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Wealth Preservation: 5 Key Strategies

Posted by Jim Kantowski, CFP®, CPA on April 26, 2021

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For many Americans, it’s common in our younger years to focus on saving money for life’s big milestones, such as buying a house, funding a child’s college education, or retirement. As we progress along our financial journeys, our focus often turns to growing the wealth we’ve begun to accumulate. However, once you have accumulated enough money, wealth preservation becomes an important part of financial planning that cannot be overlooked. In this article, we’ll explore five key strategies for preserving wealth depending on your personal financial situation.

Are you interested in developing a comprehensive financial plan that helps you build wealth today and preserve it in the future? Schedule a call with a Bay Point Wealth advisor to find out how we can help.

5 Key Wealth Preservation Strategies

Investors can view the preservation of wealth in several ways. First, if you have a high net worth and are approaching the end of your working years, it’s essential to preserve your wealth so you can either use it to fund your retirement, pass it down to future generations, or meet both of these objectives.

On the other hand, you may be financially conservative and view wealth preservation as ensuring you don’t lose any of your hard-earned dollars—even if you’re still in the workforce. In another instance, you may be an aggressive investor and view the preservation of wealth as maximizing your investments for the future.

However you look at wealth preservation, it’s essential to understand these five key wealth preservation strategies that have the potential to help you achieve your financial goals:

1. Incorporate risk management into your financial plan.

If you’re in retirement and have enough income and assets to support you in the golden years, you may want to focus on risk management in the form of insurance. For example, say you’re relying on your spouse’s pension and Social Security benefits to fund your retirement, and your spouse passes away. In this case, you may no longer be able to receive those benefits or may only receive a portion of what was coming in before.

It’s crucial to protect yourself against the loss of any such benefits and avoid having to tap into investments to support yourself in retirement. One potential solution is to purchase a life insurance policy that could replace your original sources of income and preserve your wealth. In addition, if you have over $20 million in assets, you may want to use life insurance to minimize estate taxes by creating a life insurance trust in which the policies live outside of your estate.

Finally, another of the most common risk management wealth preservation strategies is to obtain long-term care insurance. For example, if you have $5 million to live on in retirement and your spouse is diagnosed with an illness requiring 24-hour care, this could quickly double your expenses and deplete your assets that you worked hard to save. Long-term care insurance can mitigate these costs. There are several available options in this case, such as a standalone long-term care policy or a policy combined with your life insurance. Deciding what is right for you will depend on your specific situation, goals, and tolerance for risk.

2. Implement an investment strategy that protects your assets.

Unless you thrive on flying by the seat of your pants, it’s important to establish a sound investment strategy that will help reduce the chances of a substantial loss. The best investments to preserve wealth are those that create a balanced portfolio. Including the right amount of low-risk investments in a portfolio based on your personal financial circumstances is a smart way to soften the blow of any major market fluctuations.

For instance, if you’ve worked for a company for a long time and it provides stock through an employee stock purchase plan or retirement plan, you may be on track to accumulate a large amount of net worth in one particular security. In the interest of wealth preservation, your best bet would be to liquidate that concentrated position and take a more diversified approach to your investment strategy. This way, you’ll be protected if the stock your company offers loses significant value in a short period of time. It is important to think about taxes when making this transition, as they could make a dent in your account if you sell too much or sell at the wrong time.

Alternatively, say you have two government pensions that cover all of your retirement expenses, and it’s highly unlikely you’ll ever run out of money. Creating a balanced portfolio that enables you to outpace inflation and grow wealth to pass down to your heirs is an excellent way to approach the preservation of wealth.

3. Develop a philanthropic strategy.

If you have a substantial amount of assets and strong risk management and investment strategies in place, another way to continue preserving wealth is by implementing a philanthropic strategy within your financial plan. This will enable you to reduce your tax burden and make a positive impact in an area near and dear to your heart.

For example, you could choose to make a gift to one specific charitable organization, establish a donor-advised fund to contribute to multiple charities, or create different types of charity trusts, such as a charitable remainder trust. The latter option enables you to gain tax benefits by putting money into the trust. You’ll receive income for a period of time; then, your money will go to the charity of your choice after you pass away.

4. Plan to pass your wealth down to future generations.

Trusts can also be an important part of family wealth preservation. If you pass away with a high net worth, your wealth may be subject to an estate tax that could significantly deplete the assets your children or grandchildren receive 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, it may be a wise move to transfer your wealth into a trust, so it can grow and be preserved for future generations while potentially minimizing both your income and estate taxes.

In other cases, if you have a disabled child, they can continue to receive disability or Social Security benefits after you pass away—if you’ve protected these assets in a specific special needs trust. Establishing a trust can also be helpful if you have a child whose track record with money is less than stellar or has a marriage that is on the rocks. You can create a trust and put restrictions around when and how they can access funds.

You may also wish to pass down properties to future generations. You can do this over time while living through various gifting strategies. Or, you can arrange to transfer these assets as part of an estate plan when you pass away, provided you haven’t exceeded estate tax limits.

5. Create a business succession plan.

If you’re a business owner, it’s crucial to decide how you want your business passed on if and when you choose to finish working or sell the company. It’s also essential to know how you’ll take your wealth out of the business and how the company will pass to another party if something unexpected happens to you. Many business owners overlook this important part of wealth preservation.

Your business succession plan should stipulate whether the company will go to your children or sold to employees, for example. If you want your business to continue operating in the event of your death, consider purchasing a life insurance policy to fund the business. And, if you have a business partner, it’s a good idea to have a buy-sell agreement in place and to take out a life insurance policy on one another.

In addition, you can begin passing down wealth to your children if they are in a lower tax bracket than you, ensuring they’ll receive this income taxed at their lower rate. Doing so will reduce your estate tax burden in the future.

Get Expert Advice On Wealth Preservation

Our goal at Bay Point Wealth is to create a personalized plan that considers your entire financial picture—including investments, taxes, insurance, and estate planning—to preserve as much of your wealth as possible.

Our team of advisors includes seasoned Certified Public Accountants, and we regularly work with insurance agents and estate planning lawyers who we know and trust to get the job done. Together, we’ll implement a wealth preservation strategy that helps you achieve your financial objectives. Schedule a call with us to get started.

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Topics: Financial Planning