National Retirement Planning Experts

National Coverage
Local Professionals

Home  > Financial Articles  > Investment  > 5 Financial Concerns Ultra High-Net-Worth Individuals Face

5 Financial Concerns Ultra High-Net-Worth Individuals Face

article image

People who own at least $1 million worth of liquid assets are generally known as high-net worth individuals. Likewise, people with a net worth of at least $30 million or more are known as ultra-high net worth individuals. As of 2020, there were about 6.98 million high-net worth and 180,060 ultra-high net worth individuals in the United States. In fact, America has the highest number of ultra-high net worth individuals in the world. These individuals can have multiple physical and virtual assets like real estate, stocks, collectibles, cryptocurrencies, non-fungible tokens (NFTs), and more. Managing this can sometimes be challenging, given the complexity of the matter, the value of the assets, and the types of investments. This is why ultra high net worth wealth management requires a lot of attention, time, and effort. This can be done by opting for professional wealth management for ultra high net worth clients.

Ultra wealthy individuals can have a number of financial concerns, such as tax planning, succession planning, business planning, investment planning, estate planning, and more. The magnitude of their wealth is pretty large and can give rise to specific issues. However, these can be overcome with the help of ultra high net worth wealth management firms or wealth advisors. If you have any of the aforesaid financial concerns and wish to have an expert’s opinion, consult with a wealth advisor who can guide you on the same.

Typically ultra-high net worth individuals can face the following financial concerns:

1. Introduction of new tax codes:

Ultra high net worth tax planning can be a bit complicated and worrisome with the changing tax laws in the country. Ultra-high net worth individuals fall in the highest income brackets. As a result, their tax liabilities are also significantly high. The changing tax laws over and above these high tax brackets can induce a high tax rate on these individuals. There has always been a debate about the taxability of the richest. This debate has also forayed into politics. Some people believe that the lower and middle-income groups bear most of the tax burden, while the wealthiest individuals have numerous ways to avoid tax. Some people also believe that the taxation imposed on the most affluent is not in tune with their earnings and can be increased to lower the tax burden of the lower and middle-income groups. However, the other school of thought is more in favor of the rich. It is believed that relieving the wealthy of their tax duties can offer them more room to invest their money in the market. This can, in turn, boost the economy, create more jobs, and benefit people at large. Irrespective of what is right or wrong here, the constantly changing tax codes can be worrying for the ultra-high net worth category.

President Biden recently proposed levying a heavier tax rate of 39.6% on ultra wealthy individuals with an annual income of at least $452,700. For married couples filing their taxes jointly, the income limit will be capped at $509,300 or more. In addition to this, President Biden also proposed to increase the capital gains tax. As per the changes, individuals earning $1,000,000 or more may have to pay a capital gains tax of 39.6%. At present, the highest tax slab imposed on capital gains is only 20%.

These changing numbers can be a cause of alarm and concern for ultra wealthy individuals. If the government shifts back to the older models of tax, these individuals can stand to lose a majority of their earnings to tax. In 1963, the highest income groups were taxed at 91.7%. Even though the proposed 39.6% seems considerably low in comparison, the trend of increasing income tax rates can be challenging to incorporate in ultra high net worth tax planning.

2. Planning for retirement:

Ultra-high net worth individuals are used to a certain standard of living. An ultra high net worth lifestyle involves lavish parties, luxurious cars and homes, media attention, travel expeditions, and more. This lifestyle can be easy to carry out in one’s youth or when a person is in the peak of their career. However, maintaining the same lifestyle can be challenging post-retirement. Ultra-high net worth individuals rarely ever get wealthy by working in a standard job all their life. These individuals are either investors, businesspersons, athletes, actors, models, or other similar professionals. Most of these careers are either too volatile or short-lived. For instance, athletes work for a limited number of years while their bodies are young and agile. They retire very early in life, and they do not necessarily get to experience the same ultra high net worth lifestyle post-retirement as they did before. Health concerns can be a significant problem for athletes as they can have injuries that can get worse with age. In addition to this, they may have no other source of income once their sporting career is over. So, their wealth in retirement could primarily come from their investments. This can put a lot of pressure on these individuals. If their investments tank due to market volatility or if they make bad investment decisions, they can end up losing all of their money and no avenues to create more wealth. The same can be true for celebrities like actors, singers, comedians, talk show hosts, etc. Businesspersons are equally at risk as businesses can rise and fall drastically due to a number of factors like changing consumer patterns, supply and demand, new government policies, and many others. Individuals who have created their wealth from investing are equally susceptible to suffering a major loss due to changing market conditions and bad investment decisions. Therefore, the fear of not having a comfortable or preferred retirement is always on the mind for these individuals. However, it can help to hire an ultra high net worth wealth management company and get a professional’s assistance in these matters to ensure a financially secure retirement.

