The Deployment of Wealth
More than ever, there is a need to diversify one’s wealth and to consider how this wealth is owned or organised. Below, we are considering wealth management and planning, and the importance of considerations in deployment of wealth.
“Capital isn’t scarce; vision is.” – Sam Walton
One of the problems of wealth can be the balance between enjoyment (harvesting) and protection (sustainability) for future generations. Often the wealth is tied up in a business, rather than being freely available, to hand on piecemeal to the next generation or perhaps others more needy.
IHT, Death duties (or whatever term under which taxes may exist) place a high potential cost on the failure to plan the passing on of wealth. A planned relinquishment – of at least the furthest corners of your financial empire – makes good sense. Take advantage of lifetime gifts. You should do this in a way that doesn’t oblige you to eat at the soup kitchen to achieve it. You should take advantage of changes in legislation, such as the pension relaxation in the UK. Funds rolled up largely tax free are now magically available – for some, at least – to be handed over to the next generation of loved ones.
Most readers of this article either have already chosen their direction to achieve wealth or have already achieved it. This article will therefore emphasise considerations in deployment of wealth. The reality is that whether über wealthy or not, how one releases what one has, and benefits those around one, is often difficult and many die without making these decisions.
“It is health that is real wealth and not pieces of gold and silver.”
There are numerous quotations referring to health and wealth. The certainty is that if you do not look after your health you are not going to enjoy your wealth for long. Health costs are significant the world over and providing for your own should be an early consideration in wealth planning. With longer life expectancy the need to retain rather than pass on wealth is prudent.
Preservation and Protection
Some would say wealth is harder to achieve now than it was a few decades ago. That view probably focused on the western economies. The world is still emerging from a severe recession, inequality abounds and indeed some would say is increasing. The wealth of many has been prejudiced by exceptional actions taken by governments and Central bankers. The availability of cheap finance has favoured larger institutions and taken earnings, and thus capital value, from millions of individuals. Political unrest and change has also prejudiced forms and locations of private wealth to an amazing extent in the last five years.
Preservation thus has to consider where one’s wealth is deployed. There is strength in adopting a discrete approach, rather than having everything in one place. If your wealth originates from different sources, you should consider keeping them independent as you organise your wealth.
What form should it take?
More than ever, the need is to diversify one’s wealth and to consider how this wealth is owned or organised. As with the Titanic, assumptions as to unsinkability are unwise! Recognising this by taking due care and obtaining good advice cannot be overemphasised.
That having been said, taking good professional advice cannot, and should not, substitute for serious reflection by the individual on what they desire to achieve with any accumulated wealth. The combination of these, personal and professional, is almost certainly the best way to ensure that all components are considered and all the consequences of decisions are factored in rather than overlooked.
This is an iterative process, particularly if you are starting it with someone that is unfamiliar.
Considerations in this process would be:
If wealth is achieved early in life, provision for an enjoyable lifestyle will be important. So too will health for ever-extending life-expectancy.
Age also impacts consideration of dependents. The wish to provide for private education and other privileges you quite possibly haven’t enjoyed yourself may be important for you. But here there are also many who favour making their children work for a living, rather than spoiling them by giving them a lump sum.
There are thousands of worthy causes: saving the white tigers or the provision of clean drinking water in the developing world, to name but two. Match your philanthropy with your areas of interest, or perhaps those of family members, so that the deployment of your wealth can be a generational bridge rather than a divide.
Estate Planning and Taxation
The world has moved towards taxation of almost anything transaction or fixed. Moves have also been made to ignore legal structures set up to house, amongst other things, wealth. The corporate veil has been fatally pierced. Indeed it is hard to see the direction of these developments changing for the foreseeable future. Rational responses to this might be:
1. to hand on as much and as soon to the next generation;
2. to organise one’s life to mitigate taxation;
3. to try to grow one’s wealth to the point where the incidence of taxation is irrelevant.
As one of the main motivators or most cited reasons for generating wealth has been to have the things your parents couldn’t afford for you, the logic of passing this on efficiently to the next generation is compelling.
Taxation – penalties and interest aside – is always only a fraction of the amount being taxed, so organising one’s life solely to avoid it is akin to cutting off one’s nose to spite one’s face -painful and rarely worthwhile.
The management of wealth needs to be managed. There need to be many musicians in order to play a symphony, but without someone conducting them the desired harmony will not come together. Early on you need to decide whether you wish to conduct or, as is more usual, enjoy the performance. The advice would be to relax a little, after a life of wealth creation, and let someone else do the heavy lifting. You want to enjoy the Riva rather than swim in it? Enjoy what those collectibles can give you, rather than leisure time taken up making sure the boat house hasn’t been damaged in the spring tides r that the house is ready after a long scenic drive to reach it.
“Wealth is the slave of a wise man. The master of a fool” – Seneca
(The article admits to being more a tasting menu than a feast but the analogy holds good that, by extension, the process of identifying, ordering and then the orderly deployment or disposal of one’s wealth is best done with expert guidance. And, as with the sommelier’s recommendations to accompany each course of a superb meal, that you should be encouraged towards a selection that is genuinely sympathetic and complementary to your choices. In this way your wealth will indeed be tasted enjoyed and savoured.)
The likelihood is that you have assets in more than one country. Keeping current with changes can be difficult in one’s own country, be it of origin or choice, but if assets are in several countries it is nigh on impossible. So another reason to deal with specialists who do just that. Recent changes in pensions’ legislation in the UK1 and separately the validity of wills across the EU2 are two cases in point.
At Woodbrook Group Corporate Service, we can assist you in most areas of wealth management – be it investment or a family office. We are also very aware that this is a decision you must make in a time that suits you. It is better to make the right choice late rather than the wrong choice early. Knowing what you want is central and we are ready to help. Please contact us here.
1. In the latest budget Chancellor Osborne has announced an increase in the lump sum that can be taken on retirement.
2 The EU has announced guidelines to acknowledge a will as part of an EU member’s estate. Thus avoiding the need to have a will in each member state.