Horse Sense

There are about 7.1 mil­lion peo­ple in­volved in the eques­trian in­dus­try, and they have a unique set of fi­nan­cial needs.

Financial Planning - - Contents - BY AMANDA SCHIAVO

There are about 7.1 mil­lion peo­ple in­volved in the eques­trian in­dus­try and they have a unique set of fi­nan­cial needs.

Pic­ture a horse graz­ing on a sunny day when she sud­denly senses her owner’s bank ac­count is per­fectly bal­anced. This, the horse de­ter­mines, is the op­por­tune time to jam a leg through a fence and ring up a hefty vet bill.

Any­one who has ever owned a horse knows this feel­ing.

There are roughly 2 mil­lion horse own­ers in the U.S., and 7.1 mil­lion peo­ple in­volved in the in­dus­try when in­clud­ing ser­vice providers, em­ploy­ees and vol­un­teers, ac­cord­ing to horse trans­porta­tion com­pany Equo. That means a po­ten­tial client pop­u­la­tion larger than that of Chicago, Hous­ton and Phil­a­del­phia com­bined with a very spe­cific set of fi­nan­cial needs.

For a hobby such as eques­tri­an­ism, com­ing up with a proper plan can be chal­leng­ing when con­sid­er­ing taxes, es­tate plan­ning and ex­pen­sive reg­u­la­tions re­lated to tak­ing show horses across na­tional bor­ders. But eques­tri­ans will tell you that once they fall in love with a horse, there’s no turn­ing back.

The ques­tion be­comes: How do you build a plan for a horse en­thu­si­ast with­out scrimp­ing on the client’s own long-term care, re­tire­ment, fam­ily and other needs?

“That has to be an hon­est con­ver­sa­tion,” says Cal­i­for­nia-based ad­vi­sor Brooke Salvini of Salvini Fi­nan­cial. An eques­trian her­self, she de­cided to ded­i­cate a bulk of her prac­tice to horse fans, some of whom are HNW in­di­vid­u­als who in­vest thou­sands of dol­lars, as well as time and ef­fort, into their pas­sions.

Eques­tri­an­ism is a hobby that both grows over time and is costly.

What to Ex­pect

Horse-lov­ing clients and their ad­vi­sors must con­sider the ex­penses of rid­ing lessons, pur­chas­ing a horse, board­ing, vet bills, far­rier bills, den­tist bills and show costs, among many oth­ers.

Salvini’s clients spend be­tween $6,000 and $25,000 per year, per horse de­pend­ing on their abil­ity to keep their horse(s) at home, train­ing sched­ule, ve­teri­nary needs and num­ber of shows. With other ex­penses such as feed, sup­ple­ments, shoe­ing, mis­cel­la­neous sup­plies and reg­u­lar vet care such as vac­ci­na­tions and teeth, Salvini says it can be dif­fi­cult to sup­port a horse in Cal­i­for­nia for less than $500 a month.

“You look for ways to

Eques­tri­ans will tell you that once they fall in love with a horse, there’s no turn­ing back.

econ­o­mize,” Salvini says. “Horses can live 30 years, and, de­pend­ing on the kind of owner, they could be mak­ing a longer fi­nan­cial com­mit­ment than to a child.”

The es­ti­mated cost of rais­ing a child in the U.S. from birth to age 17 is $233,610 or al­most $14,000 per year, ac­cord­ing to the De­part­ment of Agri­cul­ture. The to­tal cost per year for a horse is about $3,876, ac­cord­ing to a Univer­sity of Maine study. Over 30 years, an eques­trian can pay out more than $116,200. What’s more, a client can’t send their horse out job hunt­ing.

Horses, like chil­dren, need reg­u­lar trips to the den­tist and new shoes to keep up with de­vel­op­ing feet. Their hooves are con­stantly grow­ing, and a gen­eral rule of thumb is that the far­rier should pay a visit ev­ery four to six weeks for trim­ming and re-shoe­ing if needed.

Den­tal care is an­other im­por­tance facet — and on­go­ing ex­pense — of re­spon­si­ble own­er­ship. Horses can de­velop sharp enamel points in their mouth that need to be filed down — or floated — as much as once ev­ery six months.

Clients also need to con­sider their horses when they make out wills and es­tate plans, more so than other pets.

