Are you confident in the current state of your investments? With the best financial advisors in Utah on your side, you can be.
While every American should invest, there are special concerns that apply specifically to high net worth individuals (HNWs). Affluence comes with a wider array of options and more to lose for neglecting to make smart investments.
From tax preparation to retirement planning, for HNWs, it’s more important than ever to make the right financial decisions. By understanding the many options available to you, you can ensure that your assets continue to earn money during your lifetime and beyond.
Discover tips and techniques that are uniquely useful for affluent investors, including:
- Learn which two taxes apply to inheritance and how to reduce them
- Tips for passing down your family business in the smartest possible way
- Understand the value of a trust fund and its three major benefits
- Why philanthropy should be part of your life as an affluent individual
- Understand “Donor Advised Funds” and whether they’re right for you
Scott Marsh is not only a respected expert financial advisor in Utah—he’s a professor at BYU. For 30 years he’s shared his knowledge of personal finance to help thousands improve their investments. Learn more from his in-depth financial education videos at the Scott Marsh Education Institute.
How Can High Net Worth Individuals Preserve Their Inheritance?
When someone of significant wealth passes on, it’s vital that they have their financial affairs in order so their assets go to the right people or charitable institutions. It may be hard to imagine now, but problems can arise between close friends, family members, business associates, and others who feel they deserve a portion of the inheritance.
Indeed, failing to properly set up your inheritance can cause it to be squandered away on taxes. Not to mention the headache it causes for your loved ones who are left in confusion, trying to figure out where the money is and where it goes.
The good news is that you can avoid such problems by simply abiding by smart financial practices beforehand.
Smart Ways to Reduce Inheritance Taxes
Depending on where you reside, taxes may be a massive threat to an improperly-prepared inheritance. There are two types of taxes that apply to inheritance: Estate taxes and inheritance taxes. Although they’re typically combined, each is a separate method of taxation.
The capital gains tax is almost another discussion, entirely. While taxes are a necessary evil to keep our cities safe and clean, no one wants the majority of their inheritance going to the government. Here are some proven ways to prevent it:
- Give to Charity
It’s ironic that giving money away can ultimately help you retain it, but it’s true. By giving to charities, you’re not only supporting your values, but also earning a tax benefit that can offset inheritance taxes in the long run. In fact, by donating taxable assets to your favorite causes, you can leave non-taxable assets to your heirs. This makes your legacy even more valuable.
- Give to Loved Ones
Another way to reduce the tax burden of your inheritance is to give some of it to the people in your life while you’re alive. This has the significant personal benefit of helping loved ones while avoiding the estate and inheritance taxes on their gifts. Note that as of 2022, you can give $16,000 away without paying a gift tax.
- Minimize Retirement Distributions
It’s common for affluent people to have at least one retirement account, but what you may not remember is that money is only taxable when you take a distribution. While you have to take distributions at age 72, keeping them at a minimum will ease your inheritance tax burden.
What Life Insurance Strategy Is Best for High-Net-Worth Individuals?
Another aspect of your finances worth researching is which life insurance strategy to choose. There are many strategies to explore, and each comes with various advantages and drawbacks.
Example: Buying Cash-Value Life Insurance
One example is to purchase cash value life insurance and use it as a lifelong account that can eventually pay for itself. While most Americans can’t afford this strategy, it allows a high level of freedom since you can make partial withdrawals or borrow against the monetary value. Neither option is possible with a standard term insurance policy.
Note that each life insurance strategy differs by risk, available options, and other factors. It’s worthwhile for each individual to have a basic understanding of these strategies so they know how much effort, time, and risk are involved.
Passing Down Your Family Business the Right Way
Many affluent people who gained wealth during their own lifetime did so through the success of their own businesses. As the owner of your own business, odds are, you want someone in your family to reap the benefits after you’re gone.
It’s crucial to make difficult decisions about your family business during your most active years. This avoids costly mistakes that your loved ones could pay for down the line.
Ensuring It Goes to Your Heirs
One of the biggest mistakes an entrepreneur can make is not naming a successor. When choosing a successor for your family business, consider respecting the hierarchy of your family, remain flexible, and remember to celebrate small victories along the way.
Note that if you’re planning on integrating a family member into your business and training them to take over, the recommended time frame is five to ten years.
Give Stock or Sell It?
A major decision every entrepreneur of a public company must face is whether to give their distributions away, or require family members to contribute capital to the company first. One consideration is that giving more than $16,000 as of 2022 will trigger a gift tax.
However, the optics are important when leaving a company to a family member, so choosing to have them invest in the company can add credibility and ease the transition.
Should You Set Up a Trust for Your Heirs?
A trust can make the inheritance process much easier for everyone involved while potentially decreasing your tax burden. Essentially, a trust designates that a sum of money goes to a particular person at a certain time.
There are many types of trusts, including living, irrevocable, education, and generation-skipping. Each type comes with its own uses and benefits.
3 Major Benefits of a Trust
- Freedom and Control – You stipulate all of the terms and conditions of the trust and can even be creative with when the beneficiary can withdraw funds. This can be useful for ensuring that a young recipient reaches a more mature age before receiving all of their inheritance, for example.
- Tax Savings – While most states don’t have an estate tax, you can use a trust fund to avoid taxes in states that do. Consult a CERTIFIED FINANCIAL PLANNER™ to find out if you even need to worry about an estate tax and whether a trust would be useful.
- Discretion – Another aspect of trust funds that affluent people often find appealing is that they aren’t revealed during probate. This means any details of a trust fund remain entirely private, allowing you to give money to whoever you want without conflict.
Trusts Are Complex, So Consider Hiring Help
Trust funds are useful but can quickly become overwhelming without professional help. By simply hiring a leading CERTIFIED FINANCIAL PLANNER™ in Utah, you can ensure that all the details of your chosen trust fund are taken care of. Remember, time is of the essence, and hiring help can allow you to use your time on your business, family, or other parts of life you value most.
Maximizing Your Legacy Through Philanthropy
For high-net-worth families, philanthropy is the key to cementing a legacy that spans generations. Giving to organizations that resonate with your values is a great way to support your most beloved values while also cutting back on your tax burden.
Philanthropy can consist of a simple annual donation or a deeply-involved relationship with a nonprofit that depends on your donation for decades to come.
Is a Donor Advised Fund Right for You?
In some cases, a donor-advised fund (DAF) can make it easier to donate to your chosen charities. Essentially, a DAF is a separate fund that’s managed by a sponsoring organization. If you’re someone who gives to charity often and wants to maximize tax benefits from your donations, a donor-advised fund may be the answer.
Note that a DAF also allows you to make donations from a source other than yourself, your business, or your family, which can be an advantage in some cases.
Should You Hire a CERTIFIED FINANCIAL ADVISOR™ in Utah?
Unless your finance knowledge is at the professional level, then you will want to hire a CFA™. Considering the time, effort, and stress involved with starting your own trust fund or perfecting your life insurance strategy, having help from a trusted professional is priceless.
Scott Marsh Is a Professor and Expert CFA in Salt Lake City, Utah
If you decide to enlist help in planning your finances, you will want the best CERTIFIED FINANCIAL ADVISOR in Salt Lake City. We specialize in tax planning strategies for high-income earners as well as retirement planning for high-net-worth individuals.
Scott Marsh is not only a leading advisor for high net worth individuals: He has been teaching financial principles for 30 years. Contact us today and discover why affluent investors throughout the country trust Scott Marsh.
Ready for more proven techniques for managing your wealth? Scott Marsh has spent decades inspiring thousands of people to make smarter moves with their finances. Feel free to peruse his videos at the Scott Marsh Education Institute today.
