourth hospital and 400 hospitals. And then you end up with these large contract management groups or CMGs. And over the years, sometimes they are owned by one person, sometimes it's a doctor, sometimes they're owned by a few doctors, sometimes they're owned by private equity. You know, there's a lot of different structures, but the bottom line is they're not owned by the docs working the shifts. And if you look out there, you can see there's a. You know, the largest of these contract management groups are Team Health and Envision and VITU and USACS and Core Clinical Partners and SCP Health. Right. These are some of the bigger ones out there. And those last few I mentioned technically are physician owned or independent, whereas the other ones are technically these contract management groups. But obviously as private equity has become more interested in medical practices like they are in every specialty now, they looked at emergency medicine pretty early. I started saying, okay, well, we could be the kitchen scheduler and we could leverage this up and we could make it more profitable and make the docs run faster and see more patients and get better reviews and bring in more revenue and really get some money for our investors this way. And so that took place relatively early in emergency medicine compared to lots of other specialties. But this issue with these large groups coming in and getting the contracts away from these small democratic groups that might just be the 10 or 12 or 15 docs that work at that one hospital has been going on in emergency medicine for the entire time the specialty has existed. Well, it turned out that a group called Apollo MD decided they wanted to try to get the contract at a hospital in Oregon. And this was in Eugene. And, you know, and the tagline's been going across, you know, social media and across all these physician news sites, is that, you know, the physicians fought off private equity. I'm not sure Apollo MD actually counts as private equity, but it's one of these, you know, big groups that's a kitchen scheduler kind of group, you know, no matter what you want to call it, whether private equity is involved or not. It was an outside group that was coming in, you know, a big group with hundreds and hundreds of docs that was coming in and trying to get this contract from this group of docs, Eugene emergency physicians, that had been there for decades, providing great emergency care to their community and building relationships with the medical staff there and, you know, and thought their job was pretty secure until the hospital decided they wanted to bring in Apollo MD to staff the emergency department. Of course, Apollo md, what they try to do, like every other cmg, is they want to keep the same docs, right? They want these docs to no longer work for themselves, but to come work for Apollo md. And then of course, Apollo MD can get their cut of what the docs are earning. And typically that's a lot more than the overhead for the docs. You know, an emergency physician group might be run pretty lean. A small democratic group might be running at 5 or 8% overhead.
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C
Right?
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B
We don't have this separate building we have to maintain. We've just got some coding and billing and you got to negotiate with insurance companies and you got to provide your benefits and those sorts of things, but they run pretty lean. Whereas a typical contract management group might be skimming off 30% of what the physicians are generating. So typically, if you lose your contract, you're getting paid significantly less money. So it's generally bad. But at any rate, this has been in the physician news for the last few months. And it got pretty interesting, I guess, partly because some of the officials from Apollo MD was, were less than honest on the stand under oath. And so it's been pretty interesting. And Will Flannery, who has a big social media presence as Dr. GlockenFlecken, has been posting a lot about it. And so a lot of you I know have heard about it, but some of the key points were that Peace Health runs the hospital. Apollo MD was basically this corporate medicine group that tends to describe themselves as physician owned, but they're certainly not a Democrat. Classic Democratic group, by any means. And then the ones who had the contract, the Democratic group, were the Eugene Emergency Physicians. So Apollo MD sets up Lane Emergency Physicians, a shell company, for lack of a better term. Not that there's anything wrong with the shell company, but it was just Apollo md. That's what Lane Emergency Physicians were. But apparently the CEO of Apollo MD was not. So hon court, the CEO of Lane Emergency Physicians was less than honest in court. They told lies about their request for proposal process that Peace Health conducted to select a new ER group. And this all collided with some politics in Oregon. Oregon had a Senate Bill 951, which is one of the, you know, the country's toughest laws about corporate and private equity control of medical practices. And so this case was really the first big test of this law's scope and its influence. And apparently just last week, it'll have been a few weeks by the time you hear this podcast, but just last week when I'm recording it, the judges made it pretty clear that they weren't going to take any of this BS that these CEOs were trying to sell on the standard. And so it looks like the emergency physicians actually won. They actually fended off this huge contract management group that was trying to take their contract and they're going to get to keep their contract. And so I think there's a few lessons to learn there. One, it's worth fighting. Sometimes the docs do win, number one. Number two, maybe it's time to work with our state legislators and get laws like this passed across the country so physicians can be in control not only of their businesses, but but of healthcare. Because I think when the doctors control the healthcare, they are less burned out and they provide better care. So I just wanted to congratulate the Eugene Emergency Physicians for this pretty awesome victory and point out to these people running these big contract management groups, whether they have physician owners or whether they do not, that, you know what, if you're going to lie about it and you're going to just seek profit in healthcare, well, there's going to be some consequences. So I hope there's some lessons to learn there for everybody. But keep in mind, this transition to private equity owning every physician practice in the country may not be a good thing for either us or our patients. And I do think the decreasing percentage of physician ownership of their practices is contributing a major contributor to the rising rates of a burnout in not only emergency medicine, where we lead all the other specialties, but in all specialties okay, enough on that topic. Let's talk about your questions. Your first one comes in. It sounds like we're going to talk about trusts.
