It is abundantly clear that most of us have little understanding of how the coronavirus will impact our financial lives (let alone our actual lives and those of our family and friends). How far will the market drop? When will it recover? How many jobs will be furloughed or lost? Which industries will suffer significant and long-lasting downturns? What permanent changes will be embedded within the global and local landscape? Will people stop going to public or private events or even restaurants? What of the airline, cruise and hotel industries? How long will it take for our economy to recover, and in a time of trillions of dollars of debt, where and how will the U.S. government get the necessary capital to operate, let alone meet its existing debt obligations without initiating inflationary measures? These are just a tiny fraction of the questions permeating the minds of wealth distributors on Wall Street.
We just don’t know what we don’t know.
It is precisely because we cannot predict what will happen that we need to focus our financial advisors to see through our lens, helping clients protect their wealth. Market risk in the time of coronavirus is unknown.
Today’s financial modeling must be viewed within the dimensions of a new calculous. To avoid calamity, we need to be unafraid to release our grasp of the familiar in exchange for adaptive, thoughtful and well-reasoned ideas.
To that end there are several powerful and proven ways that clients with means can safeguard their wealth in 2020—by statutorily reducing litigation exposure from the recession and by deeply reducing taxes on their taxable income – including both investment income and earnings from privately held business interests (corporations, LLC’s, partnerships, options, contracts, and other legal structures which derive revenues).
Cost savings, including tax reduction, is one of the few common-sense solutions that nearly every wealth holder can and must put into action today.
There are many views on what types of planning work best. While some advocate for maximizing qualified plans and IRAs, others are rightly concerned that these government-regulated programs do not offer the capacity for substantial wealth to be transferred pretax. Worse still, they are the first and easiest assets for the government to confiscate if it needs additional tax revenue. Who amongst us believes the present tax rates on affluent Americans will actually drop when we retire? And when does it ever make sense to defer tax today into a higher bracket into the future, particularly when that bracket is unknown, unlimited, and will be determined by politicians who may not yet be elected in office? This is an unacceptable gamble, and one that, even under the best conditions, affords only modest benefit.
It is not uncommon for clients to save 6 to 8 figures in unnecessary tax each year through this type of planning, net of all fees, and better protect themselves and their families from a variety of risks.
Clients with more meaningful levels of income and affluence and access to today’s best advisors are looking elsewhere. One key opportunity is a series of advanced and highly customized private placement structures. Clients with means (including many well-known names on Wall Street and in the technology space) have been able to shift a meaningful portion of their current business interests, including operating companies, unicorn investments, real estate and intellectual property rights into structures that are notably more tax efficient and also provide higher levels of protection. It is not uncommon for clients to save 6 to 8 figures in unnecessary tax each year through this type of planning, net of all fees, and better protect themselves and their families from a variety of risks.
Whatever the methodology, what’s most important for wealth holders is to work with an advisor with the requisite knowledge, acumen and experience to help them properly analyze the opportunities and take action. In other words, C-Suite leaders need a special brand of advisors who can lead them through these troubled times.
Relying on market returns will not protect your wealth today. And it’s not the 20% to 30% downdrafts in the market that will cost you your future. It’s the ongoing, ever-present loss of 40% to 55% of your earned wealth and investment earnings through tax confiscation and litigation that is the wolf at the door. And unlike broad market returns in which none of us has any control over, we often can control our tax exposure, to some meaningful degree, if we have the right advisors aligned with the proper planning tools.
In this crisis, as with those that have come before and those that have yet to come, it is up to each of us as leaders of our businesses and of our families to seek out those advisors with a proven record who can help us take meaningful actions in order to protect our wealth. We can’t shift this responsibility back to financial advisors, who for the most part, will never personally have the level of wealth and influence that they so earnestly wish to advise upon. In today’s world, inside the box thinking from a wealth advisor can leave clients holding an empty box.
Seize the day and protect your family and the families of your employees while you can. Act proactively, seeking fresh ideas that add value regardless of market conditions. As with life’s other lessons, you don’t want to learn this one the hard way.