Like most states, North Carolina prohibits engaging in many professions without first being licensed by the applicable licensing organization. For example, our law firm is not permitted to practice law without being licensed by the North Carolina State Bar. Similar statutes are in place for doctors, dentists, CPA’s, engineers, and many other professionals. These statutes specifically prohibit professional practices from being owned by anyone other than a licensed practitioner of such profession.
In implementing estate plans for our clients, we routinely give advice about the titling and retitling of assets. Sometimes we suggest retitling assets (i) from one spouse to the other, (ii) into joint names with right of survivorship, or (iii) into the name of a revocable trust. Ownership of a professional practice has always posed significant difficulty, because of the licensing statutes prohibition against ownership of the practice by anyone who is not a licensed professional.
In general, a revocable trust is a trust agreement established by someone (referred to as the grantor) during his or her lifetime. As the name suggests, a revocable trust is revocable and amendable by the grantor. Assets transferred to a revocable trust during someone’s lifetime can be transferred privately in the event of the grantor’s death without going through the probate process. Most of our clients would like to avoid the probate process because it can be slow, laborious, expensive and public.
Revocable trusts are commonly used these days. However, until recently, it was presumed based on our statutes that stock in a professional practice was not permitted to be transferred into the name of a revocable trust (since a revocable trust cannot be a licensed practitioner). Fortunately, at least with respect to dentists, in response to a request from the state dental board, the attorney general determined that this strategy is acceptable under certain circumstances.
The attorney general concluded that (1) the trust must be revocable and (2) the trustee must be a licensed dentist. The attorney general also considered whether the beneficiaries must also be licensed dentists, but concluded that the statute is intended to protect the public health, and the trustee is the one who controls the stock owned by the trust. Therefore, the status of the beneficiaries should not matter so long as a licensed dentist is the trustee. However, in the event of the incompetency or death of the licensed dentist, then unless another licensed dentist becomes the trustee or unless a licensed dentist inherits the stock, then the stock must be sold to a licensed dentist or the practice would need to be liquidated.
This is a helpful development for dentists with respect to their estate planning. Hopefully, other licensing boards will follow this approach, as it would not seem to have any negative impact on public health or safety.