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D
Hey, Dr. Dali, this is Robert. I live in the southeast and my wife is an internal medicine physician. We're in our 40s. I am a plaintiff's personal injury attorney. I own my own law practice. And I want to talk to you about kind of an unusual retirement vehicle that I've recently set up. It's called a rabbi trust. And it seems to me to function sort of like what something my wife had at the hospital previously, which is like a executive compensation plan where you defer all or part of your salary. And basically the way it works is I have to defer portions or all of a fee on a contingency fee case and I have to elect that fee before I do it. But it's been sold to me essentially as an unlimited 401k. The fees are high. They're like 2% because it's 1% on the fund and 1% for the advisor. Normally I wouldn't do that, but with the incredible tax savings I'm getting with this and the ability to sock away six figure sums in addition to my 401 and after tax account, it just seems like a pretty good, pretty good thing to have. So what am I missing? Are there any blind spots here? Is there something that I'm not catching? What do you think of Rabbit Trust and have in similar vehicles?
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Anytime I hear unlimited 401k, my antennas go way up, right? There's a reason for one case have contribution limits. It's because they're so awesome, right? There's a reason why the government doesn't want you to be able to put all of your money, unlimited amount, millions and millions of dollars into retirement plans, for lack of a better term, whether they are Roth, whether they are tax deferred. They don't want you to be able to put unlimited amounts of money in there for a couple of reasons. One, your money grows faster in there because it grows in a tax protected way. It's a really great tax benefit, but it's also a great asset protection benefit because in pretty much every state, money that's sitting there in a retirement account you're going to get to keep if you have to declare bankruptcy. And so there's limits on it. So anytime someone starts telling you, oh, I've got this thing that doesn't have limits, your antenna should go way up. A lot of times what they're talking about is some type of insurance product.
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Right.
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Because while there is a limit on how much a life insurance company will sell you, as far as life insurance goes, it's way more than the amount of money you're going to be able to put into a retirement account. Right. Because they want to sell you a whole bunch of life insurance. It tends to be high fee, it tends to be, if it's a cash value policy, it tends to be relatively low returns. They're not awesome. And if they can't sell it to you directly, sometimes they go to your employer to sell it. And so they sell the two of you together a policy that's called split dollar life insurance. And it gets really complicated. It's really hard to understand. But the bottom line is, well, if your employer's going to pay for all of it, then take it. I mean, this is assuming you can't talk them into giving you a bigger salary instead. I mean, if the employer is only going to pay for 20 or 30 or 50%, maybe you still want to take it. Right? I'll take a whole life insurance policy if somebody else is going to pay for it. That's a no brainer. Right? But I don't think that's actually what we're talking about here. I think what we're talking about here is a type of deferred compensation. And I published last year a post called deferred compensation plans. And I included in that several different types of of deferred compensation plans. These include 457 Bs, which are relatively widely spread among academic physicians. A lot of you have access to a 457, and it's kind of the classic example of a deferred compensation plan. It has a contribution limit about equal to what a 401 has. But it's in addition to your 401. And then it has a few cool features. One, it's not accessible to your creditors because it's still actually your employer's money. It's deferred compensation. They haven't paid it to you yet, so your creditors can't get it from you. It also doesn't have an age 59 and a half rule. So it's often the first money that people spend in early retirement. You know, if they retire at 50, maybe they spend the 457 first until they get to 55 when they can get into their 401 money, or 59 and a half when they can get into their IRA money. So that's kind of a cool feature as well, however, because it's sometimes exposed to your employer's creditors. And this is for non governmental 457 plans. You could lose it just if your employer goes bankrupt. And even if you don't lose it, you might worry about losing. That's not awesome either. People who have been through that have been kind of like, I wish I'd never contributed to this because I've been worrying about it for three years while my employer goes through all these court cases and stuff. So keep that in mind. Those are kind of the issues with the 450. You generally want to contribute to your 401 or 403 first. But then you might also want to use the 457. If the investments are okay, the fees are okay, the distribution options are okay with you, the investments are reasonable, then you probably do want to use your 457. Keep in mind, governmental 457s are really like an extra 401 because that money is held in trust. You're not going to lose it to your employer's creditors. And that's usually what you get from like a state university health system or something like that. Is a governmental until 457. These other types of deferred compensation plans are much more rare. A 457F and a 409A. And anytime I've heard Rabbi Trust associated with these, what