Protecting your Wealth – Do You Have a Plan B?
As Dave’s guest blogger this month, a quick introduction is probably called for. I am Peter Curnow and I work for Searell & Co Ltd, Chartered Accountants and Business Advisers. We know a little about sales and marketing, but need to know more and that’s how I met Dave. While we do not know much about electricity and power grids, we do know about the importance of planning and looking beyond the issues that face us today.
Last week’s power outage across Auckland will have caused some to smirk, some to stress and others to shrug their shoulders and get on with their day. Mr Meier, the hapless farmer upon whose land the wires traverse, gives one story while Transpower will give their version to explain the outage. The fingers are being pointed in all directions, but it is hard not to feel some sympathy for Mr Meier who must be thinking that he is battling against the deepest pockets in the country – given what has happened to our power bills over the last 3-4 years, is this little wonder?
The bottom line is that Transpower exhausted all their “Plan B” supply options when struck with what they have described as a “perfect storm” of scheduled maintenance, lightning strikes and trees that needed to be felled resulting in another power cut for Auckland. The expression “deferred maintenance” for the last 10 years was used on the radio this morning to explain yesterday’s debacle.
Deferred maintenance is not the recommended modus operandi when managing wealth. Shares, bonds, debentures, fixed interest, land, property, cash, and gold have all been mentioned in this column over the years as ways of building wealth. The last two years has witnessed how free market forces can erode that wealth but repeating that again will do you all a disservice.
What is as important as building wealth is protecting it and planning for how it is transferred to following generations. This is called “succession-planning” in the rarefied air of lawyers’ offices but it is simply the transition of an asset from one person to another – what will face many in years to come is the transfer of enormous wealth from one generation to another.
Like the maintenance of power lines, this transfer of ownership needs to be planned years in advance. Heartbreaking stories of wealth being eroded by legal wrangles abound in the volumes of Law Libraries in New Zealand, wrangles that could have been avoided with effective planning. The change in laws surrounding matrimonial property in New Zealand mean that effective succession planning and wills are more important than ever before.
However, the transition of the family business, or perhaps any asset that has significant wealth, is complicated with many questions, vexed with emotion and divided loyalties. Questions like who gets mum’s engagement ring, who gets dad’s vintage car, what about granddad’s medals pale in comparison to who gets the farm, who gets the business or who gets the commercial property portfolio, but the principals are the same.
One response to the difficulty in resolving these questions is simply not to address them. Parents sometimes brush off attempts by their children to talk about succession which causes tension, leading to the children to leave the family on bad terms – sometimes never to return.
Often the asset owners have a clear picture of their future and expect to pass their wealth on to their children, but the next generation has no idea about this. In an attempt to secure a future for their own family, the next generation start their own lives, leaving the future of the family enterprise in doubt.
That is where a professional adviser can help a family plan for their future. The important thing is that a discussion starts and plans are made. The demographics of our population dictate that enormous wealth, commercial, industrial, rural or business wealth, is going to transfer from one entity to another over the next 5-10 years due to the retirement of “baby boomers” looking enjoy the fruits of their labours from the last 40 years.
An essential investment for this transition to be smooth and effective is time spent on planning for the inevitable now. Finding someone to help facilitate the discussions required for all parties to understand each others’ perspectives is a good first step to ensuring that disappointments and family rifts are avoided. From a position of understanding, the family can then move to making plans that accommodate everyone – and while it may be impossible to have everyone’s aspirations addressed, at least the openness and understanding will go a long way to ensuring harmony in the long term.
So with share markets expected to rally, interest rates expected to rise and property expected to produce unexpected results, 2010 should be a year where you remove as much uncertainty as you can from your lives. Investment will always be fraught with ups and downs but we can be certain that in coming years, everyone’s ownership and investment in any asset will need to move from one generation to another. It is important to plan for this transition. “Deferred maintenance” in this area could prove as disruptive as a lightning strike was to Auckland’s power supply last week.
