24/7 Insights

• • It’s okay to stop worrying about some things when you have a certain net worth. 
  • Creating an estate plan is an important way to protect your money. 
  • Potential healthcare costs cannot be ignored. 
  • Also: 2 Dividend Legends to Hold Forever

If you’re in a terrific position where you have millions of dollars put away for retirement, the first thing you should do is remember to be grateful. The second thing you should do is start considering some of the impacts and worries of being among the wealthiest Americans. This includes planning your estate, protecting your assets, and hiring a financial advisor. 

Estate Taxes and Legacy Planning

One of the most important things to know about your millions is estate taxes. To be more specific, it’s about who pays and how much. To qualify for the estate tax 2024, you must have a net worth exceeding $13.61 million. In these cases, anyone inheriting some of your net worth could lose up to 40% of the money without proper planning. 

One way to mitigate this potential scenario is to consider gifting strategies. In 2024, you can give up to $18,000 per person per year without reporting anything to the IRS. A married couple could receive $36,000 from the same person without tax concerns. 

The other major move you can make regarding planning for your legacy is to create a trust. Not only are there tax benefits for reducing what your inheritors will owe, but you can also specify exactly how much they get, when, and if any stipulations are necessary to receive all the money. 

Tax-Efficient Withdrawal Strategies

Here’s the thing with tax-efficient withdrawal strategies: Every financial advisor will give you different advice. However, the bottom line is that how you draw from your millions during retirement can have different tax implications. 

One of the best ways to minimize your tax bill at the end of the year is to take an annual withdrawal from your accounts. You can adjust your withdrawal percentage based on your overall savings, but it’s been a favorite method of millionaires for years. 

Alternatively, no taxes are associated with withdrawing money if your money is invested in a Roth IRA. This could be a Roth 401K, Roth 403(b), or a general Roth IRA. 

If you have a Required Minimum Distribution (RMD) you have to make every year, think about what you will do with this money. You can save it, spend it, or reinvest it. There’s always a donation component, which could be a tax write-off. 

Asset Protection 

Unfortunately, high-net-worth individuals can be the targets of lawsuits for various reasons, sometimes only for frivolous purposes. To protect against this type of action, having an umbrella liability insurance policy can help protect you against any personal liabilities. 

Additionally, you can build a layer of protection through a trust or LLC. Forming an LLC might help you create even more separation between your personal assets and business assets. In any case, this would help limit the amount of personal liability you have in a lawsuit. 

Lastly, please set up a trust, as it helps protect assets from creditors and lawsuits. The same goes for prenuptial agreements in a divorce, as they can protect any wealth that might be inherited. 

Health Care Costs

Undoubtedly, the biggest issue for anyone in a high-income tax bracket is potentially more expensive Medicare premiums. Known as the Income-related Monthly Adjustment Amount (IRMAA), income-based surcharges for Americans with significant wealth should be addressed. Being mindful of your health care expenses is a must as this is easily one of the biggest factors that can chip away at wealth in the golden years. 

Ultimately, you can pay out-of-pocket or go through private insurance. Still, private insurance can also be very expensive for seniors and people over a certain age due to increased health risks. This is especially true for long-term care, where things like in-home care or nursing homes can easily surpass the six-figure mark annually. 

Financial Advisor and Wealth Management Fees

It should come as no surprise that having someone manage a large portfolio comes at a cost. Many financial advisors, especially those at bigger firms like Morgan Stanley or Merril Lynch, charge a percentage of assets under management. While it’s usually between 1% and 2%, this can quickly add up. 

You might find setting up something like a family office better, depending on your overall net worth. This would be more manageable in terms of navigating premium fees and also has benefits in terms of taxes, estate planning, and philanthropy. 

 

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