Client Collisions: Unexpected Meets Unprepared Planning
What could go wrong? You have a plan, right? One thing I know is that you never get hit by the bus you are watching. You only get hit by the bus that you are not watching.
Basic planning has its place, but let’s step outside the boundaries of basic planning. There is no shortage of news to find about unexpected events affecting families in our communities. Behind each event are real people with real struggles. When you are on the receiving end of an adverse unexpected event, it can result in a financial stumble, a fall or much worse. It can greatly impact your financial trajectory to the point that you completely miss an important target. Bad things happen to good people. As life reminds us, the things that one may be least concerned about, or those things you don’t bother to consider, are trap doors along the path to worry free finances.
When it comes to planning, the difference may not be the questions asked, but the questions that you don’t ask. Frankly, some questions create discomfort to ask. So, do you want your head in the sand, or talk about it? In life, there are really two ways to manage any type risk; either keep the risk or transfer the risk. There are hazards on both sides of that double edged blade. It is only when you are able to acknowledge the unexpected could actually happen, you are equipped with information, and have thoughtful solutions that you can make the best decision. If you fail to plan, you plan to fail.
Just a few weeks back, Hurricane Irma passed over my house in Miami. My first concern was family safety, then protecting our home. We evacuated to a safe and faraway place with family; that box is checked. We followed all hurricane preparedness procedures; check again. On the way out of town, I was most worried about the wood fence being blown away like a potato chip, and that all of the tender and newly planted trees would be destroyed. Well, we sure missed this one. The wooden fence and new trees were just fine. However, a 50 year old, 40’ mango tree fell right into our house and knocked down a 50 foot length of a 6 foot tall cinderblock and concrete wall. Well, we didn’t see that bus coming. In this case, we are able to transfer the risk to our insurance company; that’s exactly why we maintain hurricane and flood insurance with coverage levels and deductibles that match our needs. However, some of our neighbors have no insurance on their home, and they are not very pleased right now. In fact, I’m not pleased either since there is joint property damage in which they have no insurance to cover. So they have effectively transferred that risk to an innocent bystander if I want repairs completed.
Here are 10 tough and unexpected scenarios that I have witnessed in the past 25 years. Have you thought about these, or do you have an emergency plan to address these? This is not a doom and gloom outlook, but a reality check for you and a mirror. It is only your level of preparedness that determines the final outcomes and ability to achieve financial prosperity:
1. Aging parents.
I’m part of the “sandwich generation”, that means I am raising a child and caring for aging parents. That puts me in the middle.
- Do you know the financial resources that your parents have to care for themselves?
- Is it possible that you may need to financially support them in later years?
- Will you need to provide them a place to live?
- If you have siblings, will they help?
- What are your limits in helping your parents?
- Will you be sacrificing a child’s education fund or your own retirement or other goal to help?
- If that may be a financial burden, when do you say when? This is not only a financial question, but also a familial and personal mental health matter.
- How have you thought of this?
- How have you and your partner discussed this?
- Have you addressed this with your family?
These are tough questions and sensitive topics.
2. Unexpected loss of your partner during the years of wealth accumulation.
The biggest asset that most accumulators have is themselves. That is, the ability to earn income and accrue wealth. However, if the primary or only income source stops, what happens?
- Are you organized?
- Are you prepared for this possibility?
- Do you know how to find and access important documents?
- Are you financially and legally organized?
- Do you have a go-to person that knows all of your family matters to sort this out in advance?
3. Disability.
Possibly more complicated than loss of life, a disability may be financially ruinous during wealth accumulation years. Again, the ability to earn wealth is typically one’s biggest asset. If you or your loved one were to become disabled, what does life now look like?
- What provisions have you made?
- How will your life change?
- What are you doing about it?
4. Unexpected property damage or destruction.
Bad things happen, and there seems to be a clear trend that natural disasters are more frequent and more destructive.
- What is your plan?
- How can your family be safe?
