High-net-worth individuals face unique challenges when it comes to financial planning., Asset protection and risk management, lifetime tax planning, and estate planning are important to all investors. However, for high-net-worth individuals, these matters take on even greater importance, as the stakes are much higher. For high-net-worth business owners, business succession is an essential part of their financial plan. High-net-worth individuals need planning strategies designed to address these unique factors. Fortunately, there are several proven financial planning strategies available to meet the specific needs of these individuals.
If you’re looking for assistance in creating a personalized financial plan, speak with a CERTIFIED FINANCIAL PLANNER™ professional at Good Life Financial Advisors of NOVA today!
Comprehensive Financial Planning for High-Net-Worth Individuals
Everyone can benefit from comprehensive financial planning. However, high-net-worth individuals have a lot more at stake, so a big-picture strategy is vital. For these people, a plan must go beyond just investments and basic protection strategies. A comprehensive risk management strategy, coupled with a clear estate plan, taking into account lifetime tax planning, are all crucial parts of a high-net-worth plan. And while most high-net-worth individuals work with multiple experts and advisors on these things, they need someone to ensure that all the pieces fit together seamlessly.
Risk Management For High-Net-Worth Individuals
For high-net-worth individuals, risk management goes way beyond the traditional thinking about various types of insurance. They’ve accumulated a large amount of wealth, so there is a lot more for them to lose in a lawsuit or divorce. A well-crafted financial plan for these individuals must take this into account. Utilizing LLCs, various insurance policies, specific trusts, and even ownership structures can help them protect what they’ve worked so hard to achieve. Working with an advisor who can help coordinate their legal advisors and property/casualty insurance agents is essential for high-net-worth individuals.
Tax Management For High-Net-Worth Individuals
The old cliche says that only two things in life are certain: Death, and taxes. For high-net-worth Individuals, keeping what they have away from taxes is a primary concern.
For example, The Tax Cuts and Job Act of 2017 capped mortgage interest deductions for loans exceeding $750,000 and eliminated deductions for second homes. It also capped the state and local tax (SALT) deduction at $10,000 annually. Understanding these changes and adapting your strategy accordingly can help minimize your tax burden.
Charitable giving and gifting to loved ones are also effective ways to manage taxes. For instance, gifting can reduce the taxable value of your estate and potentially minimize inheritance taxes. The current annual gift tax exclusion is $18,000 per recipient, offering a straightforward way to transfer wealth while reducing potential tax liabilities. Additionally, a husband and wife can utilize “gift-splitting” to double the amount they can give to a recipient. The number of recipients is not limited, so parents, children, in-laws, grandchildren, cousins, friends, nieces, nephews, and more can all receive large annual gifts and reduce the taxable estate on a dollar-for-dollar basis.
Tax planning also comes into play during retirement planning. Unlike most people, high-net-worth individuals may not benefit as much from the typical strategies of tax-deferred retirement accounts due to potentially higher income levels in retirement. A customized tax strategy focused on lifetime tax reduction is vital to help them reduce their lifetime tax burden as much as possible and keep more of what they’ve earned.
Estate Planning Strategies for High-Net-Worth Individuals
Estate planning for high-net-worth individuals will often involve higher levels of complexity than it does for clients with less wealth. High-net-worth clients are often focused on protecting their assets from the dual threats of excessive taxation and unjust confiscation through lawsuits and/or divorce. By implementing the right strategies, high-net-worth investors can, in most cases, wrap a protective bubble around their wealth to ensure it is there for the people and causes that matter most to them.
Business Succession Planning as Part of Your Financial Strategy
For many high-net-worth Individuals, their business is their most significant asset. As a result, succession planning must be an integral part of any strategy for them. Succession planning for a business goes hand in hand with estate planning, as they both can be incredibly complex, and there are a lot of outside-the-box strategies to consider. The basic premise of succession is deciding who will take over your business, how the transition will occur, the transition timeline, and most importantly, how to maximize the economics of the business for the business owner and the people and causes most important to them. Proper succession planning ensures business continuity and aligns with your overall financial goals and estate planning.
Avoid assumptions in succession planning by having clear, open discussions with potential successors and other stakeholders. Developing a detailed plan with a transition period, ideally stretching over the course of five to ten years, can facilitate a smoother handover and help maintain the business’s value.
Financial Goals and Education: Preparing the Next Generation
Financial education is essential for all families, but it’s particularly critical for high-net-worth families to prevent the loss of wealth over generations. The adage “shirtsleeves to shirtsleeves in three generations” underscores the importance of preparing heirs to manage wealth responsibly. And while the topics we have touched on above are an important piece of protecting the next generation, there is nothing that can replace financial education. Having discussions about money early — and often — is essential for high-net-worth individuals and their families. The generation who earned the money often experiences many sleepless nights, worried about how the next generation will squander the wealth they built or, even worse, cause great harm to themselves because of the comfort they enjoy.
These money discussions should talk about the basics of budgeting, saving, and charitable giving. But I suggest that if you find yourself in this position, you do your best to instill your values around wealth. What did it take to make it? How hard was the work? What kind of risks did you take? What was it like when you were poor, etc? Early conversations like this can help foster a sense of responsibility and understanding of what it means to be wealthy.
Partner with an Experienced High-Net-Worth Financial Advisor
Navigating high-net-worth financial planning demands a personalized strategy to tackle the unique challenges and opportunities that come with substantial assets. A skilled financial advisor offers the specialized knowledge to craft and execute a plan that aligns perfectly with your financial goals. Good Life Financial Advisors of NOVA can help. Schedule a no-risk consultation with a CERTIFIED FINANCIAL PLANNER™ professional today!
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
