Looking through some old files of mine recently, I came across a white paper I wrote in the summer of 2007 entitled “Insights on Issues Facing Canadian Lawyers,” a 14-page information piece designed to provide some clarity on common financial challenges faced by members of the legal community. The motivation for writing the paper was a report to the Law Society of Upper Canada in 2004 called “The Contemporary Legal Profession in Ontario — A Report to the Law Society of Upper Canada.”
In it, authors F.M. Kay, C. Masuch, and P. Curry wrote about feelings of stress and constant worry about financial issues such as retirement savings and insurance coverage in the legal profession. I decided that it has become relevant once again and that not much has changed; so I have updated it for this article. Here is what I continue to find the main issues in the legal community to be.
Insurance
I find that lawyers tend to be underinsured as a professional group. This is especially true for the people without group insurance plans. This mainly affects solo practices or small partnerships, and a lack of disability insurance coverage. The purpose of disability insurance is to pay a monthly benefit if the insured person becomes sick or injured.
While lawyers in larger firms tend to automatically have disability insurance coverage through group insurance plans, small partnerships or solo practices most often do not have the option of having a group insurance plan. Subsequently, if lawyers in those circumstances were to become injured or sick and were unable to work, the impact on their financial lives could be quite catastrophic.
Retirement planning
Investment returns have been minimal in recent years for two main reasons. First, the political and economic climates have been harsh. Very few times since the Great Depression have we seen economic upheaval like we have in the past few years. Secondly, interest rates are at a historic low globally.
These two factors have united to push down the values of stock markets, and have muted the potential compensatory returns from bonds. However, investors should not lose faith! Because political and economic events have moved in cycles in the past, we should be ready for a possible upturn. This makes it important for investors to stick to their savings and investment programs.
Think long-term; many of us will live well past age 80 (whether we want to or not), so when you are planning your investment strategy, think in terms of decades, not weeks. Also, factor in your tax savings when calculating your total Registered Retirement Savings Plan (RRSP) balance. The huge numbers might surprise you.
Estate planning
It amazes me the number of lawyers who do not have wills or powers of attorney drawn up. I have heard that roughly 70 per cent of Canadians do not have valid wills, and that includes members of the legal profession.
Find out what are the requirements on how to draft a valid will.
Wills and POAs are important for long-term planning — especially regarding one’s estate. Estate tax planning should not be overlooked because there are many techniques available to reduce estate taxes, such as holding assets in joint ownership, establishing testamentary trusts, and the purchasing of permanent insurance policies to cover estate income taxes. These strategies may not work financially for everyone, but are worth a look for most professionals.
The lessons are clear:
• Get disability insurance if you don’t have it, and if you do, make sure that the coverage is still suitable for your current situation.
• Stick to your long-term investment goals.
• Look into estate planning strategies and update your will now.
