5 min read.Updated: 05 Dec 2020, 07:09 AM IST Edited By Avneet Kaur
The couple should know the critical details of their investments, like – the details of bank lockers; details of insurance policies; PPF & EPF accounts; Investment Advisor and Tax Advisor details,
By Raghvendra Nath
The saving we do during our lifetime is aimed towards the financial security of our immediate family. In most families, the responsibility of managing the wealth typically rests with only one of the spouses, depending on who generally is more finically literate or has greater knowledge of the subject. Generally, in such situations, the other spouse leaves all investment decision-making and concentrates on other activities of the family life. It is also true that in most families, the children do not get involved in the management of wealth of the parents, unless it’s a business family or when the wealth management is a part of the natural transition.
So, when something happens to the spouse who was managing the wealth, the burden of managing the family’s wealth suddenly falls upon the other spouse who may find herself/himself in a tough spot. In such situations it’s very easy to get influenced by unscrupulous or unworthy elements or get overawed by the enormity of the task and end up making some bad decisions which would have a bearing on the overall wealth and the financial health of the family.
It is therefore important that when the times are good, your spouse should understand at least the basic concepts of wealth management and also the details of the family wealth so that the situations like we just discussed could be avoided. Another benefit of this approach is that both the spouses can discuss, debate and mull over every investment decision so that the mistakes are minimized.
Communication should be considered as a starting point to build the bridge around money matters. As it would be nearly impossible to understand the extent and nature of wealth and map a plan for the financial future of the family.
The starting point for such transfer of knowledge is the present status of wealth. The couple can draw up the list of investments together and maintain them jointly. Discussion on financial matters should not be avoided but encouraged.
The couple should know the critical details of their investments, like – the details of bank lockers; details of insurance policies; PPF & EPF accounts; Investment Advisor and Tax Advisor details etc. In fact, it can be a good habit to make sure that both spouses are present in their meetings with the Financial Consultants like wealth manager, chartered accountant etc.
The couple can discuss around the family’s immediate and long term goals and work on an action plan to achieve those goals by setting a broad based budget around Needs, Wants and Desires. Evaluate the kind of returns you require to achieve the goals and risk that is suited for the wealth. While making the financial plan it is also important to understand the nature of investments made and the liquidity surrounding your investments for any contingent event. Know which investments are liquid and can be redeemed without taking any hit on fair value, set an order for withdrawal on the same.
You can involve your spouse while reviewing your investment portfolio with your wealth manager. This shall help your spouse in understanding your investment portfolio better. You can also use these opportunities to demonstrate to your spouse, the kind of analysis that you do before arriving at an investment decision.
Taxation matters is another important aspect of one’s wealth. There are innumerable ways available to minimize the incident of taxation and one should remember that money saved is equivalent to money earned. You should introduce your spouse to your Tax Consultant and ensure that she is present in your meetings. This will help her in understanding the tax matters and be aware if there are any pending litigations that needs to be taken care and the expected amount of settlement for the same.
Your spouse should also know the details of your liabilities – formal and informal. For instance, if you have borrowed money from a friend, your spouse should know the details. This is essential, as in case of demise, your liabilities would have to be cleared out from the Estate that you have left behind.
Many times, there are investments, the valuation of which is not clear or not easy to find. For example, unlisted shares of a company; or a property under dispute. In such scenarios, you should indicate the fair value of such assets to your spouse so that both of you have the same understanding. Knowing the exact locations of property, bank lockers or any asset which has not been accounted for is important. Even in case of jewelry, bullions and antiques it is important for your spouse to understand the fair value for the same.
Every individual would have made certain investments that have turned bad. You should also tell your spouse, the mistakes that you have made in your investments and not hide them. Understanding mistakes is a good way to know what kind of investments to avoid in future.
You should also earnestly consider writing an Estate Plan for yourself. Life is uncertain and it is important that the demise of person should result in seamless transition of Wealth to his/her family. A simple ‘Will’, can become a good way to inform your family about many things in a cogent manner. While Will is an effective way to spell out how your wealth should be distributed, it can also be used to guide the family about the status of wealth and assets and how they should be managed. A ‘Will’ not only saves the family from unnecessary hassles related to transition, it also serves as a base document to understand where the wealth is invested, so that leakages can be avoided.
Understanding wealth management issues of the family is not very difficult, but it just needs time. If you are regularly engaging and involving your spouse in the wealth management discussions, her/his understanding would improve over time and like every other aspect of married life, even the wealth management would become a joint exercise.
(The author is Managing Director, Ladderup Wealth Management. Views as expressed are his own.)