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10 Ultra High Net Worth Family Financial Planning Strategies

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, and if you’ve made it, your next task is to amass the best team of experts to help you preserve it.

After all, only those families whose investable assets are valued over $30 million are considered to be “Ultra-High Net Worth”.

Pillar Wealth specializes in serving families who succeeded in reaching “Ultra-High Net Worth” status and ensuring they avoid financial ruin. From protecting your assets to improving your portfolio performance, our financial advisors understand what it takes to sustain your “Ultra-High Net Worth” status.

We work with families like yours to ensure financial stability and growth. We serve families with a wide range of assets starting at $5 million and up to $500 million.

When it comes to responsibly protecting your assets, you need an experienced team of financial advisors. It’s important to choose the right financial advisor to manage your portfolio responsibly. You want a trustworthy team that has your best interests at heart and knows how to maintain your wealth through the ups and downs of market cycles.

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. That’s why it’s important to work with a financial advisor that understands your family’s financial goals and needs.

‘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 hardcover 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.

Comprehensive Financial Planning

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. You want to work with an experienced financial advisor who understands how to navigate the finer aspects of portfolio management.

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.

These include:

    • Management of cash and debt
    • Investment planning
    • Taxes
    • Retirement planning
    • Estate planning
    • Risk management

Comprehensive financial planning is generally comprised of these steps:

    • A comprehensive discussion to outline your personal and family values and goals
    • Making a financial forecast based on the current state of your finances
    • Getting expert advice and recommendations
    • Forecasting your finances based on the application of those recommendations
    • A defined plan of action

Consolidating Your Assets

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:

  • Lower Costs: You’re likely to pay a higher cost when you open investment accounts with multiple financial institutions.
  • Streamlined Administration: Fewer tax forms and accounts statements make it easier to keep track of your investments.
  • No Duplication of Investments and Efforts: The odds are high for duplication of investments (i.e. less diversification) and efforts when you have two advisors, since their efforts aren’t usually coordinated.
  • Simplified Estate Settlements: It becomes easier for your executor when they only have a single point of contact.
  • Easier and More Efficient Retirement Planning: It becomes easier for your advisor to devise an efficient strategy of optimizing your retirement income when they have a better understanding of your various income sources.inheritance planning

Instilling Financial Responsibility in Your Children

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.

Instilling a growth mindset in your children and grandchildren teaches them to respect you and the true value of money. Teaching them what it took to grow your family assets and sustain them is an important step in protecting your portfolio for generations to come.

Using Surplus Assets Effectively

Most UHNW individuals and families have surplus assets. Here are some effective ways to protect them.

  • Consider gifting them to low-income family members. If the family member in question is underage, the taxes levied on any capital gains will be in accordance with their lower tax rate.
    However, the dividend and interest income will be attributed to you and you’ll be responsible for their taxes. If they are legal adults, they will have to bear the taxes levied on the asset-generated income, but again, at a significantly lower rate.
  • In case of an insurance need, consider putting the assets into a life insurance policy which is tax-exempt. This way, you won’t have to pay any taxes on the income they generate. The income will be paid to the beneficiaries of the policy as a tax-free benefit after the settlement of your estate.
  • Another way to avoid capital gains tax on surplus assets is donating publicly-traded securities that have gone up in value to qualified charitable organizations.

Risk Management

Effective risk management is a vital part of protecting your hard-earned wealth. Lots of ultra high net worth families have lost considerable portions of their wealth in the past because they didn’t prepare for risks such as lawsuits and market volatility.

  • Risk of Lawsuits: liability insurance; there are various ways to ensure the protection of your assets.
  • Risk of Market Volatility: The best way to counter the threat of market volatility is diversifying your investments. In addition to diversifying investments by geographic location, industry and class, UHNW families can also reduce risk by taking the route of tax free bonds.
  • Risk of losing Income: Unfortunately, serious illnesses and disabilities are a part of life and can befall anyone. Purchasing long-term care and critical illness insurance can protect your family from the risk of permanent or temporary income loss.

Giving to Charity

There are numerous strategies you can use to get the maximum out of the gifts you make to charity:

  • As we’ve previously mentioned, capital gains tax isn’t levied on publicly listed securities, which have gone up in value once they have been donated to a qualified charitable organization. Furthermore, the receipt you receive depicts the current market value of the securities you have donated.
  • If you want to create a lasting philanthropic legacy, consider setting up a charitable foundation. While you’ll have higher flexibility and better control with a private foundation, a public foundation would suit you better if you don’t want day-to-day involvement.

Testamentary Trusts

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.

Splitting the Ultra High Net Worth Family Income

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.

Planning For Business Succession

If you plan to pass on your business to your children or your grandchildren, here are a few effective business succession planning strategies:

  • Figure out which of your children has the ability and the interest to lead your business. After you have made a decision in regards of who is to be your successor, gradually start involving the chosen person in business matters. Have them meet the important business contacts, and slowly ease them into a role of responsibility. The duration of this transition should be 5 to 10 years.
  • Have a financial plan in place which incorporates strategies like individual pension plans, an estate freeze for minimizing taxes, and insurance to provide protection against risks and unforeseen events. Include a shareholder’s agreement as well.

Vacation Property Planning

Ownership of a vacation property can be the cause of a variety of issues, especially if a Ultra High Net Worth 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:

  • An inter vivos family trust is a good way to pass on a vacation property to your children. Not only will it enable you to avoid probate tax, but it will also allow you to defer future capital gains tax.
  • If 2 or more children are to own the property, you can establish the ground rules by creating a co-ownership agreement.

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.

2 Comments

  • Timothy says:

    You mention that one of the steps those who inherit huge fortunes is to hire a team of “experts” to help the beneficiary manage his money. Yet when factoring the huge fees all these assistants charge will quickly turn a large portfolio into a smaller portfolio in short order. Just ask Jonny Depp, Tim Duncan, Adrian Petersen, Leslie Wexner and thousands of other Americans who have been burned by their “advisors”; Wexner alone lost almost 400 million when he turned over a huge chunk of his net worth to Jeffrey Epstein. Warren Buffett is right: become your own money manager and save yourself a bundle in fees.

    • Hutch Ashoo says:

      I completely agree. There are bad actors in just about all professions. From doctors to lawyers to financial advisors.

      This does not mean that everyone is dishonest and charges outrageous fees. I can only speak about myself and my firm when I say, we are driven to reduce our clients fees, expenses and taxes while optimizing performance because every penny saved and gained is a penny towards their financial security.

      I would further agree with you that too many financial advisors don’t even have the talents required and they are merely tellers who work at the big firms!

      If Warren Buffett lost 80% of his wealth tomorrow nothing will change for him. However the same cannot be said about the lives and lifestyles of most Ultra-High Net Worth and High Net Worth families. One has to be appreciative that most people don’t have Warren Buffett’s talents, expertise, or level of wealth!

      Finally, just because a few commercial aircraft pilots are caught every year under the influence while on duty doesn’t mean commercial jets should fly without a pilot or with passengers flying them.

      Thank you for your feedback, it is very much appreciated.