Ask the Experts: Boat Finances
“Beware of little expenses. A small leak will sink a great ship.”
– Benjamin Franklin
The joys of boating may be simple, yet the financial path to get there often is not. Managing the finances of any household is a challenge and adding a boat into the mix can turn the whole thing into a game of 3D chess.
The hard truth is that you can be a hot shot racer that’s chomping at the bit to tear around the buoys, but without getting those dollars and cents in order, you’re not even going to be at the dock. While not as traditional a boating topic as engine maintenance or bottom paint, figuring out the money aspect of boating is just as important.
But where to begin? While our inner rugged individualists may want to tackle wealth management solo, there are dedicated professionals out there who’ve made careers out of navigating these waters of capitalism. Contrary to what one may think, not all of them will instinctively dissuade boat ownership. Those who can empathize with your boating dream will work with you to achieve it.
Tim Boyle of The Boyle Group Wealth Management is one such financial planner. An active boater who grew up on Whidbey Island, Boyle is known by boating clients as the one who knows how boat ownership works. We met for a chat about boat ownership and financial planning at his 22nd floor-office in downtown Seattle.
NWY: You are very active with the region’s marine scene. Can you talk a bit about the tie-in between what you do and boating? What do you and other wealth managers bring to the table?
It depends on who we’re talking about. We’ve got clients up and down the supply chain from people who build boats to those who work on boats, and ultimately brokers that sell the boats and people who buy them. We have individual clients who span the whole boat ownership range from kayaks to yachts.
The details are different depending on who you are, but everyone can acknowledge that a boat is an expensive commitment. Whether you’re figuring it out on your own or with someone like me, there’s some planning around it that’s different than if you’re not a boater.
Events like unexpected expenses should be prepared for with boating. Another aspect is that there’s cash flow issues that can come up with being on the water.
NWY: How do you work with our local boat builders and marine service providers?
We help boat builders take the tools that they have, typically a 401k to start, and build a plan around it for them and their business. It’s important for them to think about the future. When they’re done building or working on boats, how do they enjoy retirement? How do they send their kids to college?
Working on savings, for businesses and individuals, is probably the most important thing. Identify what you want to accomplish and be able to answer the big question: What are we going to do? Answering that question leads into more specific questions, like are you trying to do retirement planning or estate planning?
We work with yacht brokers in similar ways to boat builders. We look at how to put aside money in the most tax efficient way possible. How do we keep our costs low? How do we make this money work in the most cost-efficient way?
NWY: Do you have any other general pieces of advice for those of us in the boating world?
Start as early as possible. I can’t stress enough how important it is to start early. A modest beginning is infinitely better than no beginning at all.
At its essence, just take the structure of how your money works seriously and understand it. What kind of accounts do you have and what kind of tax treatment applies to those accounts? Know exactly where the money comes to fund your boating habit. Factors like moorage and fuel come up and you should have a plan for those.
We typically see folks who dedicate specific assets or streams of money and call it something like the boat fund. Remember that boat ownership is something that’s important to look at in the context of everything else going on. The last thing anyone wants is for the boat to become an unwelcome expense. Boating should be fun!
NWY: The situation when a boat devolves from your most treasured possession to a money hole is definitely a trope. How does one avoid that scenario?
I hate it when people repeat that saying, “the two best days of a boater’s life is when they buy the boat and when they sell the boat.” I couldn’t disagree more. I’ve nearly shed tears when I’ve sold one of my boats.
The key is to pay attention to what kind of boat you’ve got and bring that knowledge to bear. If you’ve got a 17-foot-aluminum boat with an outboard motor, that’s a different set of issues than if you have a 50-, 60-, or 70-foot motoryacht or sailboat. There isn’t a perfect boilerplate, scientific spreadsheet that fits for everyone, rather it’s more of an artform with very individual specifications. Custom built.
Again, what kind of boating do you want to do? How long are you going to do it? Are you going to be trading boats every two years or keep one boat forever? Everyone has their own dream and they need their own plan.
NWY: One area of expertise for you is navigating taxes. Do you have any insider tips for boaters?
With taxes, it’s helpful to look at where tax laws are today compared to what they’ve been in the past and what they might be in the future. Look at how you’re spending money and how your assets are structured. That can be a huge deal.
An idea some boat owners may consider is to put their boat in a tax-paid limited liability company (LLC). When part of a combined tax strategy and risk management plan, setting up a tax paid LLC can have both tax and risk mitigation beneifts.
We can coordinate with an attorney and a CPA to explore if and how this strategy could work for you. When you go to sell the boat you’ll actually be selling the LLC. This could be a significant benefit from a tax standpoint, potentially giving you a compelling edge in your asking price.
NWY: What are some of the most common obstacles your clients need help with?
One difficult situation I see a lot is when health problems force a boat sale. Whether an owner is elderly, ill, or passed on, often the boat in question is in a state of disrepair after neglect.
These situations can stress financial plans, especially when not planned for. Something like this happened in my family, and a great boat was sold for pennies on the dollar after prolonged neglect when an engine seized.
My advice is to think about that exit plan, even if you plan to keep the boat until you can’t boat anymore. We have a strategy that we use with clients to give them the highest probability of a smooth transition.