Wealth Planning Strategies

A wholistic wealth planning strategy can help you to optimise your wealth and build a bright future for you and your family, your business, and your wider community.

We will look at what wealth planning is, who needs it, and the most successful wealth planning strategies available today.

Table of Contents:

• What Is Wealth Planning?
• Investment Management Vs Wealth Planning
• Who Needs A Wealth Planning Strategy?
• The Top 10 Wealth Planning Strategies
• 1. Set Clear Financial Objectives
• 2. Diversify Your Investment Portfolio
• 3. Protect Your Assets Through Trusts And Corporate Entities
• 4. Plan Your Estate
• 5. Optimise And Reduce Taxes
• 6. Use Foundations
• 7. Use Insurance To Protect Against Losses And Generate Income
• 8. Form A Charitable Trust
• 9. Manage Your Debt
• 10. Take Advantage Of Market Downturns
• Conclusion 

What is Wealth Planning?

There is a sharp distinction between creating wealth and managing it. Many people can generate wealth, but lack the maturity and skills required to manage it effectively.

Proper wealth planning allows you to make the most of the wealth that you have created, and see it grow and sustain itself. 

Differences to Investment Management

It is important to understand the difference between traditional investment management and wealth planning. 

Investment management simply involves allocating an investment portfolio to find the optimal balance between risk and return. It is one important part of wealth planning, but there are many more facets involved.

Wealth planning is a much wider and more integrated approach to optimising your personal finances. It uses specialised tools that go beyond simple investment management solutions. It deals with areas such as tax optimisation, asset protection, business succession and estate planning, charitable giving, and offshore planning.

It is also much more than any of the individual financial tools it utilises; it is a wholistic approach and outlook towards your personal finance to achieve the greatest financial success. 

Who Needs a Strategy?

Sophisticated wealth planning strategies are typically used by high-net-worth individuals and successful entrepreneurs to successfully manage and nurture the wealth they have generated. However, it is certainly not limited to these individuals.

Anyone who has built up a personal estate that they want to see grow and flourish should explore the appropriate wealth planning strategy to suit their needs.

They may not use the same type of advanced (and expensive) financial instruments to do so but can find the right tools which are appropriate to their financial situation. One of the great benefits of effective wealth planning is its flexibility. 

When determining whether you need wealth planning, you can ask yourself the following the questions:

• Are there any potential investment and/or business opportunities I am missing?
• Could there be additional ways to reduce my taxes that I am not aware of or do not have the expertise to do myself?
• Is it possible that I am making legal and/or financial mistakes which could jeopardise my wealth and personal life if left unfixed?
• Are there any difficulties in finding the right expert guidance and financial solutions?

If the answer is yes to any of these questions, a comprehensive wealth planning strategy could be just the solution you need. 

The Top 10 Strategies

There are endless options available for strategically managing and planning your wealth. Dozens of different financial instruments can be utilised, along with various approaches and methodologies. We have handpicked some of the best and simplest wealth planning strategies which may work for you.

Do you have to use all these strategies? No, not necessarily, but finding the right integrated approach which utilises a combination of these strategies is essential for successful wealth planning. 

1. Set Clear Financial Objectives

This may seem too obvious and simple to even warrant mentioning as its own top wealth planning strategy, yet it is something that so many forget to begin with. No successful wealth planning strategy can be set in motion if you are not clear about what it is you are trying to achieve and the problems you are aiming to solve.

You should set up clearly defined short- and long-term financial goals that are realistically attainable and measurable. This will help you have set objectives to work towards and be able to evaluate whether you have achieved these objectives.

Starting your wealth planning strategy with this step will help you and your advisors work together to handpick the right tools and approaches to match your needs. 

2. Diversify Your Investment Portfolio

Protect yourself from severe downturns in the market by diversifying your investment portfolio across a range of asset classes (stocks, bonds, real estate, cash, etc.).

We recommend going one step further and diversifying across geographical jurisdictions as well, in the form of offshore equities, multi-currency holdings, foreign real estate, and so forth. Following principles of good diversification in your asset portfolio will spread your risk so that you are not overly exposed to the value of one specific asset or type of asset.

You should find a good financial advisor who is able to help you construct an investment portfolio that is aggressive enough to achieve the growth goals you have, while being sufficiently diversified and defensive in the case of market turbulence. 

3. Protect Your Assets through Trusts and Corporate Entities

Asset protection is the cornerstone of any good wealth planning strategy. Without taking the steps to protect the wealth you have worked so hard to accumulate, your financial security is always in jeopardy. Effective asset protections strategies can shield you against court cases, creditors, divorces, and various macro-risks (e.g., geopolitical, economic, natural disasters, etc.). 

Two of the most effective and widely used tools for asset protection are trusts and corporate entities (such as LLCs). These vehicles create a legal separation between you and your assets, and thus places them out of reach of the various threats mentioned above.

You can take it to the next level by “going offshore” with your asset protection trust or LLC. Forming either (or both) of these entities in a favourable offshore jurisdiction generally offers superior asset protection and privacy, along with a host of other advantages such as tax reduction and access to foreign markets.

The one drawdown is that they are more expensive to set up, but the premium is worth it for high-net-worth individuals. 

