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Tax And Estate Planning For The Middle-Class Millionaire

06 May
Tax And Estate Planning For The Middle-Class Millionaire

Addressing The Plight Of The Middle-Class Millionaire

A friend in the tax business told me today about a law firm he knows that targets clients with net worths of US$100 million or more, the ultra-high-end of the wealth management market. That’s a market with fewer than 3,000 potential clients in the United States. Still, the firm needs only a few clients to earn a living, I guess.

Reduce the threshold to US$1 million in net worth, and the U.S. market expands to more than 5 million households (or about 4.3% of all households). I would venture that the majority of these millionaire households have done no appropriate estate planning, asset protection, or investment diversification. One big reason for this is simple US$1 million isn’t what it used to be. That’s why most financial advisors and estate planners go after the bigger fish.

Meaning the smaller fish are left to figure out their asset protection and diversification plans on their own.

I spoke this week with a woman interested in attending my Wealth Retreat in June. After speaking with our conference team to confirm all the details, she wanted to run the information by her financial advisor. Of course, the financial advisor advised against attending. If I had to bet, I’d say that the guy dissuaded her for one of three reason the financial advisor has no clue about offshore diversification and doesn’t want to look ignorant in front of his client so simply says it’s a bad idea; the financial advisor thinks “going offshore” is illegal; the financial advisor doesn’t want anyone else horning in on the fees he’s generating from the client.

Any financial advisor to a family with a net worth of more than US$2 million who doesn’t suggest that that family diversify their investments and their estate offshore in some way is doing a disservice to that client.

And the client that lets a single financial advisor direct all of his or her activities is, likewise, doing him- (or her-) self a serious disservice.

Looking For The Right Financial Advisor

Years ago I helped a friend whose husband had recently passed away interview financial advisors. She had inherited a substantial amount of money from her husband’s estate, and, while those funds didn’t put her in the mega-millionaires club, they were enough that they needed paying attention to.

Each advisor had his own story and plan for what to do with this woman’s money. After interviewing a half-dozen or so, a pattern emerged. Each financial advisor we met with had a formula he’d adopted…similar to an investment strategy employed by a mutual fund. Every client of the advisor had the same percentages of his or her net worth invested in the same investments. It was one-size-fits-all management.

Which, of course, is easy on the financial advisor. He doesn’t have to think too hard or too often. However, for the client, it hardly seems worth the fees to me. You’re not being advised in this situation; you’re simply being rolled into the same investments as every other client under management.

To be fair, not all financial advisors work this way, but the majority that I’ve known over the years do. In the case of my friend years ago, we eventually found an advisor who was willing to work with the investment strategy and plan that her late husband had established and, at the same time, to work to re-diversify the portfolio in a way that made sense for my friend’s long-term goals.

Each person’s situation is different. Some people need asset protection. Others need better investment diversification. Others need estate planning. However, in today’s world, all investors need some kind of offshore component. In today’s world, if you aren’t diversified offshore, you aren’t diversified.

On the other hand, simply moving assets offshore isn’t necessarily diversification. One financial advisor I know tells his clients, all of them, that they need to be at least 50% in gold. I don’t buy that either. Holding 50% of your assets in any single investment isn’t diversification…and considering that gold is a store of wealth rather than an investment, keeping 50% of your money in the yellow metal and paying storage fees for the privilege seems counter intuitive to me.

What Should You Be Invested In?

I couldn’t tell you, of course, not specifically. I do know, though, that, if you have US$10, US$20, or US$100 million, you’ll have no trouble finding advisors to help you figure an answer to that question.

If you have more than US$1 million but less than US$10 million, however, then your challenge is greater. As a “middle-class millionaire,” as I’ve come to think of it, you must largely rely on yourself to make sure to figure out what to do with whatever you’ve got.

It is with this investor in mind that I’m gathering a dozen of the people I turn to personally for offshore information and advice. These advisors will be coming to Panama in June to participate in a unique event designed specifically for the middle-class millionaire. Of course, these advisors could help anyone, including those with higher net worth, but I believe it’s the middle-class millionaire who will benefit the most from speaking with the program I’ve put together.

In Panama for this special retreat, we’ll have attorneys, bankers, tax advisors, and residency/citizenship consultants…all working with the individual participants to create a personalized offshore plan, the antithesis to the cookie-cutter advice you get from so many financial advisors.

Global diversification isn’t a formula. It’s not a question on the CFP exam. It’s something that needs to be considered individual by individual.

Lief Simon