- How can your assets and wealth be protected even if they are destroyed?
- What is your pain limit on losses you are willing to bear?
5. Closure of a closely held business.
I have both witnessed a massive amount of wealth accumulated and lost due to concentrated wealth. If you are a business owner, you may not see yourself at risk, but the world changes and all decisions are not good ones. Empires fall, competitors crowd spaces and business models fall out of favor. Where’s Blockbuster? What about a travel agent? Seen many taxi cabs? Kids are at play with smart phones, not musical instruments. Have you read about the struggles of music instrument makers? Not good. What’s your back-up plan to assure a minimum level of financial security if your business heads in a different direction?
6. Concentrated stock losses.
Countless employees of publicly traded companies amassed huge wealth in their own company stock. History tells us that concentration builds huge wealth, but can also devastate wealth. How can you protect yourself from a complete financial meltdown if something happens to your employer in which you hold a majority of your fortune in their stock?
7. Divorce.
Didn’t see that coming? Nobody wants to talk about these things, but loss of personal wealth in a divorce can be devastating. The winners in divorce are divorce attorneys; legal fees can be outrageous as emotions run hot. Outside of the emotional and familial side of things, it creates new financial strains and dynamics to maintain two separate households. This requires an entire re-working of a plan and to hit the rest button to figure out how to get organized for the future.
8. Lack of family financial governances.
If you have accumulated great wealth, how do you teach financial literacy to your children? In fact, how do you educate your children to deal with others that seek them out as targets. Several years ago, the child of a wealthy family was approached at college by a “friend”. The “friend” said, “I need $5,000. I know your family has a lot of money, and you can trust me to pay you back”. How do you deal with that? How do you talk to your kids about wealth? In another scenario for a wealthy family, there were 4 sons. Each married and had 2 children. One of the sons sadly died unexpectedly. How does the family wealth get distributed to the 3 children, a surviving spouse outside the direct family and 8 grandchildren? Does the wealth amassed by the family pass to the widow? Does it pass to the children? There is not a correct answer, only the choice that family wants. Is that properly documented to be carried out?
9. Personal liability gaps.
There’s always somebody trying to take advantage of a situation, and a tiny oversight can really cost you. Let’s assume that you are on the wrong side of an auto accident and get sued. Are your limits coordinated between your auto policy and your umbrella policy (if you have one)? Let’s assume in an auto accident, your auto insurance covers $100,000 and your umbrella is $1,000,000. However, the umbrella coverage begins at $300,000. If there is a judgement against you for $800,000, here’s how that plays out. Your auto insurance covers you for the first $100,000. You are personally responsible from $100,000 to $300,000. Then, your umbrella covers from $300,000 to $800,000. Ouch, yes, that’s a $200,000 out of pocket amount, and a huge trap door. Find a professional and figure this out. There are plenty of these little trap doors hiding in people’s lives.
10. Well planned estate with poor follow through.
The bad and sad stories here are endless. Get organized. Lots of people spent meaningful time and money with attorneys to get their wishes in order and formalized in legal documents. However, those legal documents are often rendered useless due to mismatched asset titling, having other documents that supersede a will or even outdated beneficiary designations on retirement accounts and insurance. There are countless trap doors here that may result in your intended wishes to not be followed. I’ve witnessed retirement accounts that have former spouses listed as the beneficiary instead of the current spouse. Ouch, double ouch! The details matter, and just because you have a will does not mean that all of the other peripheral issues are organized to assure your wishes are followed.
What can you do?
Make a date with yourself, other decision makers in the family and your team of professionals to get coordinated. The vast majority of people have not considered or planned for these possible issues but they happen every day. Some keep their heads in the sand and procrastinate; that may catch up with you. However, the cure for a good night sleep is to take the time with qualified professionals to sort through these and other family specific matters. Plus, only then will you feel a sense of financial liberation.
To learn more about Matthew Lapides at Ethos Private Wealth, view his Paladin Registry profile.
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