Ep. 4 Protecting Your Law Firm's Future: The Essential Role of Life Insurance in Financial Planning
Mar 10, 2024
Todd Whatley and Ian Weiner
Imagine the consequences of a sudden twist of fate for a law firm owner. It's a scenario Todd Whatley and Ian Weiner, unpack with unflinching honesty: the imperative need for life insurance in your financial armor. Our candid exchange goes beyond the basics, pulling back the curtain on why your legal practice should be treated as a valuable asset, one that demands protection through meticulous life insurance planning. We share from our trove of personal experiences to help you recognize and avoid the common oversights that could jeopardize the future you're working hard to build.
As we dissect the complexities of life insurance, you'll uncover how it plays a pivotal role in business continuity and family security, particularly through the lens of a funded buy-sell agreement. Todd and Ian delve into the tangible benefits of term policies with conversion rights and how life insurance can serve as a strategic tool for a seamless transition during the unforeseen loss of a partner. Join us in this critical conversation, and let us guide you towards a path of action. It's time to ensure that the legacy of your hard-earned success is preserved, protecting not just your practice, but the people you cherish the most.
Imagine the consequences of a sudden twist of fate for a law firm owner. It's a scenario Todd Whatley and Ian Weiner, unpack with unflinching honesty: the imperative need for life insurance in your financial armor. Our candid exchange goes beyond the basics, pulling back the curtain on why your legal practice should be treated as a valuable asset, one that demands protection through meticulous life insurance planning. We share from our trove of personal experiences to help you recognize and avoid the common oversights that could jeopardize the future you're working hard to build.
As we dissect the complexities of life insurance, you'll uncover how it plays a pivotal role in business continuity and family security, particularly through the lens of a funded buy-sell agreement. Todd and Ian delve into the tangible benefits of term policies with conversion rights and how life insurance can serve as a strategic tool for a seamless transition during the unforeseen loss of a partner. Join us in this critical conversation, and let us guide you towards a path of action. It's time to ensure that the legacy of your hard-earned success is preserved, protecting not just your practice, but the people you cherish the most.
Speaker 1:
Welcome to the Lawyer's Money Show with your hosts, todd Wattley and Ian Weiner, where finance meets the legal profession. Here we dive deep into the economics of law practice, from managing your firm's finances to optimizing personal wealth strategies for legal professionals. Every episode we bring you insights, strategies and stories from leading experts to help you navigate the financial landscape of the legal world. Stay tuned as we uncover the tools and tactics needed to help lawyers make the right money moves so they can grow their career, manage their practice and optimize their wealth so they can focus on enjoying the life they've worked so hard to build. For more resources, visit us at wwwlawyerstotalplancom.
Speaker 2:
That's right. This is the Lawyer's Money Show and my name is Todd Wattley. He's certified overall attorney and practicing attorney, but partner in a firm that helps lawyers with their money and helping lawyers figure out what their practice is doing now and how to make it better and potentially to sell. But even if you don't want to sell, it's still a good idea to position your firm as if you were going to sell and thankfully I am here with my co-host, ian Weiner.
Speaker 3:
Hey man, how are you, Todd, excited to talk about this? This is a subject I'm passionate about.
Speaker 2:
Yeah, and so Ian is my partner in this business and he is a certified financial planner as I call him, the super nerd of finance. His brain goes way different places than mine does, which is good, because we need different perspectives. Ian sits in on some of my legal meetings in my law office and things come up with business owners. We got to talking and I think this is a great topic for lawyers. Again, I am the guinea pig of this whole partnership in that my law firm been doing this for 25 years. Thought I was doing a pretty darn good job, yeah.
Speaker 3:
I'm doing. Okay, You're a live case study. Let's say it that way.
Speaker 2:
Ian comes in and starts being a little nosy and I start sharing some things with him. He's like have you thought about this? I'm like, no, have you thought about this? Well crap, no, and what if this happens? Well crap, Ian, have I done anything right? Yes, you've done a lot of things right, but there's some missing spots that Ian did a really good job of pointing it out to me, and I think one of those things was life insurance.
Speaker 3:
This is the naughty word in the advisory space. Don't tune out, just hang with us.
