Those with an ultra-high-net-worth, especially offspring of millionaires and billionaires, constantly fear losing their money. These individuals also face challenges of ever-evolving tax codes, estate planning, sustaining their lifestyle during retirement, and protecting the principal in their financial accounts.
Ultra-high-net-worth financial planning can require intricacies and attention to the minutest of details. That’s why many of these individuals rely heavily on experienced financial advisors to ease their worries.
Here's everything you need to know about ultra-high-net-worth individuals, the unique challenges they face, and how they should go about finding the right financial professional to help protect their wealth.
A high-net-worth individual (HNWI) is someone with liquid assets of at least $1 million. These individuals often seek the assistance of financial professionals to manage their money, and their high net worth qualifies them for additional benefits and investing opportunities that are closed to most.
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An ultra-high-net-worth individual (UHNWI) is anyone who has a net worth of over $30 million. These funds also must be in investable assets. This is an essential distinction, as many may have more than $30 million in net worth on paper, but those funds may not all be available to invest.
The number of ultra-high-net-worth individuals continues to grow, and the demographics of these individuals are constantly shifting, according to internal studies. Currently, the U.S. is home to the most UHNWIs, at 41.6%, with Europe and China closely following.
Additionally, 86% of ultra-high-net-worth individuals are held by people 50 and older, and the majority are men, according to a report published by Wealth-X.
In recent years, the tax treatment of the ultra-wealthy has been a bone of contention in politics, with politicians and the general public being starkly divided on the matter. Some proclaim that keeping taxes low for the UHNWI frees up more money for them to invest in ways that positively impact the rest of society, such as creating jobs and growing the economy. The other side believes that the middle and working class bear too much of the tax burden and UHNWI exploit loopholes to pay far less than their fair share.
Income tax, capital gains tax, property tax, estate tax, state tax, etc. all have the potential to drain fortunes. This is why adequately planning for taxes is one of the major financial concerns of ultra-high-net-worth individuals.
In 2017, the Trump administration’s Tax Cuts and Jobs Act, largely overhauled current tax codes and restructured tax brackets. The new code dropped the tax rate from 39.6% to 37%. Many politicians are pushing for much higher tax rates for the top tax brackets. As recently as 1980 the rate was at a staggering 70%.
President Joe Biden has unveiled the budget for fiscal year 2024 containing tax hikes with a laser-beam focus on billionaires, multi-millionaires, and large corporations, all aiming to reduce the federal deficit by $3 trillion over the next decade on the dime of the wealthiest Americans.
(It’s important to note that Biden’s proposed budget includes no tax increases on anyone making under $400,000. Those making more than $400,000 a year would see their top tax rate on their income tax go up, from 37 percent to 39.6 percent — effectively, a repeal of the rate cut included in Trump’s 2017 Tax Cuts and Jobs Act.)
With the polarization in politics at an all-time high, many UHNWI live in a constant state of anxiety, worried we may return to a higher rate when the current tax code expires in 2025.
There is a lot of debate around whether the super-wealthy are disproportionately excessive risk-takers. Taking smart risks can ultimately lead to revolutionary ideas, but we all watched the Titanic Sub catastrophe unfold as the world asked, “Why did they risk their lives?”.
When people with lower net worths look at these UHNWIs, many of them believe that the key to becoming extremely wealthy lies in some secret investment strategy. But this isn't usually the case. Instead, UHNWIs understand the basics of having their money work for them and know how to take calculated risks.
However, having lots of money does not mean you're good at investing. Or vulnerable to risk. One small oversight or poor decision could be detrimental to financial health.
Here are the risks keeping the world’s most elite investors up at night:
Consider this: More than 90% of the estate tax is paid by the top 10% of earners.
Estate tax is a tax on the right to transfer property after death and only applies to the extremely wealthy. The Tax Cuts and Jobs Act increased the estate tax exemption, with $11.7 million of an estate being exempt from taxes. Anything beyond that $11.7 million is taxed at a rate of 40%.
The more the estate is worth, the more these individuals stand to lose in the passing of their estate.
Additionally, many states have their own estate taxes, which are imposed on top of the federal estate tax. Some also impose inheritance taxes on beneficiaries, which is a tax on the recipients of inherited assets. While there are strategies UHNWI use to mitigate the effects of these taxes, it can still stand to be a major area of worry.
Those who made their fortune by working, including CEOs and other highly paid professionals, can face a loss of income when it comes time to retire. Many ultra-high-net-worth may be poor at managing their money and it can be difficult to scale back when necessary. So even though having $30 million or more should be enough to live comfortably through any kind of retirement lifestyle, many UHNWI are nervous about their golden years.
An additional problem that these individuals could face is illiquidity, which means they have millions but most or all of it is tied up in land, real estate, or other assets that aren’t easily convertible to cash. Other UHNWI are used to taking big risks with their money, but they don’t feel any negative effects when they still have a large cash flow. However, when they retire, it can be much more difficult to replenish after a big loss.
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One of the primary goals of ultra-high-net-worth individuals is to preserve their wealth for themselves and their future generations. Most UHNWI don’t have their money sitting around in CDs, money market accounts, cash value life insurance, or other “safe” investments. It’s likely these individuals made their fortune using aggressive investment strategies. As we mentioned earlier, high-return investments also come with higher risk; high risk can also come with high anxiety.
When it comes to preserving wealth, this demographic should have an investment strategy specifically for their assets, including risk management, and an estate plan for passing on wealth. When it comes to their retirement plan, diversifying their portfolio can also help ensure that wealth is positioned well to bear the brunt of forces beyond their control.
As an ultra-high-net-worth individual, finding the right advice is crucial. As you can see, managing substantial wealth comes with extremely unique challenges and complexities.
Given the high values at stake, finding an effective Wealth Preservation Manager you can trust is paramount. Here are some tips to help you find the right financial professional tailored to your needs:
At NJM Wealth Preservation Strategies, we offer our clients highly experienced advice in asset management and protection. We develop personalized strategies tailored to your unique financial aspirations, helping ensure every decision aligns with your goals.
We understand that investors of every net-worth have complex financial lives and the management of assets requires extremely unique strategies. We help ease the stress revolving around these challenges, helping ensure you preserve your wealth and continue to reach your financial goals.
With over two decades of experience under his belt, trusted Wealth Preservation Specialist, Nic J. McLeod is a second-generation Wealth Preservation Specialist who has helped 1000's of families secure their financial well-being.
By working with Nic and his skilled team, you can have confidence, security, and peace of mind knowing that your finances are being monitored and managed actively and effectively.
Contact us here today to set up your complimentary consultation.