they're generally talking about is a 409. So what is a 409 plan? Well, it's also a non qualified deferred compensation plan. Okay, so similar to 457 that way. But instead of being governed by IRS Code 457, it's governed by the rules in IRS Code 409. So if the employer is a nonprofit or a government employer, a 457 plan of some kind will typically be used. If the employer is a for profit business, a 409 plan will be used. So otherwise it's pretty darn similar to 457 to actually a 457F plan is what it's most similar to the vesting options, the taxation options, the rollover options are essentially the same as the 457F. Okay. And so 457F, if you're not known as this cousin of the 457 also non qualified deferred compensation plan. All the contributions are made by the employer, none by the employee. And it's usually just for a select management group or for highly compensated employees. And it involves money that's paid to the employees employee at the time of retirement. So it's often called the supplemental executive retirement plan, or serp. So we're throwing all these terms out there, right? Deferred compensation, 457B, 457F, 409A SERP, Rabbi Trust. Right. There's all these terms out there, and they all have meaning, but it's very easy to get confused when you try to keep track of it all. But with these plans, the benefits are taxed when they vest, not when they're paid out. So that makes it an ineligible 457 plan. But they often have a higher contribution limit than the 457 plan. Okay, so a 457F and a 409A higher contribution limits than the 457 plans. In fact, it's even possible to put 100% of your compensation into them. So you get taxed on it as each tranche of these contributions gets vested. Okay, so now we've talked about 457Bs, 457Fs, 409s. Right? So where does the trust come in? Well, these 409 plans typically use a trust or often use a trust to reduce risk. And when you do that, you can use one of two kinds of trusts. You can either use what's called a rabbi trust, or you can use a secular trust. And as a general rule, a secular trust is better than a rabbi trust in this regard. In a rabbi trust, the assets are basically unreachable by the employer, but not as creditors. But in a secular trust, the assets are unreachable by both, but the taxation is different between the two. So when a trust is not involved, the taxation occurs in a secular trust at the time of vesting. And with a rabbi trust, the taxation doesn't occur until distribution, which is a significant advantage and likely the reason that the rabbi trusts are actually more commonly used than the secular trust, because it allows you to delay the taxation a little bit longer. But of course, now you've got to worry a little bit more about losing it to creditors like you worry about in any deferred compensation plan. Okay, So I hope that's answered the question of whether you know what these things are, what we're talking. So the bottom line is every one of these plans is unique. And whether you should use it is a highly individual decision. Almost surely you should not be contributing to these deferred compensation plans, whether it's 457B, 457F, 409A Rabbi Trust, SERP plan, whatever you want to call it, until you've Already maxed out the better accounts. So what are the better accounts? Your HSA, if you qualify to contribute to one, your backdoor Roth IRA for you and your spouse, your 401, your 403, your 401. If there's one of those, your spouse's 401 or 403 or 401, and then you start going, would I rather use this deferred compensation plan or would I rather save in a taxable account? That's what you're comparing it to. And yes, there is a tax break there, but there's some risk of loss with some of these. But that's really the decision you're making, right? You get more flexibility in a taxable account. It's really your money. It's not deferred compensation, but it's exposed to your creditors. And it's going to grow a little bit slower because it's getting taxed as it grows. But you can keep your fees super low in a taxable account, right? If you go open it at Schwab or Fidelity or Vanguard, and you only buy broadly diversified low cost index funds or ETFs with expense ratios under 10 basis points, investing is basically free. Well, that doesn't sound like what this questioner is talking about. He's talking about 1% to some sort of an advisor, another 1% to the investment manager. 2% is a pretty good drag on your returns. At that point I start going, well, maybe I just want to use a taxable account even though there's some tax benefits. We all get so afraid as doctors, as white coat investors, as high earners, as highly taxed people, as people in the upper tax brackets. We all get so bummed about paying taxes that sometimes we let the tax tail wag the investment dog and we make dumb decisions based primarily on taxes. Maybe we buy a whole life insurance policy because it grows in a tax protected way. And if I take the money out in retirement, I can take it out without paying taxes. Well, you can take money out of your house without paying taxes too. It's called a loan, right? You pay interest on a loan, but you don't pay taxes on it. Well, it's the same thing if you borrow against your whole life insurance policy or borrow against your portfolio, or you borrow against your house or your car, your RV or whatever. It's tax free, but not interest free. But lots of docs get suckered into buying an insurance policy they probably shouldn't have bought. Likewise, lots of docs end up in investments that are sold primarily for Tax benefits. I mean, the best tax benefit you can get in an investment is just lose all your money. Right now you've got this huge capital loss you can use to offset other capital gains, but you're not coming out ahead. Right. I mean, you can get a similar benefit by giving your money to charity.
