HOW TO PLAN FOR THE UNEXPECTED

It is human nature to revel in the good and avoid the bad. Unfortunately, life is real, and the bad things often dominate the good, which is why we must make time to deal with the taboo side of financial planning.

In 2024, I was again challenged to find the answers to some difficult questions and situations. When we start planning our financial path at the beginning of our careers, we tend to plan and think about only the good times: buying a house, extravagant holidays, furthering our careers, getting married and having children, providing for our children and family, and living a healthy, long life where we live in harmony with loved ones for eternity.

It is human nature to revel in the good and avoid the bad. The same applies to financial planning, where we like to plan our investments and talk about the different strategies, investing offshore, accumulating millions to ensure a comfortable retirement, and leaving a substantial legacy for our loved ones. Unfortunately, life is real, and the bad things often dominate the good.

We must make time to deal with the taboo side of planning. Things can go wrong, and when they do, the consequences are not good, often with a knock-on effect that affects multiple generations. The cost you pay is insignificant compared to the price loved ones pay to try and survive bad planning and inadequate provision.

I recently sat in the foyer of a clinic, where I noticed an elderly lady who was clearly deep in thought. Her body language indicated that she was either worried or stressed. I asked her if she was okay. Her response brought me back to the reality of everyday life. She was there to collect her 47-year-old son, who was being discharged from the clinic after a rehabilitation course for heroin addiction. This was his third admission. Her words that followed really drilled home.

She said, “I never thought that at my age, I would have to worry and care for my 47-year-old boy.” Her words were not about financial care since he had a good job but more about his physical and emotional well-being. The worry of a mother was written across her face. She knows that if she is no longer there and he relapses, he will probably not survive.

What also hit home was the fact that irrespective of how old our children are, they will always be our children. My mother often reminded me about that. She also reminded and warned me that at the age of 50-plus, I was not too old to get a spanking from her … Don’t for one moment think that when your child turns 21, they are off your hands, and the doors of freedom are strewn open before you. Often, the opposite is true. This also applies to children. Don’t think because you are 20-something, your parents will not reprimand and “guide” you. It is the job of parents and adult children to take care of each other. 

This got me thinking about how one should plan for circumstances such as the one in which the lady at the clinic found herself. Irrespective of our children and family’s shortcomings, we will always love them, and we want to provide the best for them regardless of their age.

However, no one wants to see their hard-earned cash and the wealth they accumulated over many years merely be squandered in a way they disapprove of. This does not only apply to leaving assets to individuals addicted to substances but also to people who are bad at managing money and even more so to loved ones who may not have the ability to take care of their financial affairs due to their mental incapacity to do so.

In many cases, children who are mentally incapacitated place a much higher burden on the finances of the family due to the additional costs incurred while raising them. The more significant challenge is how to make sure that the incapacitated child’s care continues after the passing of their parents. 

I am not a big supporter of setting up a trust just for the sake of it. However, in the above scenarios, a trust can fulfil most of the financial obligations of caring for loved ones. Trusts cannot provide moral and psychological support but can fund care and welfare. It is important to nominate a trustee or trustees who are familiar with and sympathetic towards trust beneficiaries to ensure their well-being and prudent management of the trust assets. This will ensure the trust’s longevity and the welfare of the beneficiaries.

The trust can be funded by life assurance or investments. It can also own property and company shares and be nominated as the beneficiary of living annuities.

Trusts can be set up either as inter vivos or testamentary trusts. It is advisable to set up an inter vivos trust in advance and keep it as a dry trust if it does not own assets from the outset to keep costs as low as possible. Although a testamentary trust will serve the same purpose, it will not be able to receive or distribute any funds until it has duly been registered. That may mean beneficiaries will be without funding for many months and even years if the registration does not run smoothly. 

During the latter part of the year, I also had several different discussions with recently qualified graduates about to enter the world of full-time employment. Their parents are diligent clients and investors, and the children have been briefed to start investing as soon as they earn an income. Boy, are they eager to begin investing! It is fantastic to see.

When I speak about financial planning with young new professionals, I always try to understand how much they do and don’t know about financial planning and risk management. Without exception, none of the “newbies” are keen to discuss the risks life throws at us. All young people are untouchable and unbreakable. Like one told me, “I don’t intend to die young or become injured”.

When I ask them what the single most important risk is that a young person should take care of, I am given a blank look when I insist that they should protect their lifelong income before they start investing. Without income, you cannot plan, and you literally cannot live! By protecting your income in the event of losing your ability to work due to sickness or injury, you are at least ensured of a sustainable life for as long as you live, and through proper planning and structuring, sufficient funding can be generated to secure a financially independent retirement as well.

Income protection is a no-brainer for young people. If their company does not offer it, they must ensure they take it out privately in their own names.

The one area I always dread and that we have to deal with far too often is when a client or a loved one of a client contracts a life-threatening and frequently fatal disease. In my personal opinion, this is a much more challenging situation than when someone passes away unexpectedly from a sickness or accident.

The one consolation of having some notification of unavoidable death at a pre-determined or estimated time in the future, whether it be weeks or months, is that one can fix relationships and make sure one’s end-of-life planning is correctly structured and in place.

Dying as a result of an accident or some other immediate cause is traumatic and places the surviving family and loved ones at the mercy of how your end-of-life plan was structured on the day before your death. This often leads to unwanted and unexpected consequences.

To avoid chaos after your death, make sure your will is legal and technically correct. Considering the costs of medical treatment for many terminal and other illnesses, it is highly recommended that you take out dread disease cover since it is unlikely that your medical aid and gap cover will cover all the costs.

Live every day as if it’s your last. Be kind to people, fix broken relationships and appreciate each other. After all, we only have one life to live.

Take care, and have a blast in 2025.