How Ultra High Net Worth Individuals Can Protect Their Wealth Even When Life Happens

4 UHNW Strategies to Ensure Your Wealth Withstands the Great Unknown

They say the only certainties in life are death and taxes. Two problems with that are of particular concern to ultra high net worth individuals (defined as having $30 million or more): The death part, and the tax part.

But there’s a third part of life that also affects ultra high net worth individuals (UHNWI) in ways unique to them and their finances – major life events. Before we get to that, let’s talk briefly about death and taxes.

Ultra High Net Worth Strategies

Many of the ideas in this article receive far more attention and depth in our hardcover book, The Art of Protecting Ultra-High Net Worth Portfolios And Estates: Strategies for Families Worth $25 Million to $500 Million. Get it here on Amazon.


Strategies For Families Worth $25 Million To $500 Million
The Art of Protecting Ultra-High Net Worth Portfolios and Estates

The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.

Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.

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With regard to taxes, UHNWI face much higher tax burdens than all other income groups. In certain states and depending on your sources of income, these burdens can reach stratospheric levels. Thus, much time and attention must be devoted to tax planning for UHNWI.

You face higher taxes from investment gains, from income in general, from the value of your estate, from business sales and income, from real estate sales and income, and more. Often the estate values for ultra high net worth families exceed their own estimations because they forget about items like artwork and collector’s items, properties that have been in their family for many years, and investment assets that have been on autopilot for decades.

It’s easy to lose track of it all. But Uncle Sam doesn’t lose track, and he never shows up late for game time.

Some of these taxes you pay during life. Some you (your heirs) pay during death.

With regard to death and finances, the most obvious area of concern for UHNWI is the estate tax. Currently (2019) the 40% federal estate tax kicks in at $11.18 million. But it was half of that just a year before, and could easily return there.

For an ultra high net worth family valued at $50 million, that means your heirs will be paying 40% taxes on about $40 million. That’s $16 million of your hard earned wealth gone. And that’s just federal. If your state also levees an inheritance tax, your heirs will lose even more. So death bites, and then bites again. If your wealth rises into the hundreds of millions or the billions, your estate taxes will be exorbitant.

Considering only the financial fallout from death and taxes, you’ve got a lot of planning to do.

What About Key Life Events BEFORE Death?

But because estate taxes get so much press, far less attention gets devoted to major life events and the financial fallout these can have in your life. To be clear, these key life events can be positive or negative. Life-enriching events, or life-degrading events.

Life-Enriching Events

Some life-enriching events that might befall ultra high net worth individuals include receiving an inheritance of your own, a windfall from a business or large stock sale, or a shift in life’s fortunes, such as a political breakthrough on an issue you’ve been fighting for that affects your finances in a significant way.

When a life-enriching event takes place, a number of decisions come to bear:

    • How will I integrate this new wealth with what I already have?
    • What can I do to minimize the tax burden, if anything?
    • How should I involve my family?
    • Should I use it for an immediate purpose, allocate it for longer term investment, or a combination of both?

The specifics will of course vary for each situation. But because your wealth is spread out over many different investment vehicles, real estate, and other assets, it will take time to identify the possibilities and then chart a course of action to implement.

Life-Degrading Events

Life-degrading events of particular concern for UHNWI include lawsuits against you or one of your businesses, sudden market meltdowns, serious illnesses, disabilities, and life-altering injuries for you or a close member of your family, natural disasters that claim valuable parts of your estate such as irreplaceable collector’s items, and cybersecurity incidents, just to name a few.

For life-degrading events, your main defense as an ultra high net worth individual is to plan ahead so that if and when these things happen, your finances are protected. That’s what we’re going to help you with in the rest of this article.

This is the most important principle you must hear:

Coming through a costly or life-altering negative event with your finances and goals secure can only be done by putting in place UHNW strategies and wealth management planning – in advance.

Begin implementing these four UHNW strategies right now to protect your wealth in the event of a life-altering situation.

4 UHNW Strategies to Protect Your Wealth

1. Establish Trusts for Your Closest Heirs

Begin by making a list. Who do you want, with absolute certainty, to be taken care of financially if something happens to you or a large portion of your wealth?

You can set up a living trust or a testamentary trust. In brief, a living trust can take effect while you’re still alive, whereas a testamentary trust takes effect as part of your last will and testament. An ultra high net worth wealth advisor can help you with the details.

But imagine this scenario:

Your business gets hit with a cyberattack, costing your company millions. The fallout leads to lawsuits from customers, employees, and vendors. One way or another, you’re going to pay. If it’s severe enough, this can be permanently crippling.

Now, you may have been planning to pass on $1 million to a handful of close family members, and $5 million to a disabled relative who can’t work. But with this business crisis, tens of millions in value you were counting on having when you die has suddenly vanished, and along with it your plans for these heirs.

You may be able to weather the storm personally, but your heirs may not get what you had intended for them.

A trust – set up in advance – protects your wealth and your heirs from suffering from sudden losses of this magnitude.