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E
Right.
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You get this charitable deduction, but you don't come out ahead.
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C
Right.
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B
Maybe you get 40% of what you gave away back as a tax benefit, but you're not coming out ahead. So it's got to make sense as an investment first before you let the tax tail start getting into the picture a little bit. Now, I think lots of People use their 457Bs and their 457Fs and their 409As with or without a rabbi trust all the time. And they put some of their retirement savings in there. I think that's probably fine. But if you've skipped your 401 and you've skipped your Roth IRAs in order to put more money into your 409A, you're probably making a mistake. Don't let the tax tail wag the investment dog. Okay, that was a long rant. You guys ask complicated questions. What do you want? Right? It just takes that long to answer your question. Okay, our quote of the day today, Ben sent us this quote by email. The quote was, don't just do something, stand there. And Ben told us it was from Warren Buffett. And just before we started recording today, I'm like, that sure sounds like something Jack Bogle said. I'm not sure Warren Buffett said that. So we went looking and we actually couldn't find a time that Warren Buffett actually said that, Ben. But it's a great quote. I know Jack Bogle said it and lots of other people have said something similar. And it mostly means, you know, don't feel like you always have to be doing something in response to market movements. You don't. Most of the time you can just stand there and guess what. You're a long term investment. This investment's going to work out just fine in the long term. All right, we got another question about trust here. Hopefully it doesn't take quite as long to answer as the last one. Hi, Jim, my name is Ken and I heard you talk about having an irreversible trust where you have your brokerage account. Could you explain why you would do this, how it benefits you and your family and when would it be a good idea?
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E
Thank you.
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B
Sure. That's a very broad question. So I guess we're going to take a while to answer this one as well. A brokerage account, also known as a non qualified account or a taxable account, can be owned by you, your spouse, the two of you together, your trust, your business, right. All kinds of entities can own a brokerage account. So all we're talking about here is a brokerage account that's owned by a trust.
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E
Okay.
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B
And you can do that if you want, if there's a good purpose for you to have a brokerage account inside a trust. Now, lots of people like to have this when they die. They have their brokerage account owned by a revocable trust. They're still paying all the taxes on it. It's still accessible to their creditor. There's no asset protection benefit there. But now those assets don't go through probate. They're distributed at the time of your death in accordance with the trust document.
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E
Right.
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And so it doesn't go through this public, expensive, time consuming process known as probate. Now, probate's worse in some states than others. My parents were basically told by their estate planning attorney, just go through probate, it's not a big deal in Alaska. And I guess that's true. I'll find out because I'm the executor, I guess, eventually. But that's a revocable trust. An irrevocable trust is irreversible, right. And it's money that you've given away, you've given it to someone or something else. Okay. So you can still pay the taxes on it. That's called an intentionally defective grantor trust, an idgt. And there are reasons why you might want to do that or you might not want to do that. Remember, trust tax rates are pretty high. So sometimes it makes sense for you to pay the taxes at a lower rate than the trust might be paying the taxes at. But the bottom line is the person who is the grantor, the person who put the assets in the trust generally is not the beneficiary of an irrevocable trust. Now, that's not entirely true. These days there are these trusts out there, the domestic trust, asset protection trusts. They're available in, I don't know, 15 or 20 states where you are not only the grantor, but the beneficiary. There's not a lot of case law associated with these. So you don't really know if it's going to work in your asset protection situation that you'll probably never have. And we're all worried about these above policy limits judgments the truth is, a doctor actually losing personal assets in a malpractice suit is very, very rare. Even if there's some huge judgment initially, it's usually reduced to policy limits on appeal. Right? Or the hospital's picking up part of it, or some other entity or some other doctor is picking up part of it, and the doctor ends up basically losing the policy limits of the malpractice policy. But occasionally, very rarely, they do lose personal assets. And the idea is, if you were involved in that sort of a situation, you'd say, well, I can't lose this brokerage account or my house because it's in a domestic asset protection trust, and it's been there for years, and maybe it'll work, maybe it won't. You know, they have these in Utah. They have Domestic Asset protection trusts. So we actually put our house in one. Our house is owned by Domestic Asset Protection Trust, and maybe we get to keep it. If we get sued for a gazillion dollars, maybe we don't. We'll see. Honestly, we'll probably never find out because we'll probably never have that sort of a lawsuit.
