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When I speak about preservation planning, I often hear, “Paul, tell me what can go wrong. What could possibly be my critical event? I am financially secure, in good health and insured for negligent acts. Preservation planning is not on my radar.”
That’s a tough question to answer; we do not have a crystal ball for the future. However, I tell the audience that the probability of something going wrong – a critical event – may be remote but is not zero. Something will go wrong in your life, so you better be prepared to the extent possible. To that regard, twist the question around. Focus on the concept of recovery from that critical event. Do I have the time and energy to recover at my age? Let me give you some examples.
Your university days. You’re taking Biology 101. You get a D on the midterm – too much partying and not enough studying! The critical event. You’re devastated because you need an A in Biology so that you have a chance at medical school. You start to study harder and hire a tutor. You end up with an A in Biology which was one of the key components to your admittance into medical school and career as a doctor. The recovery.
Fast forward 25 years. You’re married, have two children, a successful practice and you’re 50 years old. One morning while shaving you find a lump on your neck. You go to your family doctor to investigate. After multiple tests and many sleepless nights, it turns out you have throat cancer. The critical event.
The treatments start. Radiation and chemo – three months’ worth. At the end, you’re pretty beat up. Now the question becomes how to recover. The recovery. How am I going to recover from the treatments and return to my practice and a normal life? Do I have the finances, time and energy to recover? This is what happened to me at age 50. Fortunately, I had the finances, time and energy to recover. Not everyone is so lucky.
Another 15 years go by. The kids have left home. You have sold your practice – cashed out. Retirement is treating you well. Your investments are doing pretty good. Particularly, the commercial properties that you invested in with your friends. They are heavily leveraged but with 90% occupancy and a strong economy, things should be fine. There is one slight potential problem: you have outstanding personal guarantees on the loans. What is the probability of being called on those personal guarantees? Given the strong economy, very remote, but it is not zero.
The economy goes south. Most of the tenants leave or worse – go bankrupt. Occupancy is now at 20%. The banks call on the loans and personal guarantees. The critical event. How do you recover? You’re 65 years old. The practice has been sold and you are no longer working or generating a steady income. How are you going to pay off the loans? The recovery becomes very difficult because of your age. Unfortunately, you may never recover.
There is a pattern here. As you grow older the critical events become larger and the recovery more difficult. That’s because of health issues and age. Essentially, the stakes are higher.
So, when someone asks me the question “what can go wrong,” I always flip the question back and say “can you recover if something does go wrong?” That’s what people need to focus on in the later years. Recovery. Be prepared. Do not take the view that nothing will go wrong. The better view is how will my life look if I lost my home and pension?
The lesson: Live a healthy life style, enjoy your retirement, and protect your assets for you and your loved ones. Always remember that an interesting – and often over looked – component of life is the recovery component!
About the Author
R. Paul Jacobson, KC is a senior member of the Alberta Bar with a referral-only, Calgary practice, concentrating on “bespoke preservation planning™”.
