Achieving a money/life balance

Bob and Betty set up their company in 1974.  Betty explained that in the past, she and Bob thought very differently about money but she feels they now think alike and Bob agreed with this.  When they initially set up the company and “until fairly recently”, Bob and Betty’s finances were tight.  Betty looked after the personal finances and was the one who had to “juggle” and “rob Peter to pay Paul”, transferring funds between accounts to pay bills due at different times of the month.  Bob had taken a back seat in the family finances and therefore worried less about money.

Having grown the company substantially over the years, they made a partial exit in 2016 by selling a minority share to a PE house with a plan to fully exit the company in 2019-20. Going forward, Betty is now confident that they can live comfortably and not have to worry about money. She feels that they have “more money than they will ever need” and although gifts of £100k have been made to each of their siblings (£400k in total), Betty clearly wishes to gift more to them as this “could make big differences to their lives”.  Bob was much more cautious about doing this.  They do however, both wish to make gifts to their children and help them in the future but without spoiling them.

In the past, Bob and Betty have mainly limited their investments to property with only a relatively small amount going into pooled investment and pensions. They approached FEL to help them establish a structured and disciplined plan for their wealth.

Key challenges

Bob and Betty had previously only invested to a very limited degree using a small IFA and had never given their personal affairs any real attention as they were time poor.

As well as needing advice to invest capital initially, Bob and Betty also needed a longer term plan to take into account the additional wealth that they would come into in 2019.  In addition, they would also clearly benefit from a structure being in place to ensure that their wider financial affairs were put in order.

Bob and Betty were also concerned about the impact their wealth may have on their children who are aged 29 and 27.

Solution

We spent time in the early stages educating Bob and Betty to improve their understanding of portfolio construction and why getting the right asset allocation was critical to them. Cashflow analysis suggested that the capital Bob and Betty had available initially, without the potential further exit monies expected in 2019-20, should be sufficient to enable them to maintain their standard of living for the rest of their lives.  

A coordinated, tax efficient structure was put in place to implement an investment portfolio for the new capital as well as integrating advice on their current investments.  Given that Bob and Betty were additional rate taxpayers, part of the structure looked at maximizing tax efficiency.  

Whilst Investment Bonds were considered, once we’d looked beneath the surface, we felt it appropriate to introduce Bob and Betty to a trusted tax adviser and a lawyer (part of our expert network). Following a number of meetings, a Family Investment Company (FIC) was put in place.  

This enabled Bob and Betty to invest part of their capital in the FIC by way of a loan and use the company to provide a means to pass wealth onto the children over time in a controlled manner.  The plan is that in the future, the children will be engaged in the running of the FIC which will then allow them to get used to managing the sort of wealth that they will ultimately need to manage but in a controlled and supportive manner.  

With regard to estate planning, Bob and Betty had very basic wills and no LPAs in place so  as part of the introduction to the lawyer, new wills were drafted and LPAs put in place.  A review is now taking place of their existing life cover to consider additional protection against IHT.

Whilst we were in discussions with Bob and Betty, their son announced his engagement which furthered our conversations around ensuring their wealth passed down the generations efficiently.  We introduced Bob and Betty to a solicitor who specialized in family law to discuss the protection of the family’s wealth and specifically, the use of pre-nuptial and living together agreements.  Bob and Betty’s son and his fiancée have now started the process towards establishing a pre-nuptial agreement.

Finally, as part of the discovery process, we found that Bob and Betty’s home insurance was shortly due for renewal and that Betty was struggling to balance all of the insurances they have for their homes in Leicester, London and Majorca, cars (Bob has a collection of 20), motor bikes, boats, motor home and helicopter.  We therefore introduced Betty to a specialist insurance brokerage who were able to not only simplify their affairs but also improve the cover and lower the overall cost.

Conclusion

Bob and Betty now have a robust structure in place for their finances that they can trust and have confidence in.  They have clarity and a properly thought out plan for their future that caters for the additional wealth that they will receive in the next 2-3 years.  By adopting a family office approach and coordinating our expert network of professionals required to meet the needs of the clients, we have helped Bob and Betty achieve their ideal money/life balance.

 

Case study provided by Accredited Financial Planning FirmTM -  Fiscal Engineers

Established in 2000, Fiscal Engineers is a multi-award winning wealth management firm and accredited by the Chartered Institute for Securities & Investment (CISI). With a Midlands heritage, they have offices in Nottingham, London and Birmingham and advise clients throughout the UK.

www.fiscalengineers.com