Speaker 2:
I stick with this because life insurance can do some really cool things and I think we particularly did a meeting this week with not an attorney firm. But this situation very easily carries over to my own firm. Ian, I'm pretty sure you're a firm. If you're the owner of A law firm, is what happens if you're not here tomorrow? You're in a car wreck, something tragic happens and you're gone. Now what You're gone and how does your spouse get paid for this business? Or what happens to your business? Do other attorneys come in and take those files and leave, and your family's left with nothing after years and years of you building this? What mechanism is there in place to make sure that your family benefits from your work over these years? What is the process of you not being here anymore? And that's what Ian's going to talk about today?
Speaker 3:
This is.
Speaker 2:
We could do five episodes on this, we probably should, we probably will.
Speaker 3:
This is a topic that it is my belief that the industry needs a greater level of precision on. When I say the industry, I mean the financial professional industry will say it that way, because if you're licensed to sell life insurance, you can call yourself a financial professional. So if someone introduces them or their business card says financial professional, that's when you begin to be a little nervous. I'm just going to tell you OK, they're probably selling one product, yeah, and there is a place for one products. Now, hammer, meat nail. You don't always need the hammer, though. We need a full tool belt here. What if there's a screw?
Speaker 2:
Yeah, this is. We need a screw driver and I think for most people.
Speaker 3:
This is so intuitive. And I think what's challenging and I don't know that attorneys know this life insurance people do not have a fiduciary standard. They have a suitability standard, and so we've had other episodes where we talk about that a little bit. But the main point that you need to understand there is that's like going to a store to buy a suit and you go in and you say, hey, I need a suit. Well, if you walk out with a suit, that's the suitability standard. The fiduciary standard is the suit's got to fit you and it's got to look good. It's got to be the right one for you. You could walk out with a suit two sizes too big. It's still a suit. It's a suit. There's the suitability standard. So I'm hoping that's a good enough analogy to begin to see the problem.
Speaker 3:
So what we find is there's really a couple of places where people get life insurance and how this process works, and what we're encouraging is let's take a little bit more planning focused process here.
Speaker 3:
So typically, you're going to have someone you went to college with or high school with, that's going to work for one of the big mutual companies and they're going to sell you a policy. May or may not be ideal for as you grow, but at least you got something covered or you're going to buy it from your P&C person, your farmers or your state farm, and it's like $100,000 policy and you get a discount if you bundle it. This happens a lot, and those things aren't inherently bad. I would rather people had some life insurance than none, frankly, but what we find is that it's not done with real big picture, comprehensive planning in mind, and so what people end up accumulating as a handful of products that don't necessarily work together, really make sense, and so that's not optimal. And so what I want to talk about is how should we look at life insurance, what are the uses for it and how do we do it from a planning perspective?
Speaker 2:
Right. I think this is why in this business the lawyers total plan business that's the sister of this podcast is yeah, we want to look at your business. We can come in and analyze your business, look at everything. But then it's also important that we look at you personally because, particularly as attorneys and if you're the owner of the business, your personal financial setup very much affects your business setup. And we're not being nosy, it's just we want to help you. It's the lawyer's total plan total being a key word there, in that we want to help you totally and look at everything.
Speaker 2:
And If you don't share that with us but we understand, but we encourage you to let us look at everything and say, okay, this personal life insurance policy, that's great for your family, but what about your business? What if you're not here? Even if you're a solo practice attorney, wouldn't it be much better for your employees and the people that depend on you if you're no longer here? Suddenly the business has a life insurance policy and a million dollar life insurance policy that now a million bucks, goes into the business. The business can now hire an attorney to come in and work with your staff and try their best to carry on and your people get to stay employed. So, yeah, it's good to personally have your life insurance. That's great for your family. But what about the business? And that's one thing I was liking. It's like it was just me and now I've brought in another attorney and I have a decent amount of staff and if I'm not here tomorrow, there's probably gonna be some financial issues come up and a life insurance policy solves all of that, it brings up a big challenge, and this is stuff that it's not fun to think about.
Speaker 3:
It's like a state planning You're demise?
Speaker 3:
yeah, it's not fun to think about, but I wanna encourage everybody, and one thing that I enjoy about working with attorneys is that they're intelligent and they're willing to think through stuff that is sometimes challenging to other people, and they're okay playing in the theoretical a little bit. And so the question that I wanna ask you to ask yourself and your spouse and your partners is if I were to leave the planet tonight, what's the plan and I love that language If I were to leave the planet tonight, what's the plan? And if you don't have a plan, it's probably suboptimal, probably.
Speaker 2:
It absolutely is. Yes, I mean, if you're listening to this and you don't instantly know what would happen if you leave the planet, that's a problem, and maybe that is a prompt to call us.
