Originally posted on https://pillarwm.com/10-strategies-to-protect-ultra-high-net-worth-family-wealth/
You often come across stories of inspirational individuals who have amassed significant wealth.
The journey of such individuals is often comprised of ambition, courage, hard work and relentless consistency. It’s extremely difficult to achieve “Ultra-High Net Worth” status in today’s ultra competitive world, but achieving “Ultra-High Net Worth” status is an even more difficult and rarer feat.
After all, only those families whose investable assets are valued over $30 million are considered to be “Ultra-High Net Worth”.
Although it would take exceptional levels of irresponsibility, or a major financial catastrophe to develop financial issues, such as foreclosure or bankruptcy with this sort of wealth, it’s not something that’s unheard of.
‘Riches to Rags’ stories have indeed made headlines in the recent past—especially during the financial recession of 2007—where many families went from ‘Ultra-High Net Worth’ to just ‘High Net Worth’, or bankrupt!
While UHNW families usually don’t have to deal with financial problems that plague the common man, such as struggling to make the rent, or being unable to make the payments on their car, they have an entirely different set of financial problems to worry about.
In order to successfully maintain a high-standard of living and sustain their riches across multiple generations, UHNW families have to make some smart financial planning decisions.
These include efficiently dealing with the changing tax codes, proper estate planning and making the best use of investment vehicles.
At Pillar Wealth Management, we have been providing effective wealth management services to Ultra-High Net Worth clients for over three decades (we actually wrote a hard cover book titled The Art Of Protecting Ultra-High Net Worth Portfolios And Estates; sells on Amazon).
Over the course of this article, we’ll outline 10 of the best strategies to grow and protect your family’s wealth.
With above-average assets, you require above-average financial planning. As the financial situation of UHNW families is of a more complex nature, they have to deal with a wider array of concerns than a ‘normal’ family.
These include coping with higher taxes, dealing with a larger investment portfolio, managing multiple properties, and/or keeping track of your philanthropic activities.
Comprehensive financial planning enables the effective management of all these aspects, and helps you determine strategies to protect and build the wealth of your family. Unlike standard financial planning, this type of planning goes far beyond just your regular income projections and retirement savings. It covers all the facets of your financial affairs.
Comprehensive financial planning is generally comprised of these steps:
In an attempt to diversify their investments, UHNW persons and families often setup same type of investment accounts with multiple financial institutions. They believe that this is an effective way to reduce risk.
Actually, diversification is about how your money is invested, rather than where it’s kept.
Instead of diversifying your investment, setting up multiple same-type investment accounts can actually have an adverse effect, as it makes keeping track of your investments a lot more difficult.
Furthermore, there is a variety of other reasons why you should consolidate your assets with just one reliable advisor. The reasons are:
While it takes years and years of hard graft to accumulate a substantial wealth, all of it can be lost in a proverbial moment.
Self-made individuals are aware of the true value of money as they have built their wealth through years of hard work. However, this essential value might not be shared by their children and grandchildren, who have grown up in a more privileged environment.
If you want your wealth to last across multiple generations, it’s crucial to teach the importance of financial responsibility to your children. There are various strategies that can help you in this regard.
The first one involves giving your children a reasonable allowance and instructing them to divide it into expenses, savings and charity. This helps children develop budgeting skills, instills the value of money in them, and teaches them to become socially responsible.
Another effective strategy is setting up a monthly budget that can cover the reasonable expenses and activities of the whole family. If your children ask you for something that exceeds the budget, tell them you will consider it next month.
Most UHNW individuals and families have surplus assets. Here are some effective ways to protect them.
Effective risk management is a vital part of protecting your hard-earned wealth. Lots of UHNW individuals and families have lost considerable portions of their wealth in the past because they didn’t prepare for risks such as law suits and market volatility.
There are numerous strategies you can use to get the maximum out of the gifts you make to charity:
You can also create testamentary trusts through your will. It will provide income tax benefits to your beneficiaries, which they wouldn’t get with an outright inheritance.
However, in case of an outright inheritance, the income earned will be added to their regular income and taxed accordingly. This can potentially increase their tax rate and reduce their after-tax income.
Potential tax benefits aren’t the only plus point of testamentary trusts. You can also set them up to ensure that a child from another marriage or a disabled family member receives their inheritance.
Another effective way for UHNW families to reduce their tax burden is splitting the income.
Why? Well, the first reason is the American tax system, according to which, the higher your income, the higher the amount you owe in taxes.
By splitting the income between members of the family, (especially shifting it to low-income members) families can potentially save thousands of dollars in taxes.
If you plan to pass on your business to your children or your grandchildren, here are a few effective business succession planning strategies:
Ownership of a vacation property can be the cause of a variety of issues, especially if a family is involved. One major concern is passing along the property to the next generation without creating conflict. However, with some careful planning, not only can you pass along the property in a harmonious way, but you can also reduce taxes.
Here are some effective strategies:
Hutch Ashoo and Chris Snyder are co-founders of Pillar Wealth Management. We are a fee-only expert wealth management firm for High Net Worth and Ultra High Net Worth Individuals. With years of experience in financial planning and investment management, we can help guide you toward continued financial security.
We have 30+ years of experience and are published authors. Our bestsellers include a hardcover book titled, “Protecting Ultra High Net Worth Portfolio Estates”
We take a very active role in helping High Net Worth clients maintain and enjoy their wealth.
Call us today for a complimentary conversation with our expert advisors.
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