At least, they should iden­tify a care­taker and con­sider open­ing a pet trust. Hav­ing an emer­gency vet fund and quick ac­cess to sev­eral thou­sand dol­lars of liq­uid­ity make sense, too.

Mak­ing it Hap­pen

The ul­tra­wealthy can just write a check, of course, but the merely rich need help with this ex­pen­sive past-time.

“Some [clients] can eas­ily af­ford the ac­tiv­i­ties, while oth­ers need to pri­or­i­tize and plan to be able to meet their re­tire­ment goals while still en­joy­ing the hob­bies they’re so pas­sion­ate about,” says Cal­i­for­ni­abased

Horses, like chil­dren, need reg­u­lar trips to the den­tist and new shoes to keep up with de­vel­op­ing feet.

Wells Fargo ad­vi­sor San­dra Mc­peak about a va­ri­ety of in­ter­ests en­joyed by her HNW clients.

For one, Mc­peak tries to make sure clients un­der­stand ex­actly what the costs will en­tail.

“I don’t feel that it’s my [place] to say what hob­bies are wor­thy,” Mc­peak says. “I use our soft­ware in our plan­ning ses­sions to help my clients eval­u­ate how much the hobby costs ver­sus how much ex­tra money they’d have if they gave up the hobby.”

Plan­ning gets even more com­pli­cated when clients take their horses to com­pe­ti­tions, some­times out of state or even out of the coun­try. Tax im­pli­ca­tions must be con­sid­ered, and ad­vi­sors may even help alert clients to cer­tain travel reg­u­la­tions.

Cer­tain states, coun­tries and even pub­lic modes of trans­porta­tion have spe­cific re­quire­ments and re­stric­tions when it comes to trans­port­ing horses, ac­cord­ing to the Amer­i­can Ve­teri­nary Med­i­cal As­so­ci­a­tion.

“When trans­port­ing horses or their hooved rel­a­tives across state, ter­ri­tory, or in­ter­na­tional bor­ders, a cer­tifi­cate of ve­teri­nary in­spec­tion is gen­er­ally re­quired by the au­thor­i­ties at des­ti­na­tion,” ac­cord­ing to the AVMA web­site. One vet clinic in Penn Val­ley charges $30 to pre­pare the cer­tifi­cate, and own­ers must also fac­tor in costs for ex­ams and pos­si­ble lab work.

Ship­ping a horse from one place to an­other is an ad­di­tional ex­pense. It can cost around $1,000 or more de­pend­ing on the length of the trip. Equo’s web­site says it charges $1 per mile for trips up to 1,000 miles. That means a trip from Saratoga, New York’s famed race­track, to a show in Ken­tucky could cost about $800 one way.

Horse own­ers also need to be aware of changes re­sult­ing from re­cent tax shifts.

One thing to keep in mind is the new de­duc­tion for pass-through busi­nesses, es­pe­cially if a client makes their liv­ing from equine sports. The law changes how pass-through en­ti­ties such as sole pro­pri­etor­ships, part­ner­ship, S cor­po­ra­tions and LLCS are taxed, ac­cord­ing to a blog by tax at­tor­ney John Co­hen.

For the first time ever, Co­hen writes, an owner’s qual­i­fied busi­ness in­come from a pass-through is al­lowed a 20% de­duc­tion. Ad­di­tion­ally, the mod­i­fied es­tate tax will re­duce the num­ber of fam­ily busi­nesses that are sus­cep­ti­ble to it.

“The pass-through pro­vi­sions are an in­cen­tive for em­ploy­ees to be­come in­de­pen­dent con­trac­tors,” Co­hen writes.

The in­dus­try pays a to­tal of $1.9 bil­lion in taxes to state, fed­eral, and lo­cal gov­ern­ments, ac­cord­ing to Equo.

While the ex­penses re­lated to horse own­er­ship may make some plan­ners scratch their heads, it’s worth­while to re­mem­ber that many equine fans con­sider their horses fam­ily.

“There are other hob­bies that are ex­pen­sive — travel, wine, and pho­tog­ra­phy — but horses are liv­ing crea­tures,” Salvini says. “They’re al­most like chil­dren. … I think that is im­por­tant for ad­vi­sors to know. [Ad­vi­sors] need to … be open to hear­ing and lis­ten­ing and un­der­stand­ing that it is im­por­tant and a way of life more than some hob­bies are.”

There are a host of ex­penses that ome with own­ing a horse: rid­ing lessons, vet bills and show costs, to name a few.

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