The Wealthy Need to Plan, Too

Even families with considerable assets need to budget and look ahead to retirement.

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Mike Heffernan has done well for himself. The semi-retired entrepreneur has accumulated a good amount of wealth through an insurance brokerage firm he still owns and his daughter now runs. He spends most of his time these days golfing, boating and hanging out at his cottage in Fergus Falls, Ontario and his winter property in Florida.

He can credit his comfortable financial situation to hard work in a profitable business, but he wouldn’t be where he is today without a financial plan. “I did some of it on my own but when my financial life became even more complex, I enlisted the aid of a professional financial planner – and it was one of the best decisions I’ve ever made.”

Even though he’d be considered high net-worth, Heffernan follows a basic budget. “It’s nothing fancy or overly complicated but it keeps me on an even financial keel,” he says.

Christine Van Cauwenberghe, Vice-President of Tax and Estate Planning for IG Wealth Management, wishes all high-net worth clients took the same level of care with their finances. While having a higher income makes it easier to retire comfortably, “wealthy people still need a plan,” she says.

Those who don’t have one can get into trouble if they spend too much, pay too much tax or own too many aggressive investments. Meanwhile, proper planning early on can help those with considerable assets achieve more with them, including helping the next generation. Here are some other reasons why high net-worth people should consider getting advice.

Wealthy people often have a variety of different expenses and income streams, and need a wide range of professionals to help them manage it all wisely.

Dealing with complexity

Wealthy people often have a variety of different expenses and income streams, and need a range of professionals to help them manage it all wisely. “Wealthier people are more likely to need the assistance of lawyers and accountants in filing their tax returns and maintaining corporations, trusts or other legal vehicles,” says Van Cauwenberghe. “It is important that all of your advisors work together to ensure that certain aspects of your plan don’t work at cross purposes.”

For example, your lawyer and accountant need to work in tandem to set up a trust for your inheritance. Or, when you pass on a valuable asset such as a cottage, professional advice to plan for any potential tax liability and the use of insurance may be critical.

Predicting retirement

Van Cauwenberghe says that while wealthier individuals may have more than enough cash flow to sustain their lifestyle during their working years, they may not have a good understanding of the amount of capital they’ll need for an enjoyable retirement.

“Government pension plans are intended to provide a modest retirement, and may not provide anywhere near the type of annual cash flow a high income person is used to,” she says. “For high income individuals, creating a retirement plan as soon as possible will give them more time to create the nest egg they’ll need to sustain their lifestyle.”

If a family’s wealth is currently reliant upon the income of one or both spouses, then they will need to take steps now to protect that income flow, such as buying insurance, including life, disability and critical illness, she says.

Leaving something for the kids

Wealthy families who want to help the next generation need to plan for this carefully, and well in advance. There are tax implications to consider and choices about when and how to pass down wealth.

Some families can develop relationship and communication issues around large inheritances. “Although the older generation may have come from more meagre beginnings and may have a stronger appreciation for how hard it may be to accumulate wealth, the next generation may have a more casual attitude towards money,” she says.

When wealth is wrapped up in a family business, parents must try and be fair about who gets what. Financial professionals can help with valuation and coming up with creative ways to equalize the estate among the children and grandchildren who are not taking over the business.

When you have more assets, financial planning doesn’t become easier – it takes more effort to manage what you have. Wealthy Canadians must put more work into keeping their finances on the straight and narrow so they can fully enjoy that wealth.

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