In most families there’s usually a key person who manages the finances, knows the group structure or who deals with all the financial advisors – whether it’s through choice or apathy on the part of other family members. This can cause conflict, confusion and financial stress if there’s a tragedy, like if that person dies or their marriage ends.
If you’re single, there’s also a huge amount of key person risk – particularly if you’re very wealthy. If you’re not here you also need to think about who can step in. It may not be family – it may be trusted friends, for example.
Regardless of their personal situation, there are several things that I do with my clients to prevent key person risk.
Put clients in the picture
The first step is to bring other family members or trusted friends – particularly the other partner – into the picture. Even if they’re not that interested, it’s very important that they’re involved. Once we start talking about the family and the repercussions of them not being involved, they often become interested.
You can then conduct an education process, and part of that process is estate planning. This may involve several meetings with a lawyer educating you and your family so they understand what’s happening and where they’re going.
Know your assets
Then, I encourage all of my clients to understand their assets and document everything clearly. We’ll then work together to ensure there’s clarity about the ownership of those assets, and that we have all the necessary documentation. This can be quite a project for some people.
This may involve making sure you know where all your assets are. Where’s the certificate of title for the family holiday home? Whose name is the car in? What’s the structure of your investment property? Is there jewellery hidden under the bed?
The next step is to document everything, so that we have the paperwork. Often we keep all of these documents in the lawyer’s safe. But I’ll generally keep a copy as will the family. Then if anything happens we know exactly where everything is.
Building a team
Part of reducing key person risk is building a team around you. This may include a financial advisor, a lawyer, an accountant – and make sure there’s strength in that team. The team can provide added support in the event that the key person isn’t there. They might not know everything, but they know enough – they understand the big picture and they know how to work with each other. It’s more seamless and much less stressful, during what could otherwise be a very stressful time.
You should have a list of all of your advisors that outlines each person’s responsibilities and so should other members of your family or trusted friends. You then know exactly whom to contact if something happens or the key person is overseas. It also means there’s no mad panic about whether everyone is fully briefed.
Death is clearly the most common key person risk, but divorce is up there. It’s not unusual for someone to all of sudden have a large sum of money and they don’t know how to manage it. It’s not a nice thing to go through, but you can work with your financial advisor early on to understand your finances and mitigate your key person risks.
Virginnia Hottes is an Executive Advisor at Viridian Advisory
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