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C
Okay?
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B
But that's not necessarily what we're talking about here, okay? What we're talking about here is irrevocable trust that you're using for some sort of purpose. And the purpose might be just because you don't trust, right? You use trust because you don't trust. Right. You want to make sure that your kids are getting money in a certain way whether you're here or not.
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E
Right.
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B
If you're here, you can control it when they get the money. Right? But if you're not here, well, the trust can control when they get the money. Maybe your trust says they have to graduate from college before they get their inheritance, or they don't get their inheritance till they're 40, or if they're doing drugs, they can't have the inheritance or whatever, Right? That's why you have a trust. The trust can control that sort of a thing. But there's a real benefit to putting money into a trust, an irrevocable trust, relatively early in your life. And the benefit is that it is then outside your estate. Okay? And so estate taxes will not apply to the growth on that asset in the irrevocable trust. That's the benefit.
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E
Right?
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B
And so lots of people that are successful or in a state with a very low estate tax exemption or in a period of time when it looks like the estate tax exemption, the federal estate tax exemption is going to be reduced Dramatically, they tend to move money into these sorts of entities. They tend to give money away, whether they're giving it to charity or giving it to their heirs or giving it indirectly to their heirs, or a charity or whatever. Be an irrevocable trust. So they can reduce their potential future estate taxes. Because estate taxes are huge.
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E
Right.
- [35:12]
B
While they don't apply to the vast majority of people, including the vast majority of white coat investors, the tax rate's really high after the first million. It's like 40%. Right. Huge. And there might be a state estate tax or state inheritance tax in addition to that. And so you could lose a lot of money, Right. If you leave your kids $40 million above and beyond any estate tax exemption, 40% of it might go away. Right. So whatever that works out to be, 16 million, $18 million in taxes. Whereas if you had just gotten those assets out of your estate early on and gotten them into an irrevocable trust, you might not have to pay any of that. Now, there's usually a trade off, right. Because those irrevocable trusts don't get a step up in basis at death, so they'll probably end up paying more in income tax in order to save that estate tax money. But if you've got some estate tax reasons you don't trust and you want money out of your estate, you might want to use an irrevocable trust. Okay? Now, Ken, your question was a question about my finances personally. And what a lot of white coat investors out there need to realize is my finances are not your finances.
- [36:23]
E
Right.
- [36:23]
B
The white coat investor has been a very successful business. It's basically owned just by Katie and I, and it makes lots of money and it's worth a lot of money. And we've been very financially successful. So we actually are expecting to have an estate tax problem. And so a few years ago, when it looked like that estate tax exemption was going to go down, after President Biden got into office, we decided we were going to move some of our assets into an irrevocable trust. And the type we chose to use was a spousal lifetime access trust or a slat. And this is a cool trick. It's a little bit like an asset protection trust in that the beneficiary of the trust is Katie. I'm the grantor, she's the beneficiary. So I put money in trust for her, but it's owned by the trust technically. And so it gives us some asset protection benefits. Right. If somebody just sued me. Right. Well, the trust Isn't the assets in the trust aren't mine, so they can't have those assets.
- [37:23]
E
Right.
- [37:24]
B
So we moved a majority of white coat investors, well, as our brokerage account, into a trust, because we expect it to continue to increase in value and we didn't want to pay estate taxes on that increase in value. And so that's why we have the trust. Now. It's mostly estate tax purposes. It's also, you know, it's a dis for estate planning purposes. It wasn't primarily for asset protection purposes, but we expect some asset protection benefits from that. But we're really not getting tax benefits beyond those estate tax benefits.
