Saturday 16 November 2019

Five must-haves for your financial filing cabinet

It is important to prepare for all life eventualities. Cartoon by Tom Hallifay.
It is important to prepare for all life eventualities. Cartoon by Tom Hallifay.

Most of us are in danger of seeing our financial affairs fall into disarray should serious illness or injury strike - because we have not planned ahead, a new survey has found.

The survey, by Dublin financial advisers Hegarty Financial Management, found that the majority of people have not appointed someone to make decisions on their behalf if they were suddenly unable to continue looking after their own affairs.


With an enduring power of attorney, you appoint someone you know and trust to make financial and personal decisions on your behalf should you become seriously injured or ill - and be no longer in a position to take such decisions yourself.

Nine out of 10 people don't understand what an enduring power of attorney is or why they should have one, according to the survey.

"Without an enduring power of attorney, your loved ones and family could find it not only frustrating and difficult when dealing with your affairs, but potentially costly," said Jim Hegarty, chairman of Hegarty Financial Management. "An enduring power of attorney is not an instrument exclusively for the elderly - it is for anyone over 18, either married or single."

The decisions made by an enduring power of attorney could range from who pays your bills, to where and with whom you live, to who should collect and manage your State pension or other social welfare benefits, to the type of medical care you wish to receive, and so on. Common illnesses which could prevent you from making such decisions include stroke, Alzheimer's disease and dementia. A serious accident or injury could also see you unable to take - or communicate - your own decisions.

Without an enduring power of attorney, a ward of court (essentially, a guardian) must usually be appointed by the courts. "This can be very cumbersome and expensive," said Bill Holohan, senior partner with Dublin law firm Holohan Law.

An enduring power of attorney is one of five things you should have in your financial filing cabinet should illness or tragedy strike.

A financial filing cabinet (if you have one) is essentially where all your important financial documents and instructions are stored so that your loved ones - or a trusted friend or individual - can easily access them to manage your financial affairs should you become seriously ill or injured, or pass away. Without a well-stocked and organised cabinet, you risk having much of the wealth which you have built up over your lifetime disappear - without your family or loved ones reaping the benefits of that wealth. The decisions made about your financial affairs after you become ill or pass away could also be the complete opposite to what you would have wished.

So what four other things should you have in your financial filing cabinet?


A will records your assets, such as bank and credit union accounts, shares, property and so on - and where those assets are.

It also sets out how you wish your wealth and estate to be distributed after you die - and can provide for anyone you are responsible for, such as a child who needs a lot of financial support or medical care.

Without a will, it is ultimately the law that decides who inherits your wealth. In such cases, when you are survived by your spouse and children, the rule of the law is that two-thirds of your estate will go to your spouse; with the rest divided equally among your children. This could be the last thing you want - particularly if your intention had been to provide for one child better than another.

"You might have a case where one child has been put through an expensive education while another child hasn't," said Mr Holohan. "The well-educated child may be better off financially because of that expensive education. Your intention may be to provide for your other child better in your will because he didn't get the benefit of the same education. But if you don't leave a will, your children will get an equal share of your estate."

Without leaving a will, you also risk creating tension within your family after you die because your children can take a case to court if they feel they have not been adequately provided for when your estate was divided out.

"This can cause great division within families," said Mr Holohan.


A letter of wishes is crucial if you own a family business or are a member of a company pension scheme.

"With a family business, such a letter might not be binding on those left behind but could serve to give them some guidance on your wishes about how a business might be run - or what your plans are for certain assets," said Michael Gaffney, a partner with KPMG, who advises many family-owned businesses on tax and other matters. "It should not be too prescriptive because who knows what could change in the future. But comments like 'I'd like to make sure my children are treated equally' or 'best not to give them any money before age 25 except in case of emergency' might be helpful."

With a company pension, a letter of wishes would instruct the trustees of the scheme where the money in your pension should be paid - and to whom.


Directions for your funeral - including whether you want a burial or a cremation and how your funeral is to be paid for - should also be in your financial filing cabinet. Include details too of where you would like to be buried, and if you or your family have already paid for a plot.


Keep a list of your assets and debts close to hand (as well as in your will) so that you, and any surviving relatives (should you pass away), can keep track of your wealth - and any money you owe.

Assets can include savings, life assurance policies, properties, money set aside for a child's education, any foreign bank accounts or overseas shares or properties, and so on.

"The list should include contact details where more information can be obtained - such as banks, stockbrokers and so on," said Mr Gaffney. "Where documents are stored on a computer, include a list of the required passwords."

Although house deeds are best given to your solicitor, be sure to keep a record of your solicitor's name and contact details in your cabinet. Arrange too for your house deeds to be given to your solicitor as soon as possible - if you have not already done so. "Banks are notorious for keeping them, even when they are no longer required as collateral," said Mr Hegarty. "Always get a receipt from the bank when placing your house deeds or other assets with them for safe keeping."

You should also keep a record of any death-in-service benefit your loved one may be entitled to should you pass away before you retire - and any trusts you have set up to provide for a child.

To ensure you - or your family - don't lose out on any of the wealth you have built up over your lifetime, hold on to financial records such as original policy documents, savings books, bank statements, and any important documents or folders with a financial institution's name on it.

How to prepare a family business for sudden tragedy

The most important thing to have sorted with a family business is, who will take over as boss - should death or serious illness strike the owner, said Michael Gaffney, partner with KPMG.