Speaker 3:
Yeah, so there's two parts. You know, I think I want to talk on the personal side just a little bit and make sure that I exhort well here, if you have anyone that depends on you financially, you know whether that's your partner, your spouse, your kids you know you need to have life insurance, and I'm not telling you that you got to go out and buy a giant whole life policy and pay, you know, $300,000 a year in premiums. That's not what I'm saying, but you need to have. This is a risk transfer. You know your ability to earn income is arguably your greatest asset, depending on your age, and so we need to transfer that risk to the insurance company. We do it with a simple term policy. Okay, so this is where I say, hey, this is a precision, this is an area of precision.
Speaker 3:
And term is the cheapest insurance you can get, yeah, and so we can do this relatively inexpensively. Now, when you get a term policy, you want to get a term policy with a company that offers what's called a conversion right or a rider that allows you to convert it to a permanent policy for a certain number of years Typically it's 10 to 15 years is what the better carriers allow and the reason that you want that is let's say, you get that $2, $3 million term policy and then all of a sudden you become insurable. This happens People get sick, Things happen, and now they can't get any more insurance, and so now we can convert that to a permanent policy and make sure that it stays in force. So this is simple. This is not a really an expensive thing to do, but it's one little area where me understanding how this stuff works can potentially save, in the case of someone who becomes insurable and their policy would have lapsed, a couple million bucks for the family. These little things that make a big, big impact. So for your personal situation, you need to. If anyone depends on you financially, you need to have life insurance, and it doesn't have to be expensive. But you need to do it, and we have calculators will help you find the right stuff and buy it. That's not a big deal, but the business the business also should consider this, depending on your size and depending on what you want to have happen.
Speaker 3:
And there's two ways that this really goes. The 101 level here is there is buy sell, life insurance and then there's key person or key man I don't want anyone, this is just the term. And so the first thing when I'm talking with a business owner, especially if they have a partner, the first question okay, you own a business, great, where's the buy sell? Do you have the buy sell? And you watch me do this last week with somebody and they said they said what? So the buy sell is and probably as an attorney, you're aware of this but the buy sell is a contract that outlines what happens if there's a change in the business at certain times. It could be one of the partners passes away, it could be one of the partners wants to leave. There's a handful of things. There could be a disability event, one of the partners becomes disabled, so there's a couple of things that can trigger the buy sell. But the buy sell is just a contract and it outlines what would happen if X, y or Z happens, and everyone needs one.
Speaker 3:
Most of the time, if you have one, it's not funded, and so there's a couple of ways that you can fund a buy sell. You could have a big pile of cash on the side and a bank account. You could get a loan if you needed to at a certain point. There's a couple of other things that you can do, but really the simplest, easiest way to do it is to fund it with life insurance, and so what happens is either the business owns the life insurance on the partners and then, if one of them passes, they buy their shares in the business or their percentage, depending on if it's a company or a partnership from the surviving family members, or they purchase it on each other and they agree to buy the other one out, and so we use different ones in different scenarios.
Speaker 3:
That's another story for another time, but this is really not a complex business decision. This is just okay. If we have a business and if we have multiple people involved, we need a plan for when things change, and part of that is getting a valuation of the business and maintaining that, and that's just good business practice, and so if you don't have a buy sell, you need to create one, and if you have a buy sell, how are you funding it? Are you planning to take a loan out when your partner dies? That could be really expensive, that's yeah.
Speaker 3:
Do you have a bunch of cash sitting there to pay it. That's probably not a great idea For people that can be insured. This is simple, it's very inexpensive and it makes sense. So that's the buy sell. And then we have the key man or the key person, which is okay. Let's say you've got, you've got a managing partner and then five key attorneys right, maybe one's the rainmaker, that's pretty primary, or they have some complex specialties. Well, the business should probably have a key person policy. There's there's Different types for if they become disabled or if they were to pass away that they should own. You know, hadn't thought about that. That's a. That's a big one.
Speaker 3:
Yeah, disabilities A disability is a big thing. We do that, we. There's different options that we have. If the group is big enough, we don't have to underwrite it. There's some cool stuff we can do. But the thing that that you got to think about is okay, you've, you got your buy-sell, you funded that, you took care of that. So the risk of you leaving the planet tonight, we've, we've handled that. We know it'll happen. We can pay for that process.
