Just like everyone else, high net worth individuals must deal with taxes, estate planning, and managing investments. The difference is that high net worth individuals usually handle more complexity within each of these areas. Plus, they often have a few extra areas to concern themselves with, such as succession planning if they own a business. Thankfully, there are plenty of high net worth financial planning strategies that exist to meet the unique 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
Everyone can benefit from comprehensive financial planning, but high net worth individuals have far more to lose by failing to have a plan that integrates all aspects of their finances. Even if different people handle different aspects of your finances, such as an attorney who helps draft estate planning documents, you’ll still want at least one person who is looking at everything holistically—Investments, retirement planning, estate planning, taxes, etc.
In addition, if you have money invested with different financial advisors and they’re not communicating, you may have duplicate investments. This means less diversification and, therefore, more risk. Consolidating assets can help improve diversification, make it easier to review your portfolio, and may even save you money on fees.
There are a few specific strategies and recent updates to tax law that apply almost exclusively to high net worth individuals. One of the most noteworthy of these affects tax deductions on mortgages. New tax rules limit mortgage deductions to loans exceeding $750,000. Also, mortgages on second homes are no longer tax-deductible.
Another area where high net worth individuals should take note is gifting, both charitable and to loved ones. If you choose to make charitable donations, there are multiple strategies to consider that can help minimize your tax burden. By gifting money to loved ones, you can minimize the amount of your estate applicable to the inheritance tax. The current gifting limit before taxes apply has recently been increased to $15,000 per person, per year.
You’ll also want to consider how taxes will affect you in retirement. For the average person, tax-deferred retirement accounts are often a good option. But that’s because the average person usually has less income in retirement and therefore is in a lower tax bracket. This may not necessarily be the case for high net worth individuals.
Prepare the Next Generation
Educating children on financial matters is always beneficial, but high net worth families have extra incentive. The saying “shirtsleeves to shirtsleeves in three generations” exists for a reason. The best way to avoid this fate is to have discussions about money early and often. There is no one-size-fits-all strategy for educating children on money, but depending on the age of the child, you could consider providing an allowance, teaching the importance of giving, helping them create a budget, or even having them get a part-time job.
If your children are grown, communication is key. Consider having a family meeting to specifically discuss the current value of your assets, your current estate plan, and your future goals and expectations for both you and your children.
Estate planning for high net worth individuals is often incredibly complex. The goal is that as much of your wealth as possible goes where you want it, such as to loved ones and causes you care about. Thankfully, there are strategies to help maximize the amount of your estate that goes where you would like.
One of the best options for passing wealth onto your loved ones is through trusts. With the wide variety of trusts and options for customization, you can create a trust that’s as broad or specific as you like. Gifting money and helping cover the costs of college are two other ways that can both minimize the amount of your estate applicable to the inheritance tax and help loved ones now, as opposed to only later on.
Many high net worth individuals own their own business, and these individuals should make sure to include succession planning in their financial planning. Succession planning for a business goes hand in hand with estate planning, as they both can be incredibly complex.
One of the most important things to avoid is making assumptions. Instead, have conversations with everyone involved about expectations, the timeline, and what you think the transition will look like. Make sure to include a transition period that works for everyone. By including a transition period, you can help both the person taking over and help yourself transition into leaving. It depends on the size and complexity of the business, but an ideal transition will take between five and ten years.
Contact an Experienced Financial Advisor
High net worth individuals have many opportunities, but they also face a unique set of challenges when it comes to their finances. That’s why it’s important to take advantage of these high net worth financial planning strategies. With planning, the burden of these challenges can easily be managed. For advice on your unique financial situation, speak with a CERTIFIED FINANCIAL PLANNER™ professional at Good Life Financial Advisors of NOVA today!