Are We Really Prepared? The Critical Nature of Contingency Planning
Current news events, from the COVID-19 pandemic to the recent helicopter crash outside of Los Angeles that took the lives of Kobe Bryant, his daughter and seven others, remind us that one’s life can be abruptly altered in a moment. In the wake of these life-changing events — whether due to unexpected death or disability — many questions inevitably arise.
National Program Director GLJ Benefit Consultants
For the managing partners, the equity partners and other attorneys, a life-altering disability can lead to questions of how to sustain a standard of living when the ability to perform one’s duties is no longer feasible.
For the firm, the unexpected loss of an individual due to death or disability can be professionally and financially damaging. Who will fill the shoes of the missing individual? What clients may disappear due to the unexpected loss of that cultivated relationship? What happens if more than one partner is involved in a tragic incident? How will such a loss affect the firm?
When faced with these potential questions, one query frequently rises to the top: Are we really prepared? Over the years as I’ve worked with individuals on this topic, my response is usually another question, “When was the last time you took a look at your current contingency plan?”
A contingency plan’s purpose is to take stock of possible future events or circumstances and then provide solutions that will allow those affected to continue to thrive in the aftermath. Does your firm’s current contingency plan provide the protection both needed and wanted? If you are uncertain, the first and most important recommendation I can give is to start the contingency planning process. Although these discussions may not be easy or comfortable, contingency conversations are essential in creating a solid plan for the “what ifs” of life. Your firm’s contingency plan may well define your firm’s future.
Let’s take a quick look at a few key items that should be considered as you make your contingency plan.
PARTNERSHIP AGREEMENTS, BUY-SELL AGREEMENTS AND BUSINESS OVERHEAD POLICY
A firm can find itself in a challenging situation if the partners have not taken the time to set forth a solid partnership agreement. This agreement should be coupled with a very specific buy-sell agreement that will provide clear direction for the firm on how to recover partnership assets and ownership from surviving heirs. As your firm works through the partnership and buy-sell agreements, I would strongly recommend that you consider utilizing life and disability insurance vehicles as solutions for funding the recapture of assets in the case of a partner death or disability.
In regard to disability, a business overhead expense policy on each owner can cover the disabled owner’s portion of expenses for two years. These policies are powerful in helping to literally buy time for the firm to take a breath and address immediate expense needs, which allows the firm to formulate next steps in a likely emotionally charged situation.
Planning for an unanticipated death is a hard conversation. Having this discussion and putting in place the resulting plan can provide peace of mind for all those who may be affected by the passing of an individual. Appropriately integrating life insurance into your contingency plan will help provide funds for the transition of ownership of business in the wake of a tragedy.
A contingency plan’s purpose is to take stock of possible future events or circumstances and then provide solutions that will allow those affected to continue to thrive in the aftermath.
If you have been thinking about investing in life insurance, whether on a personal or firm basis, I urge you to take a moment to watch this video of a dear friend of mine sharing his personal experience regarding the importance of contingency planning and life insurance.
Did you know that more than one in four of today’s 20-year-olds will become disabled before reaching retirement age? Being prepared is key, and that preparation starts with investing in a quality disability insurance plan. As you consider purchasing a disability plan, be sure to pay special attention to the following items:
The definition of disability in the contract
The coverage offered for specialized areas of practice
The need for a business protection provision to help cover the overhead expenses should a partner or key shareholder become disabled
Further — especially for partners — explore the opportunities available to add significant amounts of additional individual disability insurance on top of the firm provided group disability plan. This individual coverage can be purchased on a guaranteed issue basis when partners combine to be quoted together as a group of partners, and it can provide, in most instances, enough additional coverage to recoup 75%-80% of pre-disability earnings. Many firms look into this solution as they address the importance of having a firm succession plan in place.
ARE WE PREPARED?
Life is full of the expected and the unexpected. Planning for those contingencies will help you and your firm face the future with confidence. Where do you start? Every good plan begins with an explorative, action-minded conversation. Don’t know how to begin that conversation? As an ALA member, you have vetted resources at your fingertips. Don’t be afraid to use them!
Most importantly, as the old adage says, don’t put off until tomorrow what you can do today. Take action while you can control the outcome. Action now will help prevent being acted upon later.
ALA members have access to exclusive benefits that can help them with the many intricate details of contingency planning. Learn more about them here.
About the Author
Alan Wilson is the National Program Director atGLJ Benefit Consultants, where he started as an Employee Benefits Specialist in 2004. Since 2006, he has spearheaded the effort within GLJBC to reach out to law firms nationally regarding their benefits and how to use those benefits to help attract and retain quality personnel. Wilson has written articles for Legal Management, speaks frequently on benefits at conferences and consults with individual law firms nationally.