By Bob Wood, MMNS
So I was watching this reality show one night this past week and saw what I thought were some of the worst financial planning mistakes having been made by a really smart guy, whose family was learning the hard way about those mistakes. Maybe the worst part of this is that those mistakes are so common.
I am always amazed when talking with someone who is trying to prepare for retirement and all they want to talk about is investing in the stock market. Thatâ€™s not financial planning at all. Thatâ€™s investment planning, and the two, while related, are not at all the same thing. Real financial planning considers what comes after you are no longer involved in your familyâ€™s financial picture. And that day is sure to come, as well all know.
Let me set the scene for you. Don was married to Tammy and started a family, having two girls. Don was hugely successful in business and they lived in the biggest house in a neighborhood full of big, expensive homes. As fate would have it, Don suffered a major setback in his business and went bust. The huge house, the cars, the horses were all gone.
Don and Tammy later divorced, possibly due to the stress of suddenly going broke after living very well for years. We fast forward a few years to today. Don has regained his successful business touch and is again doing quite well for himself. He has promised his two daughters that they will never have to work since Daddy will always take good care of them.
The girls are now 20 and 17 years old. Don, having regained his business success, felt the desire to remarry. He and a couple of good friends of his went abroad, to Thailand, in search of wives. As you might expect, Don found a bride there and brought her to his new, large and expensive home. As you might also expect, Donâ€™s daughters never took a liking to his new wife. She evidently understood their dislike for her.
Donâ€™s youngest daughter recently decided that life would be a lot easier if she moved in with her dad rather than having to get a job. About six months later, Don suddenly died of a massive heart attack at the age of 55. Imagine the shock to Donâ€™s kids, as well as his ex-wife who had been enjoying large alimony payment, that Don never bothered to engage an estate planning attorney and put into writing his wishes that his children never have to work, or worry about money should he die unexpectedly.
Don also never thought to work with a life insurance professional to make sure that funds would be there to replace the substantial income that would be lost forever upon his untimely death.
The one person that was not in shock to any debilitating degree was of course, Donâ€™s new wife. As the law provides, in the absence of a will, she was the new owner of all things accumulated by her husband. She got it all â€“ the house, the cars, the money and anything else of value. And what do you think she thought appropriate in terms of what Donâ€™s kids should share from those assets?
You guessed it. Nothing! Donâ€™s widow stopped payments on one of Donâ€™s daughterâ€™s new car, letting the bank repossess it. She gave the daughter a couple of days to pack her stuff and get out of her new house. There would be no sharing of Donâ€™s estate with his heirs. Donâ€™s kids got an instant lesson in why you should always be nice to people like their dadâ€™s new mail order bride.
Now letâ€™s use our imagination here and think of Don, getting used to his new surroundings in the after life, looking down upon his two kids, suddenly without money, income or the desire to do meaningful work since they were taught from an early age they would never have to. I wonder how badly Don would like to have had just a few more days to come back and fix what was possibly the biggest mistake of his life.
Not only are his children now lacking in monetary assets and income, but they also seem to lack ambition, motivation and the education that they are now so sorely in need of.
For those of you still alive to be reading this now, what about you? What regrets would you have if you were the next one to go? Have you done all you can to prepare your family for the inevitable?
I run an article in this space every year on the subject of life insurance and another one on the subject of estate planning. I am as sure as I can be that these articles are among the least popular of any I do all year. No one really likes to think about dying. Nobody wants to buy or pay for life insurance. And amazingly, too few ever work with an attorney to put in place the safeguards that will no doubt be needed one day.
Death is as sure an event as any other in all of our lives. Not planning for that day well in advance is a failure in the responsibilities of any family man. And itâ€™s not just the need for a will, trust or health care instructions that matter.
Preparing your survivors for life after youâ€™re gone is also vitally important. I know of one widow who had never written a check before her husband of many years died. How many surviving spouses suddenly find themselves lost amid what their husbands used to think of as routine matters?
I would guess that the majority of surviving spouses and younger children would look at chores such as buying a new car, managing their investments and arranging for repairs around the house as truly daunting tasks.
Luckily, the remedy for this situation is easy enough to begin working on. An initial visit with an estate planning attorney seems like a good first step, and if your financial advisor were involved at the onset of this exercise, all the better. Your advisor can offer advice on the need for insurance, if the need exists.
One piece of advice I readily offer at a time like this is for you to buy more than enough life insurance. How much is enough? Thatâ€™s a relatively easy thing to decide upon. Think of your family the day after your death. What amount of money on its way from your insurance agent would be enough to offset not only the loss of your future income, but also sufficient to pay for the things you have always done for the family, like those repairs around the house?
If you are leaving substantial assets behind, there may be little need for insurance coverage. If your assets are not relatively liquid, think of adding insurance to provide for quick cash while your survivors figure out what to do with those assets.
Included in your new estate plan should be a list of people that your survivors should contact upon your death. That list should include your attorney, financial planner, life insurance agent, close personal friends and business associates. And relatives involved in your post-death plans should also be contacted, of course. And make sure someone knows where to find this list!
This is but a short summary of what is involved in planning for what life will look like for your surviving spouse and children. As much as most people hate to think about dying, is there any more certain event looming for all of us? But put yourself in the same position as our subject above, Don.
Imagine that today is the day after your death and youâ€™re sitting there next to Don, looking down at what you left for your family. Will you be smiling, knowing that a well thought out, nicely crafted estate plan is about to come into play? Are you grinning at how well designed your plan is and how well it will work, and how your family will be impressed at how smart you were, and how much you cared about them to make sure they would be left in the best possible positions upon your leaving them?
Or will you be sharing in the misery of your new friend Don, wishing that someone had impressed upon you the need for planning what always comes sooner or later, even when itâ€™s the last thing on our minds? Each of us has the option to do something about their estate plans before time runs out.
Speaking of running out, do just that. Run to your attorneyâ€™s office and get started while itâ€™s still fresh in your mind!
Have a great week.
Bob Wood ChFC, CLU Yusuf Kadiwala. Registered Investment Advisors, KMA, Inc., firstname.lastname@example.org.