When people make enough money, things get complicated…
The super-rich need someone very special to advise them on the money they make — and the taxes they owe. A franchised tax company or garden-variety CPA won’t cut it. They need a big gun.
And that big gun won’t come cheap… But it will save clients thousands — even millions — over time.
They’re also not easy to find. Usually, you get one by word of mouth. Google searches don’t reveal them. They certainly don’t advertise — they don’t need to.
They’re rarely quoted in the media. And they don’t go out of their way to do anything that would raise the interest of the IRS.
These special accountants and lawyers work overtime to ensure they know the tax code. Then they comb through their high-net-worth clients’ financial affairs and structure things to minimize their tax bills.
Having spent over 10 years working with some of the wealthiest people in the world, I know some of the best tax experts personally.
I asked several what they would advise people climbing the wealth ladder to do.
I’m not going to drop their names… But I am about to drop some tidbits of their best advice.
Now, keep in mind these are general principles. I strongly advise you to do your homework and talk with a professional who works with high-net-worth clients to understand which, if any, of these strategies could work for you.
You Inc. – Stop Investing as an Individual
The super-wealthy don’t have individual investment accounts. Nor are they overly concerned with traditional IRAs.
They form companies of some kind and invest through them. Like LLCs or trusts, for example.
There are three major reasons for this…
1. Tax breaks are much better
Without getting technical, it’s a quality and quantity issue. There are more deductions for companies and they provide superior investment performance.
It’s also easier to track losses and deduct them over a longer period of time.
2. Asset protection
When you start to accumulate a lot of money, you become very interesting to people. Most of this attention you do not want, trust me.
The bottom line is it’s a lot harder to successfully sue someone whose assets are not in their personal name.
Case in point… A friend loaned me his car for a week while he was out of town. As I slowly backed out of a parking spot in the supermarket lot, someone hit me.
It shouldn’t have been a big deal. The car wasn’t even damaged.
However, my friend was a successful businessman.
All of a sudden, it went from a fender bender of about $1,000 damage to the other car to the driver attempting to sue my friend for $100,000 for a laundry list of the most ridiculous claims imaginable.
Luckily, the lawsuit went nowhere thanks to his asset protection plan.
3. Estate planning
This is very important if you want your hard-earned assets and money to go to where you choose — not to creditors or the IRS — after you die.
It’s also critical if you end up needing expensive medical treatment later.
This happened to my father, who was diagnosed with Parkinson’s disease and dementia and moved to a nursing home, where he spent two years before he passed.
The nursing home seized everything he owned to satisfy the balance due. The only thing they couldn’t touch was one insurance policy.
But if he’d had a company holding his investments, there are options that would have protected his assets from being taken.
The operating agreement could have been set up to transfer the assets to a trust, for example. And the trust could have been set up so that no one other than his heirs could have touched it. (How to do this varies according to state law.)
Check Yourself: Regularly Review Your Documents and Strategies
In addition to investing through a company, make sure you do a regular review of your investments and the company structure — and anything related.
My high-net-worth lawyer and accountant colleagues agree this is the No. 1 mistake people repeatedly make.
Your personal circumstances evolve. And tax and business laws change every year.
My colleagues advise conducting a document review every two to three years at minimum.
One of my lawyer friends told me of one wealthy family that missed out on about $5 million worth of deductions because their investment vehicle structure was out of date.
The incorporation documents gathered dust for almost 20 years. A simple change — achieved by filing one IRS form — would have fixed the issue, if anyone had looked.
Form a Team: Work With a Lawyer and an Accountant
Let’s get something straight. There’s no way you can deal with the tax code alone — especially as you climb higher on the wealth ladder.
And here’s another important point many people miss: If you work with just a lawyer or just an accountant, you won’t get the full picture.
At a certain point, you need both working with your financial adviser to keep your money working for you at maximum efficiency.
Yes, it’s another set of fees…
But getting rich — and staying rich — requires the best advice possible.
To your wealth,
Editor-at-large, Unconventional Wealth
Steffi Baker is the editor-at-large of Unconventional Wealth. For the past 10 years, she worked with a small strategy consulting firm that dealt exclusively with wealth-management companies, helping them market themselves to ultra-high-net-worth clients.
Through this line of work, Steffi attended events in London and New York and hobnobbed with household names and international...