- [37:55]
E
Right.
- [37:56]
B
It's an intentionally defective grantor trust. So we're still paying all the taxes on that brokerage account every year, all the dividends it pays out, all the capital gains it has paid out. We still want to tax loss, harvest it to reduce our tax bill each year. And like I said, our heirs aren't going to get a step up in basis on all those assets inside that trust. So in some ways it's going to increase our income taxes, not decrease them, but in exchange for saving a whole lot of money on estate taxes. So that is why, long story short, we have our brokerage account inside irrevocable trust. Do you need to do that? Probably not. Right. Most doctors are retiring with 2 or 4 or 6 or 8 million or something like that. That's nowhere near the estate tax exemption. The estate tax exemption right now is $15 million per spouse.
- [38:43]
E
Right.
- [38:44]
B
$30 million total. And since President Trump came into power, they passed a big law in the middle of 2025. Hopefully you didn't miss it, but basically made that permanent so it didn't reverse in 2026 like the original legislation said it was going to, and also indexed it to inflation. Now, Congress can change that anytime they want. Obviously the President, whoever's in office then can sign off on it. That estate tax exemption can go down. But right now it's $30 million. That's a lot of money. Most white coat investors are not going to have $30 million when they die. And if they are, they can probably just give away some, but as they go along and not have too much of an issue staying under that estate tax exemption. So they don't need an irrevocable trust for the purpose. We have an irrevocable trust for which is to reduce estate taxes. Hope that makes sense. Okay, let's take another question. I think this is a personal question as well. I don't Know why you guys find my finances so interesting. I think yours are far more interesting than mine are.
- [39:42]
E
Hi, Jim. Thanks for everything you do. I was wondering if you're changing your asset allocation in your retirement portfolio as you age. For me, for years I've been at pretty much 10% bonds and 90% have been in equities and real estate. Physically, 60% in US stock, 20% in international stocks, and another 10% in REITs. Now that I'm just over 50 years old, I was thinking about possibly increasing my exposure to bonds. Wondering what your thoughts are?
- [40:12]
B
You're asking multiple questions here. The question is, what should you do? What do most people do? And again, what am I doing? So let's try to address all those questions. Asset allocation classically well, first of all, asset allocation is your mix of investments. It's how much money you have in US Stocks and how much in international stocks and how much in nominal bonds and how much in inflation index bonds and how much in real estate, how much in Bitcoin and how much in whatever. It's your mix of investments. That's what asset allocation is. And as a general rule, when you're young and have lots of your earning potential ahead of you, you can invest pretty aggressively because even if you have a terrible investment return, you still haven't earned most of the money you're going to invest during your life. And so you can take lots of risk when you're young. And then as people get older, they start getting closer to retirement, or once they are retired, they tend to take less risk. Their asset allocation becomes less risky. More money's in cash, more money's in bonds. Maybe they're not invested in as risky of stocks or real estate. Maybe they pay off the real estate properties so they're not so leveraged. Right? You take less risk as you get older because the consequences of that risk become bigger. Right. You don't have as much money left to earn. And especially around the time of retirement, you have this sequence of returns risk where despite having adequate average returns during retirement, you run out of money because you had the crummy returns first.
- [41:39]
E
First.
- [41:40]
B
And so most people do reduce the risk they take as they go along. The classic guidelines or rules of thumb are you reduce it by 1% a year, your stock to bond ratio by 1% a year. So the amount you're supposed to have in bonds is 100 minus your age. Sorry, the amount you're supposed to have in stocks is 100 or 120 minus your age. So 100 minus your age if you're 40, means you have 60% in stocks, 40% in bonds. If you're 60, you have 40% in stocks, 60% in bonds. Those are kind of the rules of thumb that people use out there. But this is probably important enough that you shouldn't just use a rule of thumb. You actually should consider your need to take risk to reach your goals, your desire to take risk. Would additional money be particularly useful to you? Do you have a high marginal utility on those additional earnings? And your ability to take risk, which generally decreases as you go throughout life. But this also affects your risk tolerance. Are you likely to panic sell if your stocks drop 50% this fall?
- [42:41]
E
Right.
