Ultra-high-net-worth individuals (UHNWI) are people who have at least $30 million in assets. In recent years, the pool of people meeting those standards has expanded thanks to the recent upturn in the world economy. They have vast wealth, so they may not be worried about meeting basic needs. However, UHNWI have their own set of unique financial concerns.
Concern #1: The Tax Code
UHNWI pay a large share of the income tax revenue that powers the national budget. They pay much less now than did others in their income bracket paid in the period from the 1960s to the 1980s. Still, at 39% that’s a sizeable portion of their income. Yes, the UHNWI can take advantage of provisions within the code to reduce their tax liability and they do. Yet, like many, they are concerned about the power of the state to effectively reduce their wealth.
The matters are up to the representatives in the Congress. Depending on which political party is in power and the economic landscape, the UHNWI could see changes in the tax code that could:
- Remove deductions beneficial to the wealthy
- Increase estate taxes
- Return the top tax bracket to pre-1980 levels
Concern #2: A Volatile Stock Market
Most UHNWI are heavily invested in various companies and funds. For many, income from their investments is the source of their wealth. If the stock market were to crash, UHNWI could see their portfolios shrink or perhaps even vanish in a matter of days.
Concern #3: Retirement
UHNWI who arrived at that status via a job, like being a superstar athlete, could be forced into a lifestyle change after their regular income goes away. In fact, many athletes are closer to being in the same boat as the rest of us. They have a short career span, so they must be careful about spending while they are working. They may face significant health issues when they are older. They may have made bad investments in their early years.
Concern #4: Insurance
UHNWI face risks many of us don’t face, like the constant threat of massively expensive litigation from other businesses or the risk that a torn ligament could end a career. UHNWI take out special insurance policies to protect themselves and their money.
Concern #5: Asset Protection
Some UHNWI have large amounts of assets and real property. If finances take a turn for the worse, creditors may come for those assets to satisfy a debt. Depending on the state where the UHNWI lives, they may be able to set up a trust to protect those assets as ownership of the assets will be transferred.
Concern #6: Estate Planning
We could all stand to give some consideration to what happens with our assets and wealth after we’re gone. It is of particular concern for UHNWI who will undoubtedly have a significant amount of wealth to pass on to their heirs. Under the current tax code, the federal government will not tax first $5 million of an estate. However, when an estate exceeds that amount, the tax on the estate is 40 percent. Any UNHWI is going to have more than $5 million. Then, the state government may also apply an estate tax.
Many UHNWI may pay a team to look after their finances. Contact us to learn more about how the team at Spectrum can help simplify your financial life and start living life by design, not by default.