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 is even
There are roughly two 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 to 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. 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, and regular vet care such as vaccinations and teeth, miscellaneous supplies, Salvini says it can be difficult to support a horse in California for less than $500 a month.
“You look for ways to 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 good sense, too.
The ultra-wealthy can just write 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 California-based Wells Fargo advisor Sandra McPeak about a variety of interests enjoyed by her HNW clients.
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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 (CVI) 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 another 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 so possibly it is a more emotional aspect more similar to 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.”