4. Plan Your Estate

If you have managed to build up a substantial wealth portfolio, you want to see that legacy be passed on in the way you envision it. Whether its ensuring that your loved ones are taken care of, or that the family business is continued, or charities of your choice receive their share; effective estate planning can help you achieve these goals.

This is where you should consult with an estate planning attorney who can help you set up the right instruments to pass on your estate while minimising taxes and hassle for your beneficiaries. This usually includes a combination of trust instruments, foundations, insurance policies, and even a well-written will & testimony.

These tools can help you to transfer your large estate as per your specific wishes, avoid cumbersome probate procedures for your beneficiaries, minimise estate taxes, and ultimately keep your legacy alive for the generations to come.

5. Optimise and Reduce Taxes

Tax is usually the largest drain on a large wealth portfolio. Taking steps to optimise your portfolio and tax structure to minimise your tax obligations can save you massive sums of money.

There are so many ways to go about this that we would need to write a separate article about it, but some of the most effective methods include:

• Tax-loss harvesting:  Downward turns in the market can also represent opportunities to exit unfavourable investments within the tax year and “harvest” the losses to reduce your taxes on capital gains. 
• Strategic annual gifting: instead of waiting to pass on your entire estate to your beneficiaries at the time of death, you can instead start “gifting” annually up to the maximum allowable tax-free amount. This is also part of estate planning which was discussed earlier and can help reduce overall taxes for you and your loved ones. Strategically gifting your assets when the value is depressed can mean even greater ultimate benefit as the value is likely to rise again, and so the gains can be “captured” inside the trust or in the beneficiary’s possession and therefore free from estate tax. 
• Offshore instruments: there are a myriad of offshore financial instruments which can be used to optimise your tax situation. These include offshore trusts, companies, bank accounts, foundations, etc. Moving a large portion of your wealth to a tax haven through any of these vehicles can significantly reduce your overall tax liability. 
• Holding companies and other corporate structures: depending on the tax laws in your country/state of residence, there may be various ways to reduce your taxes using corporate entities such as holding/shell companies. Consult with a tax expert and look for disparities between individual and corporate tax rates to lower your overall tax liability. 
• Trusts and foundations: trusts and foundations are popular financial tools for asset protection and estate planning, but they can also offer excellent tax benefits. These types of entities are often eligible for special tax breaks and deductions, as well as more favourable tax rates in general.

6. Use Foundations

Private foundations are one of the best vehicles for supporting charitable causes, providing for your loved ones, and continuing your legacy in the most tax-efficient way. A private foundation has many similarities to a trust, but it is a distinct not-for-profit organisation that is funded by a person or company for a specific cause.

That can be anything from supporting a charity to benefiting a specific person. It needs to meet certain qualifying criteria to be deemed a foundation, but if these are met, there are serious advantages. Foundations are exposed to extremely favourable tax rates, or even complete tax exemption in some jurisdictions.

They also allow you to tailor the way in which your wealth and legacy will be continued and provide strong protection to any assets you transfer into the foundation. 

7. Use Insurance to Protect against Losses and Generate Income

Proper insurance is a key part of your wealth planning strategy. There are many different types of insurance, which can be used in different ways to protect you from unexpected losses and even to generate income. Liability, medical and property insurance are all examples of policies which you, as a wealthy individual, should be using to protect from undue risks.

Life insurance policies can be used as estate planning tools to provide for your loved ones when you pass, or even to generate income during your lifetime if structured in the right way. 

8. Form a Charitable Trust

A charitable trust, or charitable remainder trust, is an excellent way to see that your wealth is used for a good cause after you pass on.

You can set up a charitable remainder trust so that your beneficiaries are guaranteed a certain amount of income or capital and therefore taken care of, with the remainder going to a charity/charities of your choice. 

9. Manage Your Debt

Leveraging your capital with loans can be an extremely powerful way to create additional wealth, but it is essential to properly manage your debt. Don’t expose yourself to undue risk by over-borrowing and always have a solid plan on how you will repay your loans.

A wealth management expert or financial advisor is the best person to advise on how to properly use debt without overextending yourself. 

On the other side of the coin, you might find that a recession is a good time to refinance loans to take advantage of low interest rates, provided you are able to absorb more debt.

10. Take Advantage of Market Downturns

While we all like to see the market and general economy performing well, and the joy of watching our investments skyrocket, it is important to view market downturns as golden opportunities. It has been said that “bull markets make you money, bear markets make you rich.”

The most successful investors are those that buy when the market is depressed and wait patiently for it to turn around, not when everyone is euphoric after an extended bull market. 

This also leads back to the importance of proper diversification and ensuring that you have sufficient liquid assets (e.g., cash) to take advantage of low prices when they are available. If you are already “all in” before the crunch occurs, you will have to watch your asset value shrink without any way to take advantage of the opportunities presented.  

Conclusion

We have just dipped our toes into the vast ocean of wealth management and planning strategies in this article. The tools and approaches mentioned are some of the most important to keep in mind when structuring your own wealth planning strategy.

Some may not be suitable for your specific objectives, and there may be others which would be perfect for you but have not been mentioned here. That is why you should never approach wealth planning as a “one-size-fits-all” thing. Instead, work carefully with an expert wealth manager to find the solutions that best suits you.