with Raziah Ahmed
Olympic ski medallist, Bonnie St John Deane, and a right
leg amputee since age five, speaking at the Trinidad Hilton
a few years ago, said that success is not about never falling
down, because we all fall down, it is really about how fast
we get up!
Last week we began to look at failure as a cost in personal
financial planning, and we looked at some of the costs that
result from divorce, such as the splitting of mutual assets
and savings and the cost of new acquisitions incurred as a
result of relocating one partner, or establishing two family
In the case of non-traditional living arrangements among
couples, separation can provide a major financial challenge.
In this case, I am not sure to what extent there may be legal
protection for rights to property. It may be prudent to ensure
that real property is carefully titled while the going is
Another over-looked cost to individuals is the cost of failure
of small family business. Historically such businesses get
start-up cash from the accumulated personal savings of a few
family members. Often there are no legal agreements that cover
In the event that such families enter into the legal framework
of a limited liability company, the financial interests of
the contributing family members are often not secured by adequate
documentation. Should a key partner in the business die, the
widow and orphans are likely to suffer financially.
It is advisable to draw up legal agreements that will secure
all persons concerned with respect to the initial investments
as well as in proportion to the importance of the roles individuals
play in the day-to-day operations of the business. Such agreements
should consider other contingencies, such as: one financial
contributor wishing to withdraw his financial and other interests
in the business.
Business can fail if adequate financial provisions are not
in place to furnish a ready supply of cash, in that event,
or if a key player in the business dies, leaving dependants.
Who pays premiums
One mechanism that can be used to supply a store of cash
to pay off widows and orphans is the concept of key person
insurance. Essentially this is life insurance on all the key
persons. In the event of death, the policy proceeds can then
be used to satisfy the family survivors who feel that part
of their heritage is tied up in the company, and thus avoid
interference in the business finances.
If key person insurance is being used, the tax implications
must be clear. If the company is the payor and/or beneficiary,
tax authorities may interpret that the policy proceeds belong
to the company, may be classed as income, and subject to tax.
It is imperative, therefore, to clearly establish who pays
Illness of a key person in the business may also be the
cause for the business to put out large sums of cash for health
care. Adequate provision for this can be made through critical
illness insurance for business partners. Again, clearly establish
who pays the premiums to avoid tax consequences on the company.
Financial planning at the personal level, must always consider
the long view, and develop the concept of strategic intent.
But on the personal level we may differ from the business
world. The Athletic goods company Nike, overtook Adidas, when
it coined a strategic intent: "to experience the emotion
of competition, winning, and crushing competitors."
Personal financial planning ought to have a more philosophical
strategic intent; it has to do with the ultimate success of
Raziah Ahmed is a registered financial consultant