Wealth management and protection become more difficult when you reach a net-worth of $10 million or higher (and are deemed a HNWI). Divorce proceedings and other types of litigation can also be a threat to wealth preservation. After years, if not even decades of hardwork, you deserve to reap the rewards of your labor.

With the right strategies in place for HNWI , you can preserve and even grow your net wealth over your lifetime and to benefit your children and grand-children.

This guide is for you if you are looking to create a tailored asset protection system and infrastructure for your family and yourself. We’ll outline some of the most recommended wealth management strategies today for high-income earners.

Asset Protection Trusts

Asset protection trusts and family asset trusts are specialized and innovative types of premium trusts. They can be used to protect your assets in the case of aggressive legal proceedings, such as divorces and liability suits. Asset protection trusts can be particularly effective in protecting assets because they are irrevocable. This means that the trust can’t be altered or changed by the settlor of the trust immediately after it is established.

When properly established, APTs or FAPTs enable the trust settlor to give up management control of those assets to a trustee. The beneficiaries of the trust tend to be the children of the trustee rather than the original settlor, which makes it more difficult for creditors and litigators access the assets. Spendthrift clauses can be used to strengthen your APT/FAPT, and to reduce the risk that creditors will gain access to your assets via payments made to beneficiaries.

HNWIs can also establish offshore asset-protection trusts. Assets placed in offshore asset-protection trusts provide additional legal protection against domestic legal concerns. As with offshore bank accounts, you will want to make sure that your offshore trusts are compliant with all applicable legal and financial obligations (i.e. Tax obligations are applicable to these regions or sovereign countries. Speak to your lawyer about whether offshore wealth management is right for you and your family.

High-Net-Worth Insurance

High-net worth insurance is a specialized insurance product that caters to HNWIs. High-net-worth coverage can be divided into the following types:

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  Business Liability Coverage – Insurance cover to protect business and owners in the event of an accident or injury that occurs directly as a result of company operations or company premises
  

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  Professional liability coverage is insurance designed to protect professionals in the event of injury, accident or financial loss caused by their services. Professional liability coverage is also available for specific industry professionals. medical malpractice cover for doctors).

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  Personal liability insurance is designed to protect the owner of an asset in case they are injured or have an accident on their property. Car accidents involving your vehicle ).

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  Insurance umbrellas are designed to provide additional protection on top of your other personal and professional insurance. Umbrella policies can help increase the overall coverage of your insurance. Umbrella insurance is a wise investment for HNWIs.
  

High-net-worth policies are also a type of asset conversion because HNWIs use liquid assets for the purchase. Consult your legal team both before and after your conversations with insurance brokers in order to ensure your insurance policies are tailored specifically to your wealth management needs.

Limited Liability Company

In the same way that business liability insurance can help protect your company in the event legal action is taken against it, setting up a Limited Liability Company (or LLC) will also protect your assets further from possible business liabilities. This is just a small part of the benefits that LLCs can provide to protect your assets.

You can set up LLCs and FLPs to own assets through these legal entities, rather than directly. It allows assets to directly be distributed by FLPs and LLCs. This reduces the risk that creditors can seize assets to cover liabilities.

Again, FLPs and LLCs must be set up correctly in order to provide you and your family with an effective tool for asset protection. It is important to ensure that all jurisdictional levels are met and that the legal entities have been structured correctly.

Retirement Accounts

While advanced estate planning may be a major concern for HNWIs who want to protect their assets, they should also remember that a large part of asset protection involves ensuring that high-income individuals can enjoy their wealth throughout their lives. To maintain your quality of living as you age, it is important to allocate your assets into a retirement account such as a 401k.

Estimates suggest that between 50-55% (or more) of HNWIs’ total wealth in the US is in retirement accounts such as 401ks or 403bs. In most states, contributions to retirement accounts like 401ks and 403bs are tax-deductible. This means you can claim back your voluntary contributions. Retirement accounts are a popular asset protection strategy for high-net worth individuals.

Remember that 401ks and IRAs as well as other types of specialized accounts offer varying degrees of protection, depending on where you live as well as what type of account is being used. You should discuss your concerns with your lawyer if you are worried about creditors or litigators gaining access to your retirement account. This will allow them to take any measures necessary to meet your specific wealth management needs.

Lifetime Gifting

You can also reduce your annual taxable income by making gifts to your children or other family members, or reporting any gifts that you yourself receive in your next tax form. The lifetime exclusion for gift tax is now $12.92m, up from 12.06m in 2022. You can now give up to $12.92 millions in gifts without them becoming taxable.

Protecting your assets with your lifetime tax exemption is a low-maintenance, easy way to protect your finances each year. Consult your tax agent every year when deciding on your lifetime gifting strategies. You can lower your risk of going over the lifetime tax exemption limit by calculating correctly. You may also receive support from your financial advisors in setting up an irrevocable trust to help you further this asset protection strategy.

Asset protection for HNWIs is a complex strategy. Due to this, it is best for you as a high-income earner to use more than one of the strategies we have outlined. As you diversify the investment portfolio of your business, you should also diversify the asset protection infrastructure.

Consult your legal and financial advisors before implementing any of the asset-protection strategies that we have outlined. With the right approach, these asset protection techniques can deliver superior results when it comes to wealth management.