Many similar scenarios can be imagined, such as a sudden injury or disability that forces you to quit work. All such scenarios can be mitigated to some extent with wise advance planning through trusts.

But your options are many, and only an ultra high net worth wealth management firm has the specialized knowledge and experience to protect wealth in the amounts you’re working with.

2. Diversify Your Assets

A sudden market meltdown can wipe out hundreds of millions from the portfolio of an ultra high net worth individual in a matter of days.

We’ve seen high net worth people make pretty terrible decisions out of fear, stubbornness, or simple lack of understanding. Things like holding onto stock options in your company long after leaving, only to watch the company lose most of its value because of a market crisis or shifting economic trends.

In extreme scenarios like this, someone who was worth billions can be worth mere tens of millions in just a few months, if they weren’t wisely diversified.

If you look at lists of billionaires from 20 years ago, and then follow the list every five years, take note of who drops off. If you follow up on those stories, some of them don’t end well. And it’s usually due, at least in part, to not planning ahead for detrimental and unexpected life events or tragic business turns.

If you have concentrated large percentages of your wealth in just a few companies or the same market sectors, you are standing on the edge of a cliff. If you’ve borrowed against the value of those shares, you have one foot over the edge.

Get help from an ultra high net worth wealth manager, and protect your wealth from market volatility and financial and business calamities outside your control.

If and when something does go wrong financially, you’ll be able to exhale in relief that you made the right decisions before it happened.

3. Enact Family Governance

Everyone has different values about money and how they prefer to communicate about it with their heirs. But for ultra high net worth families, you can’t risk hoping your heirs just ‘figure it out.’

There’s simply too much money in play.

According to The Williams Group, 70% of UHNW families’ wealth failed to last three generations. So if you’re a self-made ultra high net worth individual, that means there’s only a 30% chance your wealth will make it through your grandchildren’s generation. If you inherited a good portion of your wealth, you’re the second generation, which means your children are number three.

If that doesn’t get your attention, your screen must be frozen.

Your best hope for avoiding that misfortune is to create a family governance structure. This has three primary components:

    • Education of your heirs about how to manage wealth and who to turn to for help
    • A clear mission and vision for the future – what your wealth can accomplish
    • Honest and forthright communication

Your heirs need to understand two things: What wealth can accomplish, and how it can be squandered at incredible rates of speed. Show them stories of failed ultra high net worth individuals such as Mike Tyson. Celebrities make great examples. Ultimately how this looks for you will depend on your family’s values as they relate to protecting your wealth and legacy, and having a mission-centered mindset about money.

Give your heirs a mission.
Instill them with passion for it.
Equip them with the tools to carry it out.
Put safeguards in place to keep them on track.
And then teach them all this.
Don’t let them grow up and live life financially ignorant.
Yes, they or their children can easily lose it all. 70% of them do.

4. Update Your Wealth Management Plan Every Quarter

This should be standard procedure. Unfortunately, most ultra high net worth wealth management companies fail to protect the wealth of their clients as they could with this strategy.

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When you first begin working with a wealth manager, they’ll help you create a plan which will map out your investment strategy, life goals, tax strategies, and many other components. The details vary depending on your advisor.

Where most wealth managers fail is in not updating your plan as life progresses. One thing you can pretty much guarantee is that the plan you create at age 40 will be obsolete by 50, and the one you make at 50 will be obsolete by 60. In the vast majority of cases, it will be much sooner than that.

Your wealth manager should be updating your plan four times per year, because your life, your family’s life, and your heirs’ lives keep changing. People get married, have kids, get divorced, start businesses, start charities and foundations, close businesses, shut down charities and foundations – and that’s just the stuff they intended to do.

Remember – this is about unplanned major life events. These can happen to you and to anyone in your family or extended family. They can happen to the whole country, or the whole world for that matter.

If something significant happens in your life, and you have a wealth manager who updates your plan every quarter, your process is simple:

1) Call them up
2) Explain what happened
3) They will update your plan based on the new information
4) They will come back with a new set of recommendations and options to keep your finances on track
5) You can work through those choices when time permits

But if your wealth manager just set your investments on autopilot 13 years ago and hasn’t updated (or even looked at) your plan since then, he’s not going to be able to quickly update your plan. As a result, you won’t have the information you need to make the critical and often time-sensitive decisions you’ll be facing.

He’s going to need to start all over, because he’ll have 13 years of catching up to do.

Your kids are through college now? One of them is a doctor? The other one is a teacher? Wait, how many kids do you have again? And you’re still married, right?

They’ll have no idea what’s going on, and if you’re in crisis and need to make some big decisions very soon, that will be one frantic and stressful period of time.

Much better to have known about and planned for this possibility well in advance, and be able to make the adjustments necessary keep the plan intact and your life steady and secure.

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Many of the ideas in this article receive far more attention and depth in our hardcover book, The Art of Protecting Ultra-High Net Worth Portfolios And Estates: Strategies for Families Worth $25 Million to $500 Million. Get it here on Amazon.

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