- [42:42]
B
You got to take that into consideration as you set your asset allocation. So I would say most people, particularly in the five years before they retire and the five years afterward, typically do reduce the risk on their portfolio. If they were only 10% bonds, maybe they go to 30% bonds or 40% bonds, or maybe they set aside three years worth of withdrawals in cash. So even if stocks and bonds are both down just like they were in 2022, you don't have to tap either one of them. You can just spend from the cash and then you maybe refill it in a couple of years when markets have recovered a little bit. And so typically, people do reduce risk. What should you do? I don't know what you should do. You didn't talk much about your need to take risk, your ability to take risk, nor your desire to take risk. So I'm not really sure what you should do. But you can certainly bounce this question off some of our online communities, the Facebook group, the White Coat Investor Forum, the subreddit, the financially empowered women's group. You can ask this sort of question and get some feedback on your asset allocation plan. I do recommend that people outline this in the written financial plan when they take our Fire your financial advisor online flagship course. There's a discussion in there about how you're going to reduce your risk as you go throughout your career, and I do suggest you write something down there. Okay, what have we done? Well, we've kept ours more or less the same. Okay. From the time we had basically nothing until we have more money than we're ever going to spend, we've kept our asset allocation more or less the same. I think we were 75% stocks in real estate and 25% bonds initially. We made a change a decade ago or so where we basically went 60% stocks, 20% bonds, 20% real estate. And we've Just held it there. And the reason why is because that need ability and desire to take risk.
- [44:28]
E
Right.
- [44:28]
B
We have less need to take risk.
- [44:29]
E
Yes.
- [44:30]
B
But we got way more ability to take risk than we used to have. And I've never been able to calculate exactly how those two offset each other. So we basically just kept it the same. And that's worked out just fine for us. What we've discovered in 2008 and 2018 and 2020 and 2022 is that this is about right for us. 60% of our money in stocks. We can handle that, even a big, nasty downturn and be just fine with it. So that's where we've kept our risk. We've got 20% in bonds. You've got 10%. Maybe you want to go to 20%. I don'. Individual question. But honestly, the most important thing is sticking with what you choose, rather than what exactly you choose. Sticking with your plan matters way more than what your plan is. This assumes you have some sort of reasonable plan. Sounds like you do. But sticking with it matters a lot. Hope that discussion is helpful. I'm sorry, there's not a right answer where I could just tell you this is exactly how you should do it. If you want somebody to do that, you can hire a financial advisor. We've got recommended financial advisors. They'll tell you exactly what to do. But there's a whole wide range of reasonable. You just need to pick something in there and then follow your plan. Thanks, everybody out there for what you do. If you're coming home from work and you had a rough shift, or you had a death today, or a patient or family member chewed you out, or you're just feeling a little bit crispy right now. I'm sorry. But it's appreciated what you do if nobody told you. Thanks today. Let me be the first. Okay, let's talk a little bit about some asset allocation changes. It sounds like that Jason is considering.
- [46:05]
C
Hey, Dr. Daly. I have a question about switching from bond funds to all stocks in my qualified retirement accounts. I have a variable annuity that just matured and followed the s and P500. So it's done extremely well. I just re upped and it will mature around the time that I am retiring. And I plan to convert it into a spia with a date. Certainly pay out from the time I retire until I reach 70 and plan to start collecting Social Security because I have this long time horizon and I don't plan on taking any RMDs until that time, and I don't plan on taking anything out of the Roth and leave that for my kids. I'm thinking I should switch out of bonds in those retirement accounts and go into all equities. Appreciate your thoughts on that. And I'm also going to stay heavily in equities in my brokerage account since I don't have to worry about sequence of returns risk. I believe, since I'll be living on the annuity between retirement and age 70 when I start taking Social Security. Look forward to your thoughts. Thank you.
