You invest significant resources into growing your assets, understanding that risk is always involved. However, no matter your risk tolerance level, developing wealth preservation strategies is essential in maintaining financial health now and into the future.
Combining growth and preservation is the best way to protect your lifestyle and your heirs’ futures. At Reef Point, we understand the delicate balance between the need to take financial risks while balancing them with protective measures. To that end, we’re going over how to preserve wealth while maintaining the quality of life you’re accustomed to.
1. Diversifying Investments Is One of the Best Long-Term Wealth Preservation Strategies
The key to financial resilience is to develop a diverse portfolio. The Irish Potato Famine would have been much less severe and may not have even occurred had there been genetic diversity among the potatoes in the fields. In much the same way, investment diversity protects you from financial devastation when one catastrophe strikes one sector of your portfolio.
Diversification means spreading your investments out over risk classes across multiple investment categories. If you put your money into stocks, vary your holding across industries. However, stocks shouldn’t be your only investment strategy. Including other forms, such as real estate, bonds, and even art, is among the most fundamental wealth preservation strategies.
You also need to consider combining high-risk investments with low-risk options, generally increasing the ratio in favor of the latter as you move closer to retirement age. Though there is a widespread perception of inherent volatility or security in certain investment types, the economy’s ebb and flow create shifts in what is volatile or secure.
For instance, bonds have long been considered a safe and predictable investment, but they are far less secure in 2023 than a decade ago. Keeping a pulse on current markets and adjusting your portfolio to reflect changing trends in the economic landscape provides critical protective measures.
2. Managing Your Risks Protects You From the Unexpected
Insurance planning is one of the most overlooked wealth preservation strategies. We get it. Who likes to pay for insurance they might never use? We can’t blame you if you consider purchasing policies money down the drain. However, the money you invest will seem like a pittance when you need to call on your provider to cover an unexpected and devastating crisis.
Consider property insurance. No state mandates coverage for property, though lenders usually require it. However, if you own land or a structure outright in any state, you don’t need coverage. It sounds like a great way to save money, doesn’t it? Now, imagine a visitor coming onto one of your properties, having an accident resulting in substantial harm and filing a lawsuit against you.
Only 4% of personal injury cases see the inside of a courtroom, but it isn’t because the plaintiffs have no case. Even if you question your liability, you might need to settle the claim to avoid a trial. Without insurance, you would be out-of-pocket for the agreed-upon award. Wealth preservation strategies should include insurance planning to safeguard you against risk exposures, but your coverage should reflect your individual risks.
3. Implementing a Business Succession Strategy Is Crucial to Preserving Business Assets
If you own a business — or several — you must determine how to preserve wealth generated through your business profits. Without a business succession plan, your company is at stake if should you become incapacitated or die unexpectedly. A couple of crucial considerations exist when developing a strategy that preserves business wealth.
You need to determine what happens to your business after you decide to exit the company or can no longer run it as part of your wealth preservation strategies. If you want it to pass to an heir, you need to set up a structure for turning the business over. You can set this up to transfer immediately after you pass or gradually while you are still alive and concluding at a time you stipulate.
Furthermore, you should establish how you or your heirs will collect the value of the business if you decide to sell it rather than pass it on to your heirs. You can choose to sell it, immediately acquiring the money from the sale. Alternatively, you could plan to establish an installment agreement whereby you or your heirs would collect installment payments. Including the latter option in your wealth preservation strategies can save you or your heirs from the hefty estate or inheritance taxes, as the Internal Revenue Service allows for tax deferments on qualifying agreements.
4. Prioritizing Tax Savings Strategies Provides Ongoing Wealth Preservation
Let’s continue with the idea of lowering your tax burden as a component of a business success plan, as developing a tax plan is an important approach to preserving your wealth. You don’t implement tax savings strategies once or even once per year. It’s a practice that occurs throughout the year and one you revisit at least annually.
If you anticipate large purchases, you should determine the best timing and purchase method to reduce your tax burden. Likewise, if you need or plan to sell a highly appreciated asset, consider how the sale will impact your taxes. Purchasing a like-kind asset might enable a tax deferment. However, if you can’t or don’t wish to exchange one asset for another of its kind, you might want to consider how to sell the asset without incurring substantial capital gains taxes.
Your wealth preservation strategies can include Deferred Sales Trusts to potentially reduce tax burdens from selling appreciated assets that would otherwise incur capital gains taxes. A DST allows you to transfer an asset to a qualifying trust just before a sale and receive installment payments beginning at a prearranged time and for agreed-upon amounts. This approach defers or reduces your capital gains liability, provides retirement income and maintains your wealth.
Incorporating a DST Into Your Wealth Preservation Strategies
When the time comes to sell a highly appreciated asset, Reef Point can help you incorporate a DST into your wealth preservation strategies. As a certified DST trustee, Greg Reese offers the expertise and guidance you need to get the greatest benefits from a DST arrangement. Contact us today to learn more about our services.