3. Being properly insured:

High net worth insurance planning can be another area of financial concern. High-net-worth-individuals have massive amounts of wealth. With this wealth comes the risk of losing it. Insurance for wealthy individuals is not limited to life protection. It is also a great estate planning tool and can be used to transfer wealth to the next of kin. Insurance can help with wealth protection, offer liquidity, and solve the issue of health expenses too. In addition to this, high-net worth individuals are also under constant threat of lawsuits, and litigation from businesses. The lingering danger of risk is one of the main worries of people in this income group. However, there are some solutions to these problems. These individuals can hire ultra high net worth wealth management firms for insurance guidance. For instance, a business life insurance can protect the company in the unfortunate event of the founder and owner’s demise. A key man insurance plan can be necessary for such business owners to protect their employees. Similarly, high-net worth individuals also have to protect their assets back home, like collectibles. Homeowner's insurance and other special types of insurance to insure valuable products like electronics, designer bags, shoes, jewelry, can be necessary. Athletes who fall in the high-net worth category are also known to get body part insurance. If a person’s livelihood depends on a body part, for example, arms for a tennis player, getting a body part insurance plan can help in case of an accident, injury, handicap, or any other similar disability of the arm resulting in the loss of income.


Need a financial advisor? Compare vetted advisors matched to your specific requirements.

Choosing the right financial advisor is daunting, especially when there are thousands of financial advisors near you. We make it easy by matching you to vetted advisors that meet your unique needs. Matched advisors are all registered with FINRA/SEC. Click to compare vetted advisors now.

4. Protecting your investment by hiring certified financial professionals:

Unlike average income groups, high-net worth individuals do not invest in regular options like a 401(k) retirement account, an individual retirement account (IRA), a certificate of deposit, or municipal bonds. Ultra wealthy individuals invest in stocks, businesses, real estate, cryptocurrencies, NFTs, global projects, and more. The risk and reward ratio of these investments are substantially high. However, taking this risk can be highly rewarding for these investors in the long run and helps them build wealth. The stakes are massive, which is why the fear of losing it all is also substantial. Market cycles, geopolitical events, supply and demand, riots, political unrest, elections, and so many other factors can impact investment returns. Individuals who primarily depend on their investment returns to generate wealth may have an imminent fear of losing it all. However, ultra-high net worth clients who earn money from investments are governed mainly by the professionals they hire. Wealth managers play a crucial role in helping high-net worth clients manage their wealth and protect their market returns with a number of strategies. These individuals can hire professionals with certifications like Certified Financial Planner (CFP), Certified Private Wealth Advisor (CPWA), Chartered Financial Consultant (ChFC), Certified Investment Management Analyst (CIMA), Chartered Financial Analyst (CFA), and more. It may also be essential to hire a fiduciary. Fiduciaries are wealth managers with a legal duty to work in the interest of their clients. These wealth managers are bound by law to act in your favor and not operate out of some personal vested interest. This can be particularly important for high-net worth individuals as they deal with large sums of money. So, getting a fiduciary on board can offer some peace of mind.