- [47:09]
B
Okay, I think that question just went over the head of a whole bunch of people. So let me define some of the terms that he's talking about here. Right. He's talking about an annuity. Right. And he's been investing inside a variable annuity for a number of years, it sounds like. And it sounds like he's going to continue to invest that money inside a variable annuity and eventually annuitize that money. So let's talk a little bit about what an annuity is. An annuity, think of it as an insurance product used for retirement, okay? And the classic type of annuity is a single premium, immediate annuity, a lifetime single premium immediate annuity. This is the classic type. And basically what you're buying is you're going to an insurance company, you're giving them a lump sum of money, and you're buying a pension, okay? So you're telling them, here is $100,000, and the insurance company says, okay, I'm going to give you $500 a month every month from now until the day you die, whether you die next month or whether you die in 40 years, I'm going to give you $500 a month, every month until you die. And that's a single premium immediate annuity. Now, the insurance companies have realized if we sell these with lots of bells and whistles and lots of different variations, we can probably sell more of these. So they do. They come with all kinds of variations, one of which is a set payout. Because people who buy immediate annuities, these lifetime immediate annuities, they're worried that they're going to die next month. They're going to put $100,000 in there. The insurance company is going to give them $500 and they're going to lose $99,000 plus dollars because they made that decision. So instead they gave up a little bit of that payout. And now maybe Instead of getting $500 a month, they get $450, but the insurance company guarantees that we'll pay for at least 10 years. If it's not paying it to you, it'll pay it to your heirs. And people go, oh well now I don't feel so bad about the possibility of losing it. Well, it's all the same to the insurance company. It costs them the same. Once you multiply it out by a large number of people, either way it works out the same for them. They don't care. So if that helps them sell more annuities, they're going to sell more annuities that way. No big deal. This particular white coat investor has decided to deal with the sequence of returns risk by using this annuity. It's an immediate annuity in that it pays out immediately once you annuitize it it, but it pays out for a period, certain amount of time. So he didn't say the time period, but maybe it's 10 years. So he's set it up so that at age 65 or age 70 or whatever, it's going to start paying out money for 10 years and then it's going to be done right. So it's just a method of spending your money more than anything else. And so that's great for him. It's one way you can deal with sequence of returns risk. I don't think it's a very common way to deal with it. I think it's probably easier to use just like a, a TIPS ladder using Treasury Inflation Protected securities. Just buy 10 of those, one to mature each of those first 10 years. If you're worried about sequence of returns risk, you could do it with that. But this is not an unreasonable way to deal with it. It will certainly function that way. This particular questionnaire also is relatively wealthy. This is somebody who's put a bunch of money into retirement accounts and doesn't think he's even going to need it. It sounds like he's just going to live off his taxable brokerage account, which is fine. I'm not even sure he needs all of that. So when people have so much money that their burn rate is very low, they're only spending 1 or 2% of their portfolio instead of the classic 4%. I encourage them to step back for a minute and say, well, maybe there's something else I can spend money on that will make me happier. And that's great if you want to do that. Or maybe you ought to start giving more of it away. Maybe you ought to spend a couple hundred thousand dollars a year and maybe you should also give away a couple hundred thousand dollars a year. Maybe that'll get you up to your 4%, right? So something to think about there. But if you're 100% sure or close enough to 100% that you're not going to use the money in your retirement accounts, other than what you have to take out as required minimum distributions and even those you give to charity, up to a little over $100,000 a year as a qualified charitable distribution, if you're sure you're not going to need it, it's going to your kids, then you can invest with a different time horizon. Right now the need, ability and desire to take risk has changed. So maybe you don't need to manage that portfolio as a 70% stock and 30% bond portfolio. Maybe now you can manage as a 100% stock portfolio, right? Because it's not going to you as going to your heirs. And maybe your heirs are only 22 years old, right? And so they can afford to take on a whole bunch more risk and that's totally reasonable to do. What I would encourage you to do, though, is portion out, you know, your accounts and say, this money's going to inheritance this money is what I'm going to live on and actually have separate asset allocations for them, you know, and maybe you're managing your money with a 6040 portfolio and maybe you're managing this money that's going to go to charity or it's going to go to your heirs or whatever with 100% stock portfolio. I think that's totally reasonable. I wouldn't feel like you got to blend it all together. Once the money's being used for different purposes, I would use a different asset allocation. So I hope that's helpful and helps answer your question. I'm pretty sure I saw this question get discussed on the White Coat Investor forum a few weeks ago as well, and I suspect, Jason, that all your questions have already been answered. But if not, hopefully this discussion was helpful. All right, as I mentioned at the beginning of the podcast, SoFi could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.comwhitecoatinvestor to see all the promotions and offers they've got waiting for one more time. That's SoFi.com WhiteCodeInvestor SoFi student loans are originated by SoFi Bank NA member FDIC. Additional terms and conditions apply. NMLS 696891 don't forget about our summer sale. You can go to WhiteCodeInvestor.com courses or WhiteCodeInvestor.com store and use code summer20 to get 20% off everything we sell. Check it out today. All right, thanks. For those of you leaving five star reviews, they do help to spread the word about the podcast. We appreciate those of you spreading it with word of mouth as well. That's probably even more important than five star reviews, but we do appreciate the five star reviews. Recent one came in said love it. 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- [54:09]
A
The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.