5 Key Wealth Preservation Strategies You Must Know
Most people focus on saving money for life’s major milestones when they are younger, such as buying a house, paying for a child’s college education, or retiring.
As we progress in our financial journeys, we typically turn our attention to building wealth with the money we’ve started to accumulate. However, wealth preservation also becomes a critical component of financial planning and it should not be disregarded.
In this article, we’ll look at five essential strategies for preservation of wealth that are approved by top wealth advisors.
Wealth preservation can be viewed in a variety of ways by investors. First, if you have a large net worth and are nearing the end of your working years, it’s important to preserve your wealth so that you may either use it to pay your retirement or pass it down to future generations, or both.
On the other hand, even if you’re still working, you may be a financial conservative who views wealth preservation as ensuring that you don’t lose any of your hard-earned money. In another scenario, you can be an aggressive investor who sees asset preservation as a way to maximize your long-term investments.
5 Essential Wealth Preservation Investment Strategies
Whatever perspective you take on wealth preservation, it’s essential to consider the following five key wealth preservation planning that have the ability to assist you in achieving your financial objectives:
1. Include Risk Management into your Financial Plan
If you’re retired and have enough income and assets to last the rest of your life, you should consider risk management through insurance. Assume that you’re dependent on your spouse’s pension and Social Security benefits to fund your retirement. In this instance, you may no longer be eligible for certain benefits, or you may only be eligible for a part of what was previously available.
It’s critical to safeguard against the loss of such benefits and to prevent having to rely on assets to fund your retirement. One option is to buy a life insurance policy that will replace your original sources of income while also protecting your wealth.
Furthermore, if you have more than $20 million in assets, you may want to consider using life insurance to reduce estate taxes by establishing a life insurance trust in which the policies are held outside of your estate.
Finally, obtaining long-term care insurance is one of the most prevalent risk management / asset preservation measures. What is right for you will be determined by your unique situation, goals, and risk tolerance.
2. Create an Investment Strategy that safeguards your Investments
Unless you enjoy flying by the seat of your pants, it’s critical to have a strong investment strategy that will help you avoid a significant loss. The finest investments for wealth preservation are those that result in a well-balanced portfolio. Including the appropriate proportion of low-risk investments in your portfolio based on your personal financial situation is a smart method to mitigate the impact of large market volatility.
For example, if you’ve worked for a company for a long time and it offers stock through an employee stock purchase plan or a retirement plan, you could be on track to invest a significant portion of your net worth in one security. Your best hope for wealth preservation is to liquidate that concentrated position and adopt a more diversified approach to your investment plan.
This way, if the stock your company sells loses a lot of value in a short period of time, you’ll be protected. When making this transfer, it’s vital to consider taxes, as they could put a dent in your account if you sell too much or at the incorrect time.
3. Create a Philanthropic Strategy
If you have a significant amount of assets and sound risk management and investing techniques in place, incorporating a philanthropic strategy into your financial plan is another approach to preserve wealth. This will allow you to minimise your tax burden while also having a beneficial influence in an area that is important to you.
You may, for example, make a gift to a single charitable organization, set up a donor-advised fund to support numerous charities, or set up various forms of charity trusts, such as a charitable remainder trust.
The latter option allows you to benefit from tax advantages by contributing to the trust. You’ll be paid for a period of time, and then your money will be donated to the charity of your choice when you die.
4. Make a plan to pass on your Wealth to Future Generations
Trusts can also play an important role in the protection of family wealth. If you die with a large net worth, an estate tax may apply, which might drastically reduce the assets left to your children or grandchildren as part of your estate plan. If you’re in your 60s or 70s and know you won’t spend all of your money in retirement, putting your assets in a trust could help them grow and be preserved for future generations while also potentially lowering your income and estate taxes.
It’s also possible that you’ll want to pass along holdings to future generations. Using various gifting strategies, you can achieve this over time while you’re still alive.
Alternatively, if you haven’t surpassed the estate tax limits, you can arrange to transfer these assets as part of an estate plan after you pass away.
5. Make a Plan for the Future of your Business
If you own a business, it’s critical to consider how you want your firm to be passed on if and when you decide to retire or sell it. It’s also crucial to understand how you’ll get your money out of the company and how the company will be passed on to someone else if something unexpected happens to you. This crucial aspect of wealth protection is often overlooked by business entrepreneurs.
Your business succession plan should state whether the company will be sold to employees or passed down to your offspring.
Moreover, if your children are in a lower tax bracket than you, you can start passing wealth down to them, guaranteeing that this income is taxed at their lower rate. In the long run, this will save you money on estate taxes.
About Xanara
Xanara is a private banking and wealth advisory focused on developing and implementing transparent and client-centric, financial solutions that are backed by expertise. We understand the weight of our solutions and act with the utmost care, resilience, and most importantly, integrity.