5. Having an estate plan in place:

Most ultra-high net worth individuals are over the age of 50. This puts immense pressure on these individuals to plan the transfer of their estate efficiently to avoid any error or lapse. Taxes like the estate tax, inheritance tax, state tax, etc., can eat into the estate’s value. So, estate planning becomes crucial to these individuals if they want to preserve the value of their estate for future generations. As of 2022, an estate larger than $12.06 million qualifies for federal estate tax. The tax is levied when the beneficiaries, like children or grandchildren, inherit the estate and not when the spouse inherits it. Apart from the federal estate tax, a state estate tax can also be levied on the estate. State taxes can differ for different states, so the tax liability can be different for two people with the same estate value but living in different states. The estate typically attracts the state tax of the state where the high-net worth individual dies. Estates below $1,000,000 do not attract any state tax. However, ultra-high net worth individuals have much larger estates, so the likelihood of their inheritors paying tax is definitely high if not guaranteed. There are some things that can reduce this fear and the tax liability. For instance, ultra wealthy individuals can choose a state with a low state tax. Massachusetts charges state tax on estates higher than $1,000,000. The limit for Minnesota is $3,000,000, whereas for Oregon it is $1,000,000. For Rhode Island it is $1,595,156, and for Washington State it is $2,193,000. However, the threshold for Vermont and Maryland is $5,000,000. For New York, it is $5,930,000 and for Connecticut, it is a whopping $7,100,000.

Additionally, these individuals can also use the gift tax exemption. As of 2022, individuals can claim a gift tax exemption of $16,000 per person. This can be a great way to reduce tax. Another tax to worry about in estate planning is the inheritance tax. Inheritance tax is not levied on the spouse. In some states, like New Jersey, domestic partners are also exempt from paying inheritance tax. So, ultra-high net worth individuals can carefully select a state based on the taxes charged by it. This can help them lower their taxability to a great extent.

How can ultra-high net worth individuals address these financial concerns?

Professional wealth management for ultra high net worth can be the answer to these problems. The higher the value of wealth, the more fears and threats linger around. This is why hiring a professional becomes imperative. Wealth managers can help these individuals in a number of ways, right from insurance planning, investment planning, and tax planning to estate planning, retirement planning, business and succession planning, and more. However, given the high stakes, it is crucial to pick a wealth management firm after careful assessment and evaluation. Individuals can look for the following aspects:

  • Certifications of the individuals:Going through the credentials, educational qualifications, and certificates of the wealth manager can help to gauge their aptitude and expertise.

  • Past performance of the firm:This can help to understand whether or not the wealth managing firm is equipped to handle complex issues of high-net worth people.

  • Investment approach: It is vital to check the investment approach and strategies of these individuals to know if they can be a good match. If there is a disagreement, the partnership may not yield any significant benefits.

  • Fiduciary duty: As mentioned before, a fiduciary can offer more peace of mind since they are duty bound to act in the best interests of their clients at all times.

In addition to the above, it may be advised to have an honest and open conversation with the wealth manager, so that both of you can be on the same page. Discussing risk appetites, future goals, present financial concerns, likes and dislikes, etc., is imperative. Moreover, it can help to compare different ultra high net worth wealth management firms and get recommendations from peers, friends, and family.

To conclude

It may seem like ultra-high net worth individuals have it easy with wealth, comfort, and luxury. However, with a lot of money comes a considerable number of responsibilities. These individuals are often under media scrutiny and have to be careful of their every move. The pressures and fears can affect them in several ways. However, while the financial fears of these individuals are not irrational, they may also not always be alarming. The principles of financial planning remain more or less the same for people of all income groups. So, it is important to plan well and stay consistent to ensure that you have adequate wealth. Additionally, hiring a suitable financial advisor or wealth manager can also help in building and preserving wealth.

If you are looking for ways to safeguard your wealth and protect it against high taxes, loss of income, unforeseen mishaps, market volatility and more, use the free advisor match service to search for fiduciary advisors or wealth advisors near you. Based on your requirements, the match service matches you to 1-3 registered and qualified advisors suited to meet your needs and goals.

Search for articles

Find an Advisor
It's Fast, Free & Easy

  Your Information is Safe and Secure


The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.