10 Wealth Preservation Strategies Beyond Your Lifetime
Only those families whose investable assets are valued at over $30 million are considered to be “ultra-high net worth.” However, all high net worth families need professional wealth management to determine the wealth preservation strategies they need. If you are a high net worth individual with over $10 million in investable assets, click here to read our guide on how to grow and protect your family wealth.
You sometimes 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 “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.
At Pillar Wealth Management, we provide comprehensive wealth management services to high net worth families with $5 million to $500 million in liquid assets. If you are having trouble with your current wealth manager, click here to arrange a free consultation with us and learn more about wealth preservation strategies.
Working with the right wealth manager is essential to growing your wealth. 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.
We Are Different Because We Are Laser Focused On Helping You Achieve Financial Serenity Through Our Proven Comprehensive Goals-Based Planning & Investing Strategies.
‘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 based on sound wealth preservation strategies.
These decisions include efficiently dealing with changing tax codes, proper estate planning, and making the best use of investment vehicles.
Wealth preservation means managing your wealth so it increases rather than decreases, thus protecting it and hopefully maintaining it until and during retirement.
You should have an investment strategy for your assets, including risk management, and an estate plan for passing on your wealth. You should develop a strategy for giving away your wealth.
First, start saving early to build wealth. Second, buy assets and hold them as they grow. Third, diversify your assets, for example, in stocks, cash, and real estate.
A wealth strategy is a plan for managing wealth. It includes actions to take to grow your wealth, such as saving for retirement. Then you plan how to invest your wealth for growth.
A wealth preservation trust is a trust created to ensure that assets are transferred to the beneficiaries according to the wishes of the trust creator. The trust holds a variety of assets.
Preserving wealth requires a long-term financial strategy with strong asset diversification, including cash or cash equivalents; monitoring investments; and risk management.
Wealth preservation means the capital does not lose value. So, investing in real estate or annuities is an investment in wealth preservation. Investing in a target-date fund also protects wealth.
They monitor their asset allocation to maximize returns while minimizing risk. High-net-worth individuals often hire a financial advisor to help them grow and preserve their wealth.
Wealth is stored in bank accounts. It is invested in a wide range of investment vehicles such as annuities, real estate, stocks, insurance policies, mutual funds, and ETFs.
Wealth preservation is important to ensure that the capital foundation of wealth is not eroded. Wealth should be preserved, but with the right strategy, it can grow.
10 Great Wealth Preservation Strategies
- Comprehensive Financial Planning
- Consolidating Your Assets
- Instilling Financial Responsibility in Your Children
- Using Surplus Assets Effectively
- Risk Management
- Giving to Charity
- Testamentary Trusts
- Splitting the Ultra High Net Worth Family Income
- Planning For Business Succession
- Vacation Property Planning
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 book titled The 7 secrets to High Net Worth Investment Management, Estate, Tax and Financial Planning).
Over the course of this article, we’ll outline 10 of the best wealth preservation strategies to grow and protect your family’s wealth.
1. 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.
Implementing the right wealth preservation strategies involves 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 establish wealth preservation strategies that 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.
Testimonial From Satisfied Clients
- Management of cash and debt
- Investment planning
- 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 defining wealth preservation strategies
- Forecasting your finances based on the application of those recommendations
- A defined plan of action
To learn more about comprehensive financial planning, click here to talk to one of our wealth managers.
2. Consolidating Your Assets
In an attempt to diversify their investments, UHNW persons and families often setup some 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 who will recommend the relevant wealth preservation strategies you should consider. The reasons are:
- Lower Costs: You’re likely to pay a higher cost when you open investment account with multiple financial institutions.
- Streamlined Administration: Fewer tax forms and account 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.
To learn more about the importance of asset allocation and diversification, click here to read our guide on how to improve portfolio performance.
3. Instilling Financial Responsibility in Your Children
While it takes years and years of hard work to accumulate substantial wealth, all of it can be lost in a proverbial moment.
Self-made individuals know 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 wealth preservation 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.
Among other wealth preservation strategies, one 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.
4. Using Surplus Assets Effectively
Most UHNW individuals and families have surplus assets. Here are some effective wealth preservation strategies to protect surplus assets.
- Consider gifting the assets 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.
If you need help finding a financial advisor who can take care of surplus assets by applying the most efficient wealth preservation strategies, click here to read our guide.
5. Risk Management
Effective risk management is a vital part of protecting your hard-earned wealth, making it critical in the basket of wealth preservation strategies. Many 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 law suits 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.
Remember, risk management is critical to financial serenity. If you want to prepare for different investment risks and achieve financial security, through implementing the wealth preservation strategies that are right for you, you need to make a few changes. Click here to read about the 5 critical shifts that can help high net worth individuals.
6. Giving to Charity
There are numerous wealth preservation 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.
7. 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. So, make sure they are part of your wealth preservation strategies.
8. 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.
If you choose this option, it’s important you work with the right financial advisor, someone who is adept at developing wealth preservation strategies. Click here to read our financial management guide and find out how to find a financial advisor for high net worth families.
9. 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 wealth preservation 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.
10. Vacation Property Planning
Ownership of a vacation property can be the cause of a variety of issues, especially if an 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 wealth preservation 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.
Wealth Creation vs. Wealth Preservation
How to create wealth
To create wealth, you need a plan — a financial plan. A financial plan provides the framework for creating wealth.
A financial plan includes an asset management strategy based on your income goals and risk tolerance; it defines how your assets will be diversified — there are plenty of options such as stocks and bonds, mutual funds, bank accounts, CDs, ETFs, and more.
A financial plan includes a retirement plan and a savings plan. It may establish some planning for debt management and budgeting.
Your plan should include frequent monitoring of your investments, as your goals will change along with the market.
How to preserve wealth
Wealth preservation entails good money management, which includes diversification of assets, ongoing monitoring of risks and investments, maintaining a cash fund for emergencies, and having insurance.
Because your financial needs and goals will change over time, your asset portfolio may also need to change to reflect these changes. The market will change, and it’s important to be aware of and take advantage of new investment options that emerge.
Re-evaluate your risk profile as your financial situation evolves. You may find that you can tolerate more risk or that you prefer to move into more predictable investments. Maintain your bank accounts to ensure they will cover any potential emergencies. It’s recommended that you have ready cash to cover up to six months of living expenses. As you grow older, you may want more cash available for healthcare expenses.
Review your insurance policies. Make sure they provide sufficient coverage, such as a life insurance policy that will meet the needs of your beneficiaries.
Differences between wealth preservation and wealth creation
Wealth creation is any activity that increases your wealth, such as acquiring new investments and watching them grow. However, when your investments do not involve risk, such as a savings account, you are preserving your wealth. Plus, creating wealth means not reducing the value of your assets over time. So, you can see there is an overlap between wealth creation and preservation.
You need to find the balance between the two through diversification of assets and risk management.
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, The 7 secrets to Nigh Net Worth Investment Management, Estate, Tax and Financial Planning.
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. You can also click here to arrange a free consultation session.
To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.
We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
- Charles Schwab Wealth Management – Charles Schwab is an investment management platform that offers a wide range of financial planning services…
- Top Wealth Management Firms – Too many supposed ‘experts’ take the easy route in trying to identify the best wealth management firms…
- Wealth Management Firms – We live in the age of the one-stop-shop. Big box retail is all about finding everything in one location…
- Wealth Management San Francisco – Looking for the best San Francisco wealth management companies? These days, it seems nearly every big bank…