"This might mean leaving shares in a business to one family member and leaving other assets to the others to even things up," said Mr Gaffney.

"If there is a surviving spouse, it may work fine to leave everything to that spouse and let them decide how the business is run. If they are not involved themselves, they can let a family member run it or there may be existing management in place already."

Consider insuring against the death or serious illness of a key shareholder or director in the company. This would provide insurance proceeds (on their death or serious illness) which might then be used to buy out the shares of the departed shareholder.

"This provides cash to the family of the deceased and might suit everybody," said Mr Gaffney. Such a measure would also prevent problems which might arise if the shares simply go to a shareholder's or director's children when he dies.

"If that happens, you would have new shareholders who might want to get involved in decision making - thus impacting the other shareholders," said Mr Gaffney. "Or at the other extreme, the children might not be interested in the company at all, and this could be equally disruptive as they might be looking for opportunities to sell out."

Huge debts are often run up by family businesses - and if you are running such a business, make arrangements to ensure that those debts can be cleared should you pass away or become ill.

"It's better not to leave large debts behind as this can cause worry to those who survive you as they may not be as comfortable dealing with debts as you are," said Mr Gaffney. "If there is a life assurance policy, this could help a lot. If not, it could be a good idea to leave instructions for certain assets to be sold to repay debts."

The five rules for effective business succession planning

It takes one generation to make a company - and one generation to wreck it all. Paul Wyse explains why most businesses get succession planning wrong.

When Alexander the Great was on his deathbed, he was asked one final question, 'Who should rule in your wake?' His answer, apparently, was straightforward, if a little vague - "the strongest". Not long after he died, a power struggle ensued, wrecking the empire Alexander had spent his life building. So it goes.

Actually, this collapse was not so surprising. Leadership transitions are tricky. Indeed, even when someone as successful as Manchester United's Alex Ferguson hand selects his 'chosen' successor things can go horribly awry. Just ask David Moyes.

Most organisations leave succession planning too late. However, it is vitally important to start succession planning early. The key message is that the search should not begin when you are planning to sell up or retire, because it is simply too late to guarantee success.

It is hard to build a successful business, so the idea of leaving or handing over the reins is likely to engender a mixture of fear, grief and other conflicting emotions. But nothing lasts forever. So, whether you are selling your business, passing it on to the next generation or simply retiring, you need to plan, plan, plan.

Competition for quality leaders is intense. It is therefore important to attract, develop and retain your best talent and future leaders. This means the war for talent is intensifying.

A total of 93pc of respondents in a recent Institute of Leadership and Management Survey said that low levels of management skills were having an impact on their businesses.

So it is vitally important to tackle the subject of succession planning head on to ensure capable leaders are brought in to plug gaps.

The fact is 57pc of 'Generation Y' employees intend to leave their job within two years of starting it. This puts a great onus on companies to retain their best and brightest.

Given this high turnover when it comes to staff, smart businesses that know talent is key to success are increasingly investing in leadership programmes. If talented people feel that their employer is not investing in them, they will leave.

This is a big problem when it comes to succession planning, as it robs organisations of the chance to properly groom future leadership candidates to help with a smooth transition when the time comes for change.

It is little surprise that 52pc of departing CEOs now remain as board chairmen for at least a brief transition period, as poor planning means businesses still want and need guidance after a CEO has been replaced.

This, however, can be like placing a sticking plaster over a open wound.

Cases of a departing CEO anointing his own handpicked successor used to be common. Now they are very much the exception, except when the CEO is the company's founder.

More than half of companies today cannot immediately name a successor to their CEO should the need arise. This highlights how poorly prepared companies are for a key moment that they will almost certainly face in the future. This is even though the lack of succession planning poses a serious threat to the health of every company.

However, even small family businesses can follow five simple steps to help establish a viable succession plan that can position the company to grow and succeed in the future.

1. Set your objectives

Firstly, you need to determine if there will be continued family involvement in the leadership of the business or if there is a need to bring in professional management.

Then identify the goals for the next generation of leadership and develop a vision and a set of objectives for the business. Set out the goals of your succession plan and hire a team of professional advisors to provide council and guidance.

2. Establish a decision-making framework

The succession plan should be outlined in writing and communicated to stakeholders and family members.

All stakeholders should be part of the decision-making process and a method for dispute resolution should be established to ensure disagreements do not derail the process.

3. Identify successors

Specifically identify those within the business or new hires that are possible candidates. Develop a programme of training and development to develop the knowledge and skill levels of candidates. Develop a structure for ranking and grading candidates based on their performance and suitability.

4. Develop a business plan

Address taxation implications of a sale or transfer of ownership, death, or divorce on the business. Develop a plan to minimise taxes and maximise the capital value of any future sale. Ensure a strong management team is in place to execute the plan.

5. Create a transition plan

Develop a timeline for the implementation of the succession plan. Also, consider the available options, such as retirement, a gift/bequest or an outright sale or a combination of these.

Ensure this plan is communicated to all stakeholders and the management team is prepared for its execution at any given date. It is prudent to have professional advisors to review such planned arrangements for tax and value efficiencies.

One of the main reasons many small and family-owned businesses do not survive is the inability of the next generation of owners to grow the company. The five steps outlined above will provide a solid framework to help you plan for and ensure the continued success of your business long after you have retired to enjoy the benefits of your life's work.

Paul Wyse is managing director of Smith & Williamson Ireland



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