Speaker 3:
But, let's say, one of the key people that's on your team Either leaves the planet or leaves the firm or what you know. What's the plan there? Mm-hmm, because you know, if you have one person who brings in 50, 60% of the revenue and they're the rainmaker, and All of a sudden you know they get hit by a bus, heaven forbid, right. Yeah, that's a. That's an expensive problem, mm-hmm. There's a cost associated with trying to replace that person. Yeah, and that's that's a. Replace that business. Yeah, I mean that that will. You know, and forgive the clinical conversation about this, these are people's lives, you know, but we, we have to approach it a little bit that way, right, and so that's another area where you know we need to, we need to make sure we have a plan for that, okay and that's one area that that I was lacking at and we have fixed.
Speaker 3:
It's, it's not fun. No.
Speaker 2:
It's. I don't like to think of my law firm not having me. Yeah, but that would be a very expensive proposition because you know, I've been doing this 25 years. My new associates been with me now for three or four months. No one knows her. Yeah, everybody comes here because of me and if I'm gone they'd be like, oh well, I guess that that law firm's dead and gone. Well, no, lauren needs to jump up and start advertising and you know, spending a lot of money to let people know. No, we're still here. Todd train Lauren. Lauren knows what she's doing.
Speaker 3:
Yeah, I keep on coming, but that's gonna be, that's an expensive proposition, sure and it's. You know that's an uphill, that's an uphill battle, mm-hmm. At the time that you know, the rest of the business is thrown into chaos because you're not there, you know. And in that situation I mean, I adore your wife, but she does not need to own the law firm.
Speaker 2:
She can yeah?
Speaker 3:
Yeah, it doesn't. It doesn't make sense to leave that undone.
Speaker 2:
Yeah, you know so I'm, I'm telling you out there, okay, I've been in practice 25 years. I thought I had done a pretty good job, and the whole reason we started this business, you know even, was like, if you're like this, you think there's at least one other person out there like this I can tell you I talked to a lot of attorneys and I, I can tell you a lot of attorneys, or just like I am, I was focused on practicing law, which is what you should be focused on, right, you know, and that and I just want to be so clear about that, we're not trying to beat anybody up here, you know just going hey, if you do these things, we can increase the value of your practice there.
Speaker 3:
I don't know why that would be. That would be bad, yeah, at all. And and I think something to think about is you know, especially if you're a smaller, smaller firm, if you don't have this stuff in place, the practice is not worth very much without you, right? If anything, that's true. And so you talk about a difference of you know. Let's say, you know you're doing a million dollars in revenue a year and you're the main or the only attorney. If you go away, I it's gone.
Speaker 3:
I mean there's no enterprise value. Your spouse will get nothing.
Speaker 2:
I mean, that's what about your employees? What about your spouse? Even if you did shut it down, having a million dollars in the office's bank account, you could give a really good compensation package to your employees. And hey, all these files are leaving. But here's some money. It's just a gift you can give your employees that you're giving them right now. You're giving them a job, You're providing them a way of life right now, and you don't want that to stop very suddenly if you're gone.
Speaker 3:
Yeah, it's A lot of the folks that we're talking to. I mean, you're practicing in a community. For the most part, you know and you want to have a thoughtful impact on that community and think through what will happen and what you want to happen. So there's a lot on the insurance or the risk management side that we can do. These are just tiny little examples of good practices. But think through what's the plan if you're going to leave the planet tonight for your personal life. Think through what's the plan if you were to leave the planet tonight for your business. And if you don't have clarity of exactly what's going to happen and you're comfortable with that, we need to address it. Let's talk about it. Let's address it. Yeah, let's talk so All right.
Speaker 2:
How do people get in?
Speaker 3:
touch with us. So the easy way you can call the office 479 601 4119, where you can email Ian at lawyers total plan dot com.
Speaker 2:
Okay, cool, all right, thank y'all and thank you for listening. Thank you for subscribing, or please subscribe if you haven't, and then if you know someone who might could use this information, please forward this podcast to them. Okay, we would appreciate it and we will be back next time. Okay, thanks.
Speaker 1:
Thank you for joining us on the lawyer's money show. We hope today's episode has provided you with valuable insights and actionable advice to enhance your financial well-being. For more information, to access show notes or to explore further, please visit our website at wwwlawyerstotalplancom. We look forward to guiding you through your financial journey. You can give us a call at 479 485 191. 1. Until next time, keep striving for excellence in both law and finance.