Estate Planning for Veterinarians: Practice Owners, Retirement Accounts, and the $15M Exemption

Most veterinarians think about estate planning the same way they think about their annual physical — something to schedule eventually. But for practice owners, the stakes are unusually high. The practice is often your largest single asset, it cannot be easily liquidated, and without the right legal documents in place, a sudden death or disability can trigger a forced sale to a corporate buyer at distressed prices — at the worst possible moment for your family. This guide covers what you need to do now, even if your estate is far below the federal exemption.

The $15M Exemption: What Changed and Who It Affects

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently raised the federal estate and gift tax exemption to $15,000,000 per person ($30,000,000 for married couples).¹ The exemption is indexed for inflation starting in 2027. Unlike the TCJA's temporary increase, OBBBA contains no sunset provision — this is the permanent baseline unless future legislation changes it.

The federal estate tax rate above the exemption remains 40%.

The Practice as Your Estate's Hardest Problem

An investment portfolio can be liquidated in days. A veterinary practice cannot. Practice ownership creates three specific estate problems that don't exist for associates:

1. Forced Sale Risk

If you die with no succession plan and no buy-sell agreement, your heirs inherit an operating business they likely cannot run. Without a pre-negotiated buyout mechanism, the estate's executor may have to sell to the first willing buyer — typically a corporate consolidator — under time pressure. That pressure typically costs 15–30% of fair market value compared to a planned sale at an optimal time.²

2. Valuation Uncertainty

Illiquid private business interests are subject to lack-of-marketability and minority discounts when appraised for estate tax purposes. A practice worth $1.8M on a 6× EBITDA basis might be appraised at $1.3–1.5M by an estate appraiser using these discounts — reducing any estate tax exposure but also meaning the estate receives less than expected if a forced sale occurs at that appraised value.

3. Operating Capital Drain

Even a relatively smooth estate settlement takes months. During that period, the practice must continue operating — paying staff, suppliers, and lenders — while the estate is in legal limbo. Practices with thin cash reserves can become insolvent before the ownership transition completes. A separate life insurance policy naming the practice entity (or a trust) as beneficiary can provide the bridge capital. See the life insurance guide for sizing considerations.

Buy-Sell Agreements: Your Practice Continuity Tool

A buy-sell agreement is the single most important estate planning document for any practice owner. It establishes in advance: who buys your ownership interest if you die, become disabled, or decide to leave; at what price; and funded by what mechanism.

The two primary structures are cross-purchase (co-owners buy each other out directly) and entity redemption (the practice entity buys back the departing owner's interest). Both can be funded with life insurance on each owner. The detailed mechanics are covered in the buy-sell agreement guide, but the estate planning implication is critical: a properly structured buy-sell sets the valuation for estate purposes.

Under longstanding IRS guidance, a bona fide buy-sell agreement that (1) was entered into for legitimate business reasons, (2) is not a device to transfer to heirs for less than full consideration, and (3) contains a price the parties would accept from an unrelated third party can establish the value used for estate tax purposes.³ For practice owners, this means the buy-sell agreement price controls the estate-tax valuation — removing uncertainty at the worst possible moment.

Retirement Accounts: What Your Heirs Actually Inherit

Retirement accounts — Solo 401(k), SEP-IRA, Traditional IRA, cash balance plan, group 401(k) — are not governed by your will. They pass by beneficiary designation, directly to the named beneficiary, outside probate. This makes keeping beneficiary designations current the highest-leverage, lowest-effort estate planning action most DVMs never take.

The 10-Year Rule for Non-Spouse Beneficiaries

Under the SECURE Act and T.D. 10001 (IRS final regulations, July 2024), most non-spouse beneficiaries who inherit a retirement account from someone who died in 2020 or later must fully withdraw the account within 10 years of the original owner's death.⁴

The "stretch IRA" — where a child or other beneficiary could take tiny distributions over their lifetime — is gone for most heirs. There are limited exceptions: surviving spouses, minor children of the decedent (until majority), disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the decedent.

Annual RMDs Within the 10-Year Window

If you die after your Required Beginning Date (April 1 of the year after you turn 73 — or 75 if born 1960 or later under SECURE 2.0),⁴ your non-spouse beneficiaries must take annual RMDs during the 10-year period, in addition to fully depleting the account by the end of year 10. Missing an annual RMD triggers a 25% penalty (reduced to 10% if corrected within two years).

If you die before your Required Beginning Date, non-spouse beneficiaries must still empty the account within 10 years, but are not required to take annual distributions during that window — giving them more flexibility to manage the income tax hit.

Roth Accounts Are More Estate-Friendly

Roth IRAs and Roth 401(k)s have no required minimum distributions for the original owner during their lifetime. For estate planning, this means: (1) your Roth balance keeps compounding tax-free until you die, and (2) your heirs can defer distributions within the 10-year window to minimize income taxes on the inherited amount. A large Roth balance is substantially more valuable to your heirs than an equivalent Traditional IRA balance, after accounting for the income tax your heirs will owe on Traditional IRA withdrawals. The Roth conversion guide covers how to shift pre-tax assets into Roth over time while managing bracket exposure.

Annual Gifting: Reduce Your Taxable Estate Over Time

Even if your estate is far below $15M today, systematic gifting reduces estate size while shifting assets to the next generation. Two mechanisms apply:

Annual Exclusion Gifts

In 2026, you can give $19,000 per recipient without triggering gift tax or using any of your lifetime exemption.¹ A married couple can give $38,000 per recipient per year. With three adult children and their spouses (six recipients), a couple can transfer $228,000 per year completely outside the estate tax system. Over 10 years: $2.28M transferred with no gift tax implications — and those assets compound outside your estate.

529 Superfunding

For grandchildren (or children), the 5-year election under IRC §529(c)(2)(B) allows a lump-sum contribution equal to five years of the annual exclusion in a single year — $95,000 per person ($190,000 per couple) per beneficiary in 2026 — without gift tax. The full contribution is treated as if made ratably over 5 years for gift tax purposes. SECURE 2.0's 529-to-Roth rollover provision (up to $35,000 lifetime, $7,000/year) adds flexibility if college costs end up lower than expected.⁴

Direct Tuition and Medical Payments

Payments made directly to an educational institution for tuition, or directly to a medical provider for medical care, are 100% excluded from gift tax — no annual limit, no lifetime exemption used. A vet practice owner with grandchildren in expensive private schools or college programs can fund tuition directly and transfer substantial wealth with zero tax consequence.

Charitable Giving: Qualified Charitable Distributions

For DVMs who have reached age 70½ and have IRA assets, the Qualified Charitable Distribution (QCD) is the most tax-efficient way to give. In 2026, you can direct up to $111,000 from your IRA directly to a qualified charity.⁵ The QCD counts toward your RMD for the year, reduces your adjusted gross income dollar-for-dollar, and has no deduction ceiling. For practice owners with high income, this can also reduce IRMAA surcharges (Medicare Part B/D) in the following year.

For larger charitable goals — endowing a veterinary scholarship, supporting the AVMA Foundation — a Donor-Advised Fund (DAF) or Charitable Remainder Trust (CRT) after a practice sale may be more appropriate. These are outside the scope of this guide but worth discussing with an estate attorney in the context of your practice sale tax planning.

Life Insurance and Estate Tax: The ILIT Structure

If you own a life insurance policy in your own name, the death benefit is included in your taxable estate under IRC §2042 — regardless of the named beneficiary. For most DVMs this doesn't create an estate tax problem given the $15M exemption, but for wealthier practice owners with significant life insurance coverage on top of a valuable practice, it can push the estate over the threshold.

The solution is an Irrevocable Life Insurance Trust (ILIT): the trust owns the policy, not you. The death benefit flows to the trust (outside your estate) and can be used to provide liquidity to heirs — including funding a buy-sell buyout from surviving partners — without estate tax. The catch: the transfer of an existing policy to an ILIT triggers a 3-year lookback under IRC §2035. If you die within 3 years of the transfer, the policy is pulled back into your estate. New policies purchased directly by the ILIT avoid this lookback.

The Documents You Actually Need

Beyond financial accounts and insurance, these legal documents are non-negotiable for any practicing DVM:

• Will or revocable living trust. Directs who gets assets that don't pass by beneficiary designation or joint title. If you have minor children, the will names a guardian. A living trust can avoid probate in most states and provide smoother asset distribution.
• Durable financial power of attorney. Names someone to manage your finances if you are alive but incapacitated (not the same as after death). Without this, a court process may be required to establish a conservatorship.
• Healthcare directive / living will. Documents your medical preferences if you cannot communicate them. Separate from financial planning but essential.
• Healthcare proxy / medical power of attorney. Names who makes medical decisions if you cannot. Should be the same conversation as the healthcare directive.
• Buy-sell agreement. If you have a practice partner, this is not optional. See the buy-sell agreement guide.

Updating beneficiary designations on every retirement account, life insurance policy, and bank account is separate from but equally important to these documents. Review them after every major life change: marriage, divorce, birth of a child, death of a named beneficiary, or significant change in asset values.

Where Practice Owners Should Start

1. Audit your beneficiary designations. Log into every account and verify: Solo 401(k), SEP-IRA, IRA, cash balance plan, life insurance, and any group plans. This takes two hours and requires no attorney.
2. Review (or create) your buy-sell agreement. If you have a partner, verify the agreement is funded with current-value life insurance or disability buyout insurance. If you're the sole owner, consider a "key person" successor agreement with a trusted associate or a corporate buyer letter of intent as a contingency.
3. Execute core documents. Will or revocable living trust, POA, healthcare directive. An estate attorney who works with business owners can complete this engagement in a single meeting plus document preparation — typically $2,500–$5,000 for a complete package in most markets.
4. Model the practice in your estate. A fee-only financial planner who works with veterinarians can build a consolidated net worth statement that includes the practice, model the after-tax estate value under different sale scenarios, and identify whether estate tax exposure exists at all — and what to do if it does.