My lawyer leaned across the table, apologized to my wife, and observed…
I don’t get it. Why don’t you just take the money.
I muttered something about Black Swans and protecting my kids. Later, I went home and ran the numbers. There was something I knew but couldn’t articulate.
Here’s what caught my eye
- 45 year old man
- Three young kids
- What’s the probability that I don’t see my youngest graduate college?
- What’s the probability that I fail to live long enough to train my successor?
- Of 100,000 men born in 1968, how many are still living? 94,507
- How many are forecast to be around when my youngest exits college? 80,308.
- How many are forecast to be around when my oldest is 35 years old? 62,761.
Source: Find The Best.
With a little bit of math, I can calculate my…
- 20-year mortality => 15%
- 30-year mortality => 34%
Those numbers are far higher than a Black Swan event. If I was on a board of directors then we’d be working to address the key-person vulnerability for the firm.
Fortunately, courtesy of my young wife, my kids benefit from a 90% expectancy of Mom or Dad making it for another 35 years. You can find a Couple’s Life Expectancy calculator here.
The risk to my family, comes from losing my skill set (financial, legal, strategic, accounting) before we have a succession plan in place. With a big age gap between me and any reasonable successor, the family needs a back up plan. However, my family doesn’t have the financial means to create a Family Office.
Life insurance doesn’t cover the skills and knowledge gap when your family loses an elder. It might give you money to hire outsiders but they nearly always work for their own interest, rather than the interests of your family.
What to do?
My answer has been to start a family council. The council consists of a lawyer, a doctor and a professional fiduciary. All of these individuals:
- have known my family for 10-30 years
- share the family’s values
- have been seen (by our family) to do the right thing, even when inconvenient
I brief the advisers every 3-6 months about what’s happening in the family. I prepare documents for them that explain how we’re structured. I repeat myself a lot. My wife sits in on the meetings.
My annual cost is roughly equal to the Long-Term Care Policy that I carry. Additionally, I get frequent inputs of really good advice from a group of people that I trust to assist my family if I can’t.
When it comes to succession, I suspect that most of